A commercial property owner was entitled to keep a potential buyer’s deposit after the buyer failed to close on the property within the timeframe allowed by the parties’ contract, even though the parties’ contract also gave it the option of demanding specific performance and in spite of the fact that the seller later sold the property for $200,000 higher than the contract price. The parties’ agreement gave the seller the right to claim the deposit as damages, so the seller was within its rights to choose that option and claim the money, according to a 3d District Court of Appeal decision.
Early in 2012, San Francisco Distribution Center LLC contracted to buy a commercial property in Miami Beach from Stonemason LP. The parties agreed to a purchase price of $5.25 million. The agreement called for the buyer to place $400,000 in escrow as a deposit. If the buyer breached, seller had its choice of keeping the deposit as damages or forcing the buyer to go through with the sale through the legal remedy of specific performance
The buyer failed to close within the stated 45 day window set out in the contract, and the seller chose to take the deposit as liquidated damages. Upon discovering that the bank had already returned the money to the buyer, the seller sued. The trial court sided with Stonemason and awarded it the full $400,000 as damages, plus interest and attorneys’ fees.
The buyer appealed, arguing that the liquidated damages clause was unenforceable because the contract also raised the option of specific performance and was unconscionable because Stonemason later sold the building for a price $200,000 greater than the $5.25 million amount set out in this contract.
The appeal did not succeed. Clauses allowing a seller to demand specific performance are an option (on the part of the seller) to demand an equitable remedy (of forcing the buyer to go through with the purchase) and are not the same thing as a claim for damages. Had the specific performance option been the legal equivalent of the liquidated damages option, then the seller might have had an enforceability problem. But they were not so the liquidated damages clause was entirely enforceable.
Additionally, the ruling makes clear that, just because a seller later sells a property for a greater price to a subsequent buyer, the breaching buyer is not automatically let off the hook for its conduct. The liquidated damages clause gave the seller the choice to claim the $400,000 as the price of the damages it suffered due to the buyer’s failure to close. The clause was not a penalty provision. The seller’s right to pocket the full deposit accrued the moment the buyer breached, and continued to exist regardless of what ultimately became of the property.
Parties to a commercial real estate deal negotiate for the terms of remedies in the event of a breach hoping never to have to exercise those rights. In reality, though, breaches happen and, when they do, it is important to protect yourself by obtaining reliable legal advice. For skilled representation in your commercial real estate transaction or dispute, talk to the Florida real estate attorneys at Stok Folk & Kon. Our attorneys are ready to help you protect all of your rights and remedies secured in your contract.
Contact us online or by calling (954) 237-1777 to schedule your consultation.
More blog posts:
Contract Addendum Establishes Agreement as Unambiguous, Defeats Need for Extrinsic Evidence in Real Estate Dispute, Florida Business Lawyers Blog, Dec. 5, 2014
Landlord Free to Refuse Lease Extension for Any Reason, Florida Appeals Court Says, Florida Business Lawyers Blog, Nov. 5, 2014