How to Reform Real Estate Contracts . . . With Good Reason

Real estate buyers and sellers, investors and owners, and landlords and tenants often find themselves in a real estate situation that’s not working out. Sometimes a market crash or hurricane has left the parties looking for ways to adjust their agreement. Sometimes the language in the contract does not match the initial understanding. Sometimes a good deal under a good contract have gone sour with changing circumstances. In these cases, reformation may be the right option to reform a real estate contract that has become unreasonable.

Bernhard Law FirmThere are several ways to reform real estate contracts that are unreasonable. This article focuses on fixes for unreasonable restraints on alienability (i.e. unfair limits on sale) and mistakes. If you have questions on reformation of real estate contracts, please contact Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, abernhard@bernhardlawfirm.com

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Reforming a Real Estate Contract to Remove Unreasonable Restrains on Alienability

Rights of first refusal, options to purchase, and other real estate covenants impacting a pending sale can be very frustrating. Often, a seller feels like their deal is being taken over by a third party. Worse, the buyer feels like their hard-fought purchase is being stolen. Many of these options are enforceable. However, some may place an unreasonable limit in the transfer of real estate.

Under Florida law, a contractual provision purporting to give the right to refuse a property sale, where the refusal right is for an unlimited period and for a fixed purchase price, is invalid, unenforceable, and void as an unreasonable restraint against alienation. Iglehart v. Phillips, 383 So. 2d 610, 616 (Fla. 1980) (right of refusal for unlimited period and for fixed purchase price is invalid and unenforceable as an unreasonable restraint on alienation); Peavey v. Reynolds, 946 So. 2d 1125, 1127 (Fla. 5th DCA 2006) (holding lease that gave tenant right to renew every 2 years at a fixed rate for an indefinite period was an unreasonable restraint on alienation); Sanders v. Ball, 781 So. 2d 527, 530–31 (Fla. 5th DCA 2001) (“the [unlimited] option is void as an unreasonable restraint on alienation under Florida law.”); Camino Gardens Ass’n, Inc. v. McKim, 612 So. 2d 636, 642 (Fla. 4th DCA 1993) (covenant requiring sale on fixed price rather than market value was void as unreasonable restraint on alienation); Brine v. Fertitta, 537 So. 2d 113, 114 (Fla. 2d DCA 1988) (holding option for sale of real property was void as unreasonable restraint on alienation where for an indefinite period on fixed price not adjustable for changes in market value of property); Krez v. Sun Bank/So. Fla., N.A., 608 So. 2d 892, 893 (Fla. 4th DCA 1992) (holding right of refusal for unlimited period and for a fixed purchase price was invalid and unenforceable).

Thus, for example, a person can seek to void a real estate option contract or provision that allows sale refusal at a certain price point or date without allowances for market change, as it is an invalid and unenforceable restraint against alienation. Id. Florida law requires voiding these unreasonable restraints on alienation, but equity also favors removing these clauses. Thus, where market conditions, weather, or other circumstances require, one may seek to invalidate these clauses or contracts as unreasonable restraints on alienability.

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Reforming a Real Estate Contract to Correct Mistakes

Mistakes in real estate contracts can throw a great deal out the window. Sometimes these mistakes are plain on their face, but go unnoticed. Other mistakes come out of provisions that look right until the circumstances change, creating an ambiguity or unworkable situation. Some of these mistakes may be reformed.

Under Florida law, persons may be entitled to reform a real estate contract, including by striking clauses preventing their use of the property, where the contract or its clauses do not fully and accurately express the agreement and intention of the parties in the use or sale of the land in question. Heisler v. Fla. Mortg. Title & Bonding Co., 142 So. 242, 247 (Fla. 1932) (holding landowner entitled to reformation of covenant on land use where it did not accurately express the intention of the parties in the purchase and sale of the land); Antonelli v. Smith, 556 So. 2d 1132, 1133 (Fla. 3d DCA 1989) (holding reformation was available after plaintiff changed position in reliance on voluntary transfer).

A court may also reform a contract where there is a unilateral mistake on the part of one party and inequitable conduct by the other, so that the writing can accurately reflect a fair agreement. Kolski ex rel. Kolski v. Kolski, 731 So. 2d 169, 172–73 (Fla. 3d DCA 1999) (holding plaintiff entitled to reform unilateral mistake in payment term, aggravated by defendant’s inequitable conduct); Am. Fed. of State, Cnty. v. Miami-Dade Cnty. Public Schools, 95 So. 3d 388, 392(Fla. 3d DCA 2012) (holding contract could be reformed to restore the parties’ intent).

Thus, for example, if there is an ambiguity in a lease or purchase contract that allows a party to prevent sale regardless of market price fluctuations, duration, or cost, into perpetuity, and this was not the intent of the parties in this agreement, that contract may be reformed or the clauses voided as a mistake.

Again, there are several ways to reform real estate contracts that are unreasonable. This article focuses on fixes for unreasonable restraints on alienability (i.e. unfair limits on sale) and mistakes. If you have questions on reformation of real estate contracts, please contact Bernhard Law Firm at www.bernhardlawfirm.com, 786-871-3349, abernhard@bernhardlawfirm.com

Read more on contract abandonment here: https://fraudlawyersflorida.com/2015/02/22/contract-abandonment-may-automatically-rescind-an-agreement-to-arbitrate/

Read more on contract waiver, release, and abandonment here: https://fraudlawyersflorida.com/2017/10/11/waiver-release-and-abandonment-whats-the-difference-in-florida-law/

Read more on contract reformation here: https://fraudlawyersflorida.com/2017/09/29/how-to-reform-real-estate-contracts-with-good-reason/

Read more on demanding contract performance here: https://fraudlawyersflorida.com/2016/10/26/can-a-real-estate-seller-demand-performance-from-a-defaulting-buyer-florida-law-says-yes/

Bernhard Law Firm

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