MORE ON PRECONSTRUCTION AGREEMENTS AND DEPOSITS (an update to 7/16/11 post)

 

imagesCraigside, LLC v. GDC View, LLC, 36 Fla. L. Weekly d1577e (Fla. 1st DCA 2011) is another case dealing with a buyer of a preconstruction condominium unit trying to recover its deposit from a developer/seller.  In this case, the preconstruction contract was entered on September 2, 2004.  The buyer tendered an initial deposit and then paid the balance of the purchase price  on a later date.  The purchase price of the unit was paid prior to the commencement of construction on the unit.  The contract required the developer  “to complete the condominium unit…within two (2) years of the date of this Agreement but in no event later than May 1, 2007.”  The contract allowed for extensions only for “delays caused by events which would support a defense based on impossibility of performance for reasons beyond [the seller’s] control.

 

The seller sent the buyer a letter advising that closing was anticipated for May 1, 2007.  In response, the buyer sent the seller a letter on April 16, 2007 (notably, more than two years from the date of the contract)  notifying the seller that the seller failed to complete the condominium unit per the agreement and further demanding a return of the purchase price.   The seller refused to return the initial deposit, although it returned the additional deposit (balance of purchase price).

 

An issue at trial was the number of days the seller was entitled for delays to the completion date of the unit — these days allowed the seller to extend the completion date of the unit.   The trial court granted the seller 253 days of delay, but unfortunately, this case does not discuss the basis for the delays.  An understanding of these delays are critical because these delays allowed the seller to complete the unit more than two years from the date of the preconstruction contract.

 

The First District affirmed the trial court holding that the buyer committed an anticipatory breach of the contract by notifying the seller that it was not going to close on May 1, 2007 and demanding its money back.   The First District explained:

 

“In dealing with anticipatory repudiations the law is clear that a repudiation gives rise to a claim for damages by the nonbreaching party. As stated in Restatement (Second) of Contracts § 253 (1979):

(1) Where an obligor repudiates a duty before he has committed a breach by non-performance and before he has received all of the agreed exchange for it, his repudiation alone gives rise to a claim for damages for total breach.

(2) Where performances are to be exchanged under an exchange of promises, one party’s repudiation of a duty to render performance discharges the other party’s remaining duties to render performance.

Therefore, the nonbreaching party is relieved of its duty to tender performance and has an immediate cause of action against the breaching party.”

 

In other words, because the buyer notified the seller that it was not going to close on the unit, the buyer committed a breach of the contract.  This decision provide crucial because it authorized the seller to keep a substantial initial deposit as liquidated damages associated with the buyer’s refusal to close on the unit.   This case reinforces the position that a buyer seeking to avoid closing on a unit takes a certain degree of risk by not closing (i.e, that risk being a loss of its deposit).   For this reason, it is important that this business decision is made with the input of an attorney to ensure all arguments are preserved and understood.  In this case, the fundamental issue was how many days the seller was given to extend the completion of the unit.  While the case did not discuss this issue in any detail, these days put the buyer in the position that when it notified the seller it was not going to close on the unit, the buyer breached the contract  allowing the seller to retain the deposit and resell the unit to another buyer.

 

For more information on preconstruction contracts and recovering deposits, please see: http://www.floridaconstructionlegalupdates.com/preconstruction-and-purchase-sale-contracts-arguments-to-revoke-the-contract-and-recover-the-deposit/

 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.