Schachter v. Krzynowek - Specific performance without a lis pendens
In a recent opinion, the Florida Fourth District Court of Appeal held that a buyer is not required to file a lis pendens (recorded notice of pending litigation against a property) in connection with a suit for specific performance and that this remedy is available to the buyer even if his seller deeds the property to another buyer before the suit is filed.
In Schachter v. Krzynowek, Case No. 4D06-2266 issued June 13, 2007, Krzynowek as seller and Schachter as buyer entered into a contract for sale and purchase of real property, which provided that the Buyer?s exclusive remedy for a breach by the Seller was return of the deposit or the right of specific performance. Prior to the scheduled closing date, the Seller gave written notice of termination of the contract. The Buyer continued to prepare for closing and eventually notified the Seller that the Seller was acting in bad faith in order to sell to another buyer for a higher price. The Buyer's letter stated that he was ready, willing and able to close and would exercise the right of specific performance if the closing was frustrated by the Seller. No closing occurred. The Seller sold the property to another buyer.
The Buyer sued for specific performance, but did not file a notice of lis pendens. The appellate court reversed the trial court's summary judgment in favor of the Seller, holding that filing of a lis pendens is a tactical decision, and that the Seller cannot frustrate the Buyer's specific performance remedy by selling the property to another. The court opined that the lis pendens is a notice document for other persons dealing with the subject property, and the Buyer was only suing the Seller and not the subsequent purchaser. Even though the Buyer agreed that his exclusive remedies were return of deposit or specific performance, the court held that, where a breach is followed by subsequent sale of the property, the Buyer's remedy is frustrated and he may claim the profits from the subsequent sale as damages.
It should be noted that, under Florida law (as mentioned in the opinion), the Buyer was subject to a one year statute of limitation on the specific performance claim. Under Florida law, a party filing a notice of lis pendens can be required to post a bond in favor of the other party; the amount of the bond is set by the court after the lis pendens is filed. The bond involves a premium cost to obtain the bond and a contingent liability depending upon the outcome of the suit, which are factors in the "tactical" aspect of lis pendens practice mentioned in the opinion. The opinion is available at http://www.4dca.org/June2007/06-13-07/4D06-2266.op.pdf
Nacoochee Corp. v. Pickett - Cure Provision not a Cure All
The opinion in Nacoochee Corp. v. Pickett, decided by a Florida appeals court and available at opinions.1dca.org/written/opinions2006/12-6-06/05-3675.pdf, includes an interesting interplay between a deposit clause in a land sale contract and a notice of default and cure clause. The contract at issued included a cure period provision would seem for defaults under the contract. In this case, the court held that the failure to make a required deposit on time was not subject to cure. The clauses at issue stated as follows (paraphrasing):
Ernest Money: Purchaser shall pay to the Escrow Agent, the sum of $20,000.00, said payment to be made within 5 business days of the Final Signing Date. In the event Purchaser has not terminated this Agreement on or before Sixty days after the Final Signing Date, $10,000 of the Earnest Money shall become non refundable for any reason except Seller non performance. After acceptance of the Property under Paragraph 7, an additional $10,000 of Earnest Money shall become non refundable except for Seller non performance. After acceptance of the Property under paragraph 7, Purchaser shall deposit $100,000 within 5 business days as Additional Earnest Money.
Default of Parties, Liquidated Damages: In the event Purchaser shall fail to perform its obligations of this Agreement and such failure is not cured within sixty (60) business days after notice from Seller, then Seller shall as its sole and exclusive remedy have the right to terminate this Agreement and receive the Earnest Money as full liquidated damages.
Paragraph 7 was a due diligence provision. The contract also had a time is of the essence clause. The appeals court determined that the failure by the Purchaser to timely make the earnest money deposits was not subject to the notice and cure provisions under the Default of Parties and constituted a material breach of the contract. The court?s opinion is available for your review at http://opinions.1dca.org/written/opinions2006/12-6-06/05-3675.pdf.