(A shorter summary version of this article in Spanish can be found here)
Florida real estate market watchers and condo lawyers have their eyes on a case which is currently on appeal in the Fourth District Court of Appeal in West Palm Beach. The court is expected to clarify the meaning of “material and adverse impact” with respect to whether unforeseen rising insurance and utilities expenses are sufficient for a purchaser to cancel a condo contract, even if the record shows that the buyers could handle paying the increased costs. The lower court dismissed the lawsuit (which was filed against Swerdlow Group’s Marina Grande Riviera Beach), and it is really anyone’s guess whether the appellate court will revive the plaintiffs’ claims.
While we await an opinion in the Swerdlow Group case, it is a good idea to take a step back and get a sense for the meaning of “material and adverse impact” as it is currently defined under Florida law. The terminology itself comes directly from section 718.503(a)(1) of the Florida Statutes, which enables a buyer to void (upon giving proper notice to the developer) a condo contract after “receipt from the developer of any amendment [to the contract] which materially alters or modies the offering in a manner that is adverse to the buyer.” Unfortunately, there is not a whole lot of case law interpreting this language. What case law there is, however, is somewhat illuminating and worth taking a look at.
For example, the Fourth District Court of Appeal held, almost 30 years ago in Barber v. Chalfonte Development Corporation, 369 So. 2d 983 (Fla. 4th DCA 1979), that subsequent amendments to a contract which restricted the buyer’s right to decorate the condo, and shifted some property originally designated for the condo to a recreational lease area, constituted material, adverse changes sufficient to rescind the contract. And in another key opinion from the Third District Court of Appeal, BB Landmark, Inc. v. Haber, 619 So. 2d 448 (Fla. 3d DCA 1993), the court did not hesitate to find a material, adverse alteration of a contract where the developer unilaterally raised the price of extras requested by the buyers from $10,384 to $17,122.
It is always difficult to predict which path a court will take, and especially so when the existing case law is thin, as is true here. In BB Landmark, the court relied on broad dictionary definitions of the words “materiality” and “adverse” to suggest that the real issue is whether the altered terms are unfavorable to the buyer. By that measure, one might expect the Fourth District Court of Appeal to find, in the Swerdlow Group case, that increased insurance and utility costs are almost by definition sufficient for the buyer to rescind. But in Barber, the Court focused not on expense but on the property rights of the buyer. Because the amendments left the buyers holding less in the way of rights (i.e., land and the right to decorate), they were entitled to cancel. It is not clear if the Barber Court would have viewed a mere rise in insurance and utility costs in the same way, provided that the buyers are still receiving the same condo they bargained for. Thus, the Fourth District Court of Appeal might take a more narrow approach in deciding the Swerdlow Group case and hold that “material and adverse” is driven by what the purchased property ultimately looks like from the buyer’s perspective, rather than a sheer tabulation of final versus original costs.
Whatever the outcome, condo buyers and developers alike should pay close attention, because the Swerdlow Group decision will likely shape condominium jurisprudence in Florida for years to come. And anyone with questions about whether there are grounds to cancel a given condo contract, of course, should consult with a knowledgeable condo litigation attorney, as the answer will depend upon the language of the contract and the factual circumstances of the development in question.
This article does not constitute legal advice or the formation of an attorney-client relationship, and is not for re-publication without express permission of the author.
Mr. Beck has a law degree from Harvard Law School, and practices law in the courts of South Florida. His law firm, Beck & Lee Business Trial Lawyers in Miami, is dedicated to the practice of business and real estate litigation. A significant portion of Mr. Beck’s practice is devoted to issues arising under condominium and other real estate purchase agreements. He can be reached at 305-789-0072 or firstname.lastname@example.org