Introduction And Overview
The contract which is referred to in this article, and set forth in its entirety elsewhere in this publication, is the Residential Sale and Purchase Contract (version FAR 9), ("Contract") which generally also contains certain Paragraphs from the Residential Sale and Purchase Contract: Comprehensive Addendum (version FAR JO). The Residential Sale and Purchase Contract and Residential Sale and Purchase Contract: Comprehensive Addendum may sometime be referred to individually or collectively as the Contract. The Contract and all rights associated with the Contract are the property of the Florida Realtors® formerly known as the Florida Association of REALTORS® The Contract is util ized in residential transactions throughout the entire State of Florida.
In a real estate transaction the most important single document is the contract for sale and purchase, because it sets forth all the terms and conditions and defines the obligations and responsibilities of the parties to the Contract. Therefore, utilizing the Contract, assuming that all blanks have been properly filled out and completed, will help assure that the transaction contemplated will occur in the manner desired by the parties.
This article will outline the salient provisions of the Contract and matters that should be taken into consideration when preparing the Contract. Limitation i n the length of this article do not allow for a discussion of all areas. The author believes that the Contract constitutes a comprehensive form that has taken into consideration almost all of the factors that should be addressed in connection with the sale and purchase of real property in the State of Florida. It is well suited for the purchase by U.S. citizens and residents, as well as a foreign investor. Notwithstanding this fact, particularly when dealing with a foreign investor, there may be issues involved that require additional considerations, and therefore, it is usually wise to consult with an attorney experienced in this area before the Contract is finalized. In instances where the parties feel compelled to execute a contract without prior attorney review, a provision may be inserted into the Contract allowing for a short period i n which the parties attorneys may review the Contract and approve it subsequent to its execution.
There are some professionals that believe that an individually drafted contract is necessary when dealing with foreign investors. The author does not agree with this assumption and believes that the Residential Sale and Purchase Contract and Comprehensive Addendum are sufficient (sometimes with minor revisions) to meet the needs of foreign investors, as long as the considerations set forth in this article are completed prior to final izing the Contract.
Wherever possible, the author will attempt to refer to specific Paragraphs and line numbering in the Contract. Also note, that any sentences or paragraphs which are italicized and contained in quotes in the article, indicate that they are taken directly from the Contract, unless they are defined speci fically in the article.
Residential Sale and Purchase Contract
FAR-9 04/07 ©2007 Florida Association of REALTORS® All Rights Reserved
Paragraph I.
Sale and Pu rchase:
Line 2, ("Buyer"): The Buyer may be an individual, corporation, limited l iability company, trust or another form of entity. In many instances, the Contract is executed before the Buyer has had sufficient time to determine if the Property should be purchased in the name of an individual or an entity. If this decision has not been made when the offer if submitted, provision should be made in the Contract, allowing the Buyer to assign the Contract. Many times the Buyer is listed as John Smith and/or assigns: however, this language is not sufficient to provide for assignability since Paragraph 14 requires the Seller=s written consent for an assignment to be effective. Paragraph 14 can be deleted or in the alternative, language may be inserted i n ( 1) Paragraph 21, under Additional Terms, (2) an individually drafted Addendum providing for assignability, or (3) in Paragraph "U" of the Comprehensive Addendum, which will be discussed more fully, later.
The entity in which Buyer takes title is extremely important when a foreigner is purchasing United States real estate, due to the various factors that should be considered, including but not limited to: ( 1) Foreign or United States Income tax considerations, (2) Foreign or U nited States estate and gift tax considerations, (3) a desire for anonymity, (4) objectives in directing property ownership at the death of the Buyer or a principal of the Buyer if Buyer is an entity.
Line(s) 8 to 11, Improvements and Attached Items ("Personal Property"): The contractual language automatically includes all built-in furnishings and major appliances. In many instances the parties disagree, at closing, as to what items of Personal Property are included in the sale. Frequently, there are issues over heirloom chandeliers, statues, audio/visual equipment, multiple dryers, washers. and refrigerator and freezer combinations. It is important to be specific in listing which items are included, and if, any items are to be excluded, to list those on line 14, which provides for the exclusion of certain items which are set forth.
Paragraph 2. Purchase Price:
The Purchase Price is payable in U.S. currency; therefore, it is important to understand that any fluctuation in rates to convert from foreign to U.S. currency are borne by the Buyer who is the party responsible for paying the Purchase Price.
The Purchase Price is normally payable in the form of an initial deposit, an additional deposit and the balance at closing, assuming that there is no financing involved. lt is always recommended, when setting forth the deposits, to utilize a percentage of the Purchase Price rather than a fixed dollar amount. The reason for this is that during the negotiation of the Contract, the Purchase Price in the offer and subsequent counter offers may change. It is inconvenient to continually change the deposit amounts during negotiations, and often errors are made in computing the deposit amounts which may cause disputes during the pendency of the transaction. When percentages are used, the amounts for the contract deposits automatically change since they are based on a percentage of the Purchase Price.
Paragraph 2(c): Total Financing: In the event the Buyer is obtaining a loan to finance a portion of the Purchase Price, the amount of the loan is entered on line 28. Percentages should be used to determine the amount of the loan, as opposed to a fixed amount. In underwriting loans, Lenders take into consideration the ratio of the loan to the Purchase Price. By utilizing a percentage, the ratio desired will remain constant without having to reinsert a new loan amount.
While the general rule above is to utilize percentages instead of fixed amounts for deposits and amounts of financi ng, in some instances there may be exceptions to that rule.
Paragraph 2(e): Balance to Close: Rather than attempting to compute the amount, which again, may change during the negotiations, it is preferable to write in the word ABalance@ on line 30.
his Paragraph provides two options:
Paragraph 3. Financing
Line 31: 3(a) provides that the Buyer will pay cash for the Property with no financing contingency;
Line 32: 3(b) provides that the Buyer will apply for financing.
It is important to understand that when a Buyer indicates that he will pay cash for the Property, he is not prohibited from seeking financing. In this instance, if the Buyer does not obtain financing, the Buyer is still required to close on the transaction. In the event the Buyer fails to close, the Buyer will be in default under the terms of the Contract.
If the Buyer will be applying for financing, it is important that the Buyer become familiarized with the financing process; particularly if the Buyer has no previous experience in obtaining financing for the purchase of United States real estate. The entire loan process and loan documentation at closing is very di fferent from the process utilized in almost all foreign countries. In general, the paperwork is more vol umi nous, more detailed, and there are various requirements and costs that a foreign investor has not been exposed to outside the U.S. In addition, when a foreign individual or entity seeks financing, the time it takes to apply, be approved and ultimately obtain or not obtain financing is a more cumbersome and lengthy process than for a U.S. resident. For this reason, it is very important that the Buyer understand the process, requirements and time lines provided for i n the Contract and by the lender. It is advisable for the Buyer to speak with a competent banker or mortgage broker to familiarize himself with this process.
The Contract provides a blank space which should be completed which sets forth the amount of days the Buyer has to apply for financing. There is an additional blank space that sets forth the outside time when the Buyer must obtain a commitment from the lender ("Commitment Period") and the time when the Buyer must receive an approval for the financing ("Commitment"). The time allowed to apply and receive the Commitment should usually be extended to provide sufficient time to allow a foreign investor to meet the deadline. If the days have not been filled in the blank provided the Contract provides that the Buyer has five (5) days to apply for financing and thirty (30) days to obtain the Commitment. I n the current financing climate these periods should be extended. Please note that when computing days under the Contract, all days are computed in what is defined as a business day, which is considered to be "every calendar day except Saturday, Sunday and national legal holidays. If any deadline falls on a Saturday, Sunday or national legal holiday. performance will be due the next business day". If the Buyer fails to
obtain financing during the Commitment Period, Buyer must notify the Seller of Buyer=s inability to obtain a Commitment within the Commitment Period. Lines 41 and 42 provide that failure to furnish this notification will result in a forfeiture of Buyer=s deposits. Deposits are defined in the Contract on line 295 as Aall deposits paid and agreed to be paid@. Therefore, if the Buyer defaults in this regard he will be subject to forfeiture of deposits he has already paid and any additional deposits to be paid set forth in Paragraph 2 of the Contract.
In addition, it is important to understand: "Once B11yer provides the Commitment to Seller, the financing contingency is waived and Seller will be entitled to retain the deposits if the transaction does not close by the Closing Date unless {I) the Property appraises below the purchase price and either the parties cannot agree on a new purchase price or Buyer elects not to proceed. (2) the property related conditions of the Commitment have not been met (except when such conditions are waived by other provisions of this Contract), or (3) another provision of this Contract provides for cancellation".
Paragraph 4. Closing Date; Occupancy
There is a blank on line 49 to insert the number of days from the Effective Date or a specific date that will be the Closing Date. It is recommended to state a specific number of days from the Effective Date to determine the
Closing Date. I f a fixed date, such as March l 51
is inserted, it is possible that due to the back and forth process of
offers and counter offers and the fact that the parties may be negotiating in different time zones, the fixed Closing Date could turn out to be a date which does not give sufficient time to complete other requirements such as those related to financing, Inspection Periods, etc.
Line 49 provides, Athe Closing Date shall prevail over all other time periods including but limited to inspection andfinancing periods@.
Paragraph 5. Closing Procedure; Costs
Line 56 provides: "Closing will take place in the county where the Property is located and may be conducted by mail or electronic means ".
In many instances, closings are conducted electronically, without the need for a physical closing, especially when the Seller or Buyer will be out of the country. In the absence of financing, an individual, or the attorney representing the Buyer, generally can execute all required documents on behalf of the Buyer with the use of a Power of Attorney or an entity resolution. There may be a need to have some documentation executed by the Buyer, but this can usually be completed in advance to avoid the Buyer having to attend the Closing (assuming Buyer does not wish to attend). The same can be accomplished for the Seller; however, there are some documents that custom requires the Seller to execute in front of witnesses and a notary public, and therefore, these must be provided for well in advance if the Seller will not be attending the closing. This is because execution of these documents outside of the United States will require notarization which generally takes place at the U.S. Consulate, in the country where the Seller will be signing. Notaries in foreign countries generally have greater authority than the notaries in the U.S and this should be explained to a foreign investor, since they may think they can utilize the services of their notaries, which is not the case.
The Seller and Buyer costs are set forth in this Paragraph. In general, since most transactions are "as is" transactions (which will be dealt with in greater detail subsequently) most of the costs and services will be arranged through the Buyer's or Seller's attorney, respectively. It is usual and customary in most counties for the Buyers' attorney to represent the Buyer, and issue the owner and lender title insurance and to provide for, and obtain, a property survey and other necessary items. Generally inspections of the Property will be handled and facilitated through the REALTOR®, and casualty and liability insurance will be handled by an insurance agent, who will probably be recommended, if desired, by the REALTOR® or attorney.
Paragraph S(c) Title Evidence and Insurance: Title insurance is a form of insurance which insures that the owner of the Property has insurable and marketable title to the Property. It is recommended that a Buyer obtain a title insurance policy to guarantee that the Buyer acquires marketable and insurable title to the Property. The process of issuing the title insurance is generally accomplished by working through a recognized national title insurer ("Title Insurer"). It is normal for the attorney representing the Buyer to function as the agent issuing the title insurance for the Title Insurer. It is the responsibility of the Seller to furnish certain evidence to the Buyers' attorney to enable the Buyers' attorney to issue the title insurance. The process involves the title agent issuing a title insurance commitment, which sets forth the requirements the Seller must meet in either clearing certai n issues and/or furnishing the closing documentation required to insure that the Buyer acquires marketable and insurable title. The responsibility as to whether Buyer or Seller pays for the title insurance policy is based on the usual and customary procedures followed in the state and county where the Property is located. In general, the Buyer pays the premium for the title insurance policy in Miami-Dade County and in most other counties; however, in some counties, such as Palm Beach, and some counties in northern Florida and the Florida Keys, it is usual and customary for the Seller to pay for the title insurance. In some counties, the party responsible for paying the title insurance premiums may be negotiated. The attorneys' involved in the transaction will be familiar with the usual and customary procedures; however, in general when in Miami-Dade County, and other counties which follow the Miami-Dade County format, lines 78 and 80, Buyer should be checked. In Palm Beach and other similar counties, line 81, Seller should be checked.
Paragraph S(d) Prorations: This Paragraph provides for the proration and allocation between Buyer and Seller of certain charges; one of the most common being, the proration of real estate taxes. In Florida, real estate taxes are paid for in arrears. Real estate taxes, are due for the period of January I through December 31st of each year; however, the real estate tax bill for the current year is not due until November of the current year and may be paid, without penalty, through and including March of the following year. Practically speaking, the real estate taxes will not be paid, if closing takes place prior to November of the current year. The Seller is responsible for the portion of the real estate taxes accrued from January 1 through the date of closing; and therefore, since the real estate taxes have not been paid for the current year, the Buyer will receive a credit from the Seller. If the real estate taxes have been paid for the current year, the Seller will receive a credit from the Buyer, for the real estate taxes paid in advance. In the event that the tax bill has not been issued for the current year prior to the closing, the parties will utilize the real estate taxes from the previous year, for purposes of proration. In the event the actual real estate tax bill when issued is either higher or lower than last year's real estate taxes, which were utilized in determining the prorations on the Closing Statement, then the parties at the demand of either will re-prorate and any difference owed will be paid from one to the other. There are certain other intricacies involved in connection with prorating of real estate taxes that arise when the Property is new construction. Special attention is also required in a nev · development when there is one tax bill for the entire development, without yet being divided by the county into a new folio number, which results in an individual bi l l. The attorney handling the transaction will be prepared to deal with this matter. It is important to note that provisions contained in the Contract do not survive the Closing. This means that once the Closing has occurred, the parties will then rely on the documentation delivered at closing, and the Contract will no longer be applicable. The exception to this rule is where the Contract specifically contains a provision indicating that this provision will survive the Closing. Because the reproration of real estate taxes is a common occurrence, line 95 specifically provides: "thisprovision shall survive closing··.
Paragraph 5(e) Special Assessment by Pu blic Body: Many times, a public body, such as the municipality in which the Property is located, will pass a special assessment upon all property owners in the municipality to pay for certain improvements for the common benefit of all properties i n the m unicipality or area. An example of this would be a special lighting district which requires lighting or other improvements. All property owners who receive the benefit will pay a share of the cost through a special assessment. These special assessments can be paid in full or in installments. Line 99 provides whether the Buyer or Seller should be responsible to pay the installments before and after the closing. Unless the Buyer is aware of the special assessment, and the parties have discussed and come to a decision with respect to same, the Contract will generally be prepared providing that the Seller will pay any installments due after Closing Date.
Paragraph 6. Inspection Periods and Paragraph 8. Maintenance, Inspections and Repair
These Paragraphs primarily deal with inspections of the Property in a transaction where the Seller is responsible to make certain repairs to the Property .if discovered during the Inspection Period. In most real estate transactions in Florida, to avoid haggling and to foster a clean and smooth transaction, the Buyer and Seller usually opt for what is called an ..as is" transaction. This means that after the Buyer has had an opportunity to inspect the Property, the Buyer has the right to either cancel the Contract or to accept the Property in "as is" condition. If the parties agree that the transaction wil l be "as is", the parties will utilize Paragraph H. As Is With Right To Inspect of the Comprehensive Addendum, which is one of the numerous Addenda referred to in Paragraph 20 of the Contract and contained in the Comprehensive Addendum.
Since the "as is" transaction is the most common, the writer will not delve into the intricacies of the inspections and what is/is not the responsibility of the Seller to repair, as set forth in Paragraphs 6 and 8. In the event Paragraphs 6 and 8 are utilized, a competent REALTOR® and/or attorney will be able to advise what needs to be considered.
Whether the transaction is "as is" or not, the number of days allowed to conduct the inspections should be considered in light of the items that need to be inspected, and the size and type of Property involved. Generally, condominiums do not require as much time to inspect as a free standing single family dwelling. If the Buyer does not reside in the United States, and wishes to attend the inspections additional, time should be allowed, as is the case with all other deadlines when dealing with someone who must travel to be available. The inspections are usually conducted by professionals who hold an occupational license to conduct inspections and the REALTOR® and/or attorney will generally be famil iar with competent home inspectors which may be utilized.
Paragraph 7. Real Property Disclosures
The disclosures contained in this Paragraph in connection with radon, flood zone, and coastal construction line may be applicable, depending on the type and location of the Property. If they are, the attorney should discuss these issues with the Buyer, since the ramifications could be significant.
Paragraph 9. Risk of Loss
Because of the possibility of damage to the Property through some form of casualty, (including, but not l imited to damage caused by a hurricane) the Contract provides if the Property is damaged and the Seller can restore the Property by the Closing Date or within forty-five (45) days after the Closing Date to substantially the same condition it was on the Effective Date, then the Seller will be required to do so. I f the restoration can be completed within the forty-five (45) days, then the Closing Date may be extended in order to close the transaction. If the restoration cannot be completed in time, then the Buyer has the option of cancelling the Contract or the Buyer may accept the Property in"as is" condition. If the Buyer elects to go forward and accept the Property in ••as is" condition, the Contract provides that the Buyer is entitled to receive an assignment of any insurance proceeds and a credit in the amount of the deductible contained in the insurance policy.
Paragraph 11. Effective Date; Time; Force Maieure
Paragraph ll(a) Effective Date: ''The "Effective Date" of the Contract is the date on which the last of the parties initials or signs and delivers the final offer or counteroffer. " Delivery is an essential element in determining the Effective Date, and, del ivery to an agent of either the Seller or Buyer, which would include an attorney or Broker, constitutes delivery. Also included in this Paragraph is a statement that "time is of the essencefor all provisions of this Contract", which means that in the absence of an "act of God" or "force majeure", that the parties are responsible to meet all deadlines.
Paragraph ll(b) Time: "All time periods will be computed in business days (a "business day" is every calendar day except Saturday, Sunday and national legal holidays). If any deadline falls on a Saturday, Sunday or national legal holiday, performance will be due the next business day. All time periods will end at 5:00 p.m. local time (meaning in the county ·where the Property is located) of the appropriate day."
Paragraph Il(c) Force Majeu re: This Paragraph provides that if an ''act of God or force majeure such as a hurricanes, earthquakes, floods, fire, unusual transportation delays. wars, insurrections and any other cause not reasonably within the control of the Buyer or Seller and which by the exercise of due diligence the non-performing party is unable in whole or in part to prevent or overcome. " In the event of an act of God or force majeure, time periods, including the Closing Date, will be extended; however not to exceed thirty (30) days from the time the force majeure or act of God is in place. In the event the act of God or force majeure continues beyond the thirty (30) days, either party may cancel the Contract by delivering written notice to the other party.
Paragraph 12. Notices
Notices must be in writing and may be delivered by mail, personal delivery or electronic media. Failure to deliver notice in a timely manner regarding any contingency set forth in the Contract will render the contingency, null and void. This emphasizes the fact that if a party has an available contingency such as the right to cancel, failure to furnish proper notice will waive the contingency, and the party will not have the contingency available to them. This Paragraph also provides: "Any notice, doc11ment or item delivered to or received by an attorney or Broker (inc/11ding a transaction broker) representing a party will be as effective as if delivered to or by that party. "
Paragraph 13. Complete Agreement
This Paragraph clearly provides that any agreement of Buyer and Seller, to be binding, must be in writing and signed or initialed and delivered to the party to be bound. This is important because there are many oral representations which are made or misunderstood between the parties and in a Contract for the sale and purchase of real estate, these must be in writing and delivered to be effective.
Paragraph 14. Assignability; Persons Bound
"Buyer may not assign this Contract without Seller's written consent."
Paragraph 15. Default
Paragraphs 15(a) and I 5(b) provide the normal remedies that a Seller and Buyer would have in the event of a default. I n addition, there is a provision that "if Buyer fails to pe,form this Contract within the time specified, including timely payment of all deposits, Seller may choose to retain and collect all deposits paid and agreed to be paid as liquidated damages". This is important to note because a Buyer who places a small initial deposit may not take into consideration that if he fails to move forward with the transaction, that he may not only be liable for the deposit that the Buyer has made, as well as, any additional deposits that the Buyer has agreed to pay.
Paragraph 18. Professional Advise; Broker Liability
This Paragraph emphasizes and directs the Buyer and Seller "to consult an appropriate professional for legal advice (for example, inte,preting contracts, determining the effect of laws on the Property and transaction, status of title, foreign investor reporting requirements, the effect qf property lying partially or totally seaward of the coastal construction control line, etc.) and for tax. property condition, environmental and other specialized advice. " This statement is appropriate for all Sellers and Buyers; however, even more so for a foreign investor, since there are various additional considerations brought about by foreign ownership.
Paragraph 20. Addenda
This Paragraph refers to the following Addenda listed below which are contained in the Residential Sale and Purchase Contract: Comprehensive Addendum, which may be utilized if appropriate.
A. Condo. Association
B. Homeowners' Assn.
C. Seller Financing
D. Mort. AssumptionE. FHA Financing
F. VA Financing
H. As Is w/Right to Inspect
I. Inspections
J. Insulation Disclosure
K. Pre-1978 Housing Stmt.L. Insurance
M. Housing Older Persons
N. Lease purchase/Lease
0. Interest-Bearing Account
P. Back-up Contract
Q. Broker - Pers. Int. i n Prop.
R. Rentals
S. Sale/Lease of Buyer's Property
T. Rezoning
V. Prop. Disclosure Stmt.
W. FIRPTA
X. I 03 I Exchange
Y. Additional Clauses
Other:-----
Other:-----
G. New Mort. Rates
Option
U. Assignment Other:-----
Depending on the type of property involved and other circumstances, some of the above listed Addenda may be incorporated in the Contract by checking the appropriate box and attaching the completed Addendum. A few of the Addenda will be discussed below which have particular importance on a regular basis and/or are particularly relevant to a foreign investor.
Residential Sale and Pu rchase Contract: Comprehensive Addendum
FAR-10 01/09 ©2009 Florida Association of REALTORS® All Rights Reserved
Association Disclosures
Paragraph A. Condominium Association: This Paragraph must be utilized anytime the Property is a unit in a Condominium. The Paragraph contains disclosure of various items which the Seller is required to make under Florida law and many others which are necessary for the Buyer to fully understand about significant factors concerning the Condominium and its Association. These items include but are not limited to, whether or not approval by the Association is required, and whether the Condominium Association has a right of first refusal to purchase, prior to the Buyer being allowed to Purchase. Most condomini ums do require that the Association approve the Buyer. In the event the Buyer is an entity, then the Association will generally require information about the individual who will be the principal occupant of the Unit, in order to access and evaluate whether approval will be granted or not. In addition, it is important to be sure that any other common or limited common elements that are designated for the exclusive use of the Buyer, in connection with the Property, be specifically listed. Some of these elements would, include but not be limited to, parking spaces, storage spaces, boat slips and cabanas.
Paragraph A. Condominium Association, (6) Fees: The amount of the current assessments, maintenance and/or association fees must be set forth. Seller must also represent if there are any pending special or other assessments in addition to the regular current assessment, maintenance and/or association fees. If a special assessment may be paid in installments, either Buyer or Seller may be designated as the person to pay any installments due after the closing by checking the appropriate box on line 32.
Section 718.503 of the Florida Statutes specifically provides that a Seller must furnish to the Buyer who is purchasing a pre-owned Condominium, (as opposed to new construction), the following documents:
1 .A current copy of the Declaration of Condomi nium;
2. Articles of Incorporation of the Association;
3. Bylaws and Rules of the Association;
4. A copy of the most recent Year-End Financial information; and
5. Frequently Asked Questions and Answers Document if requested in writings.
Once these documents have been provided to the Buyer, the Buyer has a statutory right to rescind the Contract, and void the transaction by delivering written notice of the Buyer's intent to cancel. Notice must be delivered within three (3) days (excluding Saturdays, Sundays and national legal holidays) after the date the Contact is executed, and all of the required documents have been delivered to the Buyer. It is particularly important that the Seller be certain that current documents are furnished. It is common practice for Sellers to furnish the documents they received when they purchased the Property. Unless the Seller purchased the Property he is selling within the last few months, the documents may be outdated and the three (3) day period will not expire until the date of closing. Obviously, this allows the Buyer the opportunity to cancel, when, otherwise, the Buyer would have no right to cancel under the terms and conditions of the Contract.
In connection with the purchase of a newly constructed condominium, commonly referred to as a developer unit, the rescission period is fifteen ( 15) days, rather than three (3) days, and there are various other documents that must be furnished by the Seller. This is not being dealt with at length because the FAR-9 Contract would not generally be utilized as developers who are selling new construction condominiums have form contracts which have been submitted to the State Florida in connection with the approval of their condominium project.
Paragraph B. Homeowners' Association: The information contained in this Addendum is similar to the information contained in the Condominium Association, except this applies to Homeowner's Associations. Florida Statues Section 720.40 I provides that the Disclosure Summary must be provided prior to executing the Contract. In the event it is not provided, the Buyer has three (3) days to cancel after receipt of the Disclosure Summary.
Property
Paragraph H. As Is With Right To Inspect: Since the majority of transactions in Florida are "as is" transactions, Paragraph "H" of the Comprehensive Addendum is utilized to document that the transaction is an "as is" transaction. Three (3) blanks must be filled in. On line 9, the number of days allowed for inspections (''Inspection Period") must be filled in. Failure to fill in the blank will automatically make the Inspection Period ten (I0) days from the Effective Date. Depending on the type of property involved, the availability of inspectors, whether or not the Buyer wishes to attend the inspection and the Buyers availability, the number of days should be considered carefully, and the appropriate amount of days should then should be filled in. The second blank on line 12 sets forth how many days after the expiration of the Inspection Period the Buyer has to cancel. The third blank on line 14 sets forth a dollar amount. The repairs must exceed this dollar amount to enable the Buyer to cancel. It is not uncommon to fill in zero as the dollar amount; however, if the blank is not filled in it is automatically Two Hundred and Fifty Dollars ($250.00). The fact that the Buyer agrees to accept the property in "as is" condition does not eliminate the responsibility of the Seller to maintain the property in the same condition as it was in on the Effective Date.
Paragraph U. Assignment: This Paragraph provides that the Seller and Buyer agree that the Contract may be assigned to whoever is set forth in the blank on lines 4 and 5. In a cash transaction which has no contingency for financing, a Seller will generally not have any objection to an assignment. In a sale which is contingent on financing, a Seller generally will have an objection to an assignment, because the Contract, if assigned to someone other than the original Buyer, could have a negative impact on the assignee qualifying for financing. It is not uncommon for the Seller to allow a Buyer to designate the potential Assignee as an entity to be formed. Many Buyers, when submitting an offer, have not adequately considered the various entity choices available. This is typically the case when a foreign investor is involved, due to the various income tax, estate tax, gift tax, and other considerations. A detailed discussion of these considerations is beyond the scope of this article; however, this Paragraph, or options for assignment set forth previously, should be utilized if a firm decision has not been made as to who the appropriate ultimate Buyer should be. Line 6 provides that the original Buyer will either be or not be released from the duty to perform the Contract by checking the appropriate box. Most Sellers feel more comfortable with an Assignment when they know that the original Buyer is still liable. The Buyer has no significant liability after the closing, by not being released of the duty to perform the Contract.
Paragraph V. Property Disclosu re Statement: Most Buyers desire to see a Property Disclosure Statement from the Seller that discloses material information about the Property. Generally, this is furnished prior to, or simultaneously, with the Contract. This Paragraph provides that the Buyer may cancel the Contract by furnishing written notice within three (3) days of receipt of the Property Disclosure Statement. Furnishing of the statement is also a benefit to the Seller, in that it provides certain protections to Seller after the closing in connection with defects that may be later discovered. A detailed discussion of these benefits is beyond the scope of this article.
Paragraph W. Foreign Investment in Real Property Tax Act ("FIRPTA"): If the Seller is a "foreign person" as defined by FIRPTA, Section 1445 of the Internal Revenue Code ("'IRC"), then the Buyer is responsible to withhold ten ( I 0%) percent of the Purchase Price from the sales proceeds unless one of a few l imited exemptions apply. In layman's terms, a "foreign person" is an individual who is not a U.S. taxpayer. The Buyers' attorney/closi ng agent, will collect the ten ( I 0%) percent withholding and forward the funds to the IRS.
The IRS requires both the Buyer and Seller to have a U.S. federal taxpayer identification number (TIN), or in the case of an entity an Employer Identification Number (EIN). In the alternative a non-U.S. taxpayer may obtain an International Taxpayer Identification Number (''(TIN") and must furnish same to the closing agent in order to facilitate the closing. Unfortunately, i n many instances this is not dealt with until the last moment and will result in a delay of the closing that could have been prevented if timely application had been made.
The IRS does have a procedure where a Seller who believes that the amount of tax that he owes is less than the ten ( I 0%) percent withholding can apply for a Withholding Certificate (Form 8288-B). This is obtained by filing an application with the IRS, together with the appropriate forms and documentation. An attorney or Certified Public Accountant generally handles this application for the Seller. In the event the Withholding Certificate has been applied for properly, the attorney/closing agent will escrow an amount equal to the ten (10%) percent withholding until the IRS determines how much tax is actually due. The IRS usually decides within a period of thirty to ninety (30-90) days, and then the attorney/closing agent will disburse from the ten ( 10%) percent escrow the tax due to the IRS and the balance to the Seller.The IRS does have a procedure where if a Seller, who believes that the amount of tax that he owes is less than the ten ( 10%) percent withholding, may apply for a Withholding Certificate. This is obtained by filing an application with the IRS, together with appropriate documentation, which is generally handled by an attorney or Certified Public Accountant. In the event the Withholding Certificate has been applied for properly, the attorney/closing Agent will hold an escrow in the amount of the ten ( I 0%) percent withholding and not deliver the funds to the IRS. The IRS will rule (usually within a period of thirty to ninety (30- 90) days), on how much tax is actually due, and the attorney/closing Agent will disburse from the ten ( I 0%) percent escrow, the tax due to the IRS and the balance of the escrowed funds to the Seller.
The filing of the application for the Withholding Certificate (Form 8288-B), does not relieve the Seller from the responsibility of filing a U.S. Income Tax Return, subsequently.
Paragraph X. 1031 Exchange: Section I 031 of the Internal Revenue Code provides that under certain circumstances, a Seller may sell a property, and, through an exchange procedure, purchase one or more additional properties (subject to various rules set forth by the IRS). Section I 031 provides for certain income tax advantages. If the Seller wishes to take advantage of this provision, there are certain documents that will be required to be executed by the Buyer, which will not subject the Buyer to liability or cost. In order to obligate the Buyer to execute the documents if a 1031 Exchange is contemplated, this Paragraph should be utilized. Failure to do so could frustrate the Seller's efforts to accomplish the tax advantages available through a I 031 Exchange, if the Buyer chooses to be unwilling to cooperate.