One question I get frequently from individuals who have signed a purchase agreement for residential real estate in Florida, such as a condominium, is whether they risk being faced with a lawsuit from the developer in the event they don’t (or can’t) show up for closing. Generally speaking, the answer to this question is not necessarily a simple “yes” or “no,” but there are some key principles of Florida law to bear in mind as a way of anticipating what might happen if a buyer does not close:
1. Many purchase agreements provide that the seller is entitled to a specified amount of liquidated damages as its sole and exclusive remedy should the buyer default, i.e., fail to close. The available liquidated damages are usually established as a percentage or the entire amount of deposits which the buyer paid. Where the contract provides an exclusive liquidated damages clause, the developer is precluded from receiving specific performance of the contract, or any other remedy for that matter. See Hatcher v. Panama City Nursing Center, Inc., 461 So. 2d 288 (Fla. 1st DCA 1985).
2. It is important to bear in mind that specific performance — which means that a party is compelled by court order to go through with the terms of a contract — is itself an extraordinary remedy. As one court put it, “specific performance of a contract for sale of land will be decreed only if the contract is capable of being mutually enforced with results that are just and practical, the moving party is not guilty of laches and there is no countervailing equity against him, and there is no adequate remedy at law available to him.” Hembree v. Bradley, 528 So. 2d 116, 117-18 (Fla. 1st DCA 1988 ) (emphasis added). Accordingly, if the seller does in fact have an adequate remedy at law under the contract, then specific performance should not be available. For example, if the contract permits the seller to collect liquidated damages in the event of the buyer’s breach, then there are solid grounds for concluding that specific performance is not available, because the liquidated damages provision provides an “adequate remedy at law” to the seller — even if the liquidated damages clause is not “exclusive,” as described above in paragraph 1.
3. Buyers may have an additional defense to specific performance, especially given the current and continuing state of the housing market where mortgage financing could be very difficult or even impossible to obtain. (See, for example, the “blacklists” established by some banks for Miami condominium projects for which the banks are unwilling to extend financing.) Castigliano v. O’Connor, 911 So. 2d 145 (Fla. 3d DCA 2005) dealt with a somewhat tangled set of facts involving a condo purchase agreement, and buyers who were seeking specific performance from the seller, i.e., to require the seller to go through with closing. The court noted that, “[a]s specific performance is an equitable remedy, the purchasers should be prepared to show that it will not be unjust or oppressive on the seller to have the contract enforced,” and found that the standard was not met because “the purchasers have failed to show that a decree of specific performance would not require the seller to make extraordinary efforts or expenditures to close on the sales contract.” By analogy, the same reasoning would seem to preclude a developer from obtaining specific performance against a buyer who is no longer able to obtain a mortgage for a real estate purchase and would thus be forced to bring cash by alternative means to closing. And this reasoning would hold true even in circumstances where the contract left open, or explicitly provided for, the remedy of specific performance.
Under the foregoing principles of Florida law, an attempt by a developer to sue a purchaser in an effort to obtain remedies beyond the contract’s liquidated damages provision will ordinarily be on shaky ground, especially if the developer is seeking specific performance. This does not mean, however, that a developer may not use the threat of seeking specific performance as a tactic to coerce the buyer to close. But whether such a threat is credible and could ultimately carry the day in court depends on the facts and law.
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