Residential & Commercial Transactions
Attorneys are the only professionals involved in residential or commercial real estate transactions who represent you and are ethically bound to act in your interest. Your real estate attorney will:
- Issue letter of intent
- Review the contract
- Guide you through the process
- Explain the legal impact of documents that you will sign
- Provide legal advice
- Explain the terms of the mortgage loan
- Ensure the lender delivers the terms that meet your requirements
- Examine the title of the property and explain any issues that are found
- Explain your obligations as a buyer or a seller and what you are buying or selling
- Conduct the closing
- Issue title insurance
- Represent the buyer or seller if the other party fails to meet their obligations in a separate legal action involving the attorney and the client
- Defaults and Remedies
Letter of Intent
A Letter of Intent (LOI) is a non-binding proposal often used in commercial real estate transactions, typically submitted by a potential buyer or their legal counsel to the property owner. It outlines the key terms and conditions of a proposed commercial sale.
While an LOI itself is generally not binding, certain provisions—such as exclusivity and confidentiality or “intent to be bound”—can become binding if the parties express that intention.
The terms of a LOI may differ across various transactions, and disputes often emerge regarding its binding character. The intentions of both parties and how clearly the LOI is written really have a big impact on this situation.
Cases Referenced:
- 1. The intent of the parties governs the agreement's terms, regardless of detail (White Construction Co., Inc. v. Martin Marietta Materials, Inc., 633 F. Supp. 2d 1302 (M.D. Fla. 2009)).
- 2. A Letter of Intent (LOI) can create a binding obligation to negotiate in good faith (Venture Associates Corp. v. Zenith Data Systems Corp., 96 F.3d 275 (7th Cir. 1996)).
Contract
A buyer and seller must enter into a written agreement called a “purchase contract,” which typically begins with the buyer’s offer. An attorney can negotiate terms such as the sales price, financing, earnest money, property condition, contingencies, and closing details.
The FR/BAR AS IS Contract is used when the seller does not make any warranties about the property’s condition. However, this does not relieve the seller of the duty to disclose known adverse conditions that materially affect the property’s value (see Johnson v. Davis, 420 So. 2d 685 [Fla. 1986]).
The seller must maintain the property, including the lawn and pool, in the condition existing on the Effective Date.
Due Diligence
Due diligence is an investigation intended to uncover & mitigate risk on behalf of the buyer. Due diligence is an investigation aimed at identifying and reducing risks for the buyer.
It typically involves hiring professionals like surveyors, traffic engineers, and property inspectors, with the buyer’s attorney also playing a key role.
Survey
Surveys help resolve disputes before and after closing and prevent title insurance claims. The Buyer can obtain a survey by the Title Evidence Deadline (see paragraph (9) in the Fr/Bar AS IS contract).
If issues are found, the Buyer must notify the Seller in writing within 5 days. The Seller is obligated to provide any existing survey, if available, within 5 days of the Effective Date.
Inspection
Under the “AS IS” contract, there is no “right” to demand repairs BUT the Buyer can still make demands during the Inspection Period to cancel at his “sole discretion.”
Title Insurance
Title insurance provides protection against claims arising from various defects in the title of a specific parcel of real property, as outlined in the policy.
This coverage is effective as of the policy's issue date. The title policy remains valid for as long as the buyer or his heirs own the property, and it requires only a one-time premium payment.
Closing
Closing typically takes about an hour at the title company. A few days prior, check with your title agent for required items. You’ll need at least your driver’s license and certified funds. After signing the documents and having your loan funded and recorded, you’ll receive the keys to your new home!
If the Buyer is satisfied with conditions precedent for a commercial transaction:
- • Structural and soil inspections
- • WDO inspections
- • Environmental inspections
- • Permit review
- • Title review, survey, access
- • Adequacy of utilities
- • Review of leases, rent rolls, estoppels
- • Service contracts and management agreements
- • Service contracts and management agreements
- • Taxes and concomitant liabilities
Then the Buyer will proceed to close the transaction if:
- • Seller not in breach
- • ALTA owner’s title policy insuring the gap
- • Accuracy of representations
- • Fulfillment of all Seller’s obligations
- • No material changes to property (e.g., no release of hazardous materials)
- • All deliverables in fact delivered
- • All contingencies in Buyer’s favor satisfied or waived.
Types of Ownership
It’s important to understand how you will take title to the property. The following are examples of types of ownership in Florida.
1. Fee simple absolute
2. Co-tenancies
- • Estate by entireties (presumption for married couple)
- • Joint tenants with right of survivorship
- • Tenants in common (presumption for co-tenants not married to each other)
- • Life estate with remaindermen
3. Title in a trustee/trust or legal entity. Ex: Corporation, LLC, Partnership
Deeds
- • Warranty deed - preferred for ordinary residential sales.
- • Special Warranty deed – preferred for new construction, and for deeds from personal representatives, trustees, or guardians
- • Quitclaim claim deed – preferred for intra-familial transfers, and transfers to a revocable trust.
Deed restrictions - A deed restriction is a restrictive covenant that runs with the land and restricts the future owners of the property. Three conditions must exist to create a valid and enforceable covenant running with the land:
1. The existence of a covenant that touches and concerns the land;
2. An intention that the covenant run with the land, and;
3. Notice of the restriction on the part of the party against whom enforcement is sought. See Winn-Dixie Stores, Inc. v. Dolgencorp, Inc., 964 So. 2d 261 (Fla. 4th DCA 2007). The deed restriction may be put in place by a multitude of parties, including former owners, subdivision developers, builders, governmental bodies, and homeowner’s associations.
1031 Exchange
The I.R.S. provides that a taxpayer may sell the property and defer payment of any capital gains tax if that taxpayer uses the proceeds to acquire “like kind” replacement property.
Section 1031 of the Code explains the tax treatment of an exchange of “like kind” property. Treasury Regulations promulgated by the IRS determine what qualifies as a tax deferment.
Exchange period:
- • Taxpayer has 45 days to identify replacement property (in a straight exchange) or relinquished property (in a reverse exchange)
- • 180 day completion deadline for the second half of the exchange can be adversely affected by title clearance and closing issues.
FIRPTA
Foreign Investment in Real Property Tax Act (“FIRPTA”), Section 1445 of the Internal Revenue Code:
When U.S. real property is sold by a foreign seller—including nonresident aliens, foreign corporations, and U.S. LLCs with foreign members—the buyer must withhold a portion of the sale proceeds and verify the seller's foreign status.
This withholding must be reported using Form 1099-S, with deadlines of February 28 for manual filing and March 31 for electronic filing. For questions about tax legislation, consult a licensed tax professional.
Defaults & Remedies
Buyer defaults:
- • If the Buyer defaults, the Seller may elect to retain the Deposit (paid and agreed to be paid) or
- • The proceeds in equity to enforce a contract (specific performance).
Seller defaults:
- • Buyer may elect return of Deposit and
- • May also sue for damages, or
- • Proceed in equity to enforce the contract (specific performance).