Seller’s Right to Terminate under Section 8 of the “AS-IS” Residential Contract: What Agents Need to Know

Seller’s Right to Terminate under Section 8 of the “AS-IS” Residential Contract: What Agents Need to Know

The standard form, FAR-BAR (FloridaRealtors/FloridaBar) “AS IS” contract (the “Contract”) is the most common standard form contract in Florida real estate transactions. This is due to its relative ease of use by licensed agents due to its fill-in-the-blank format. However, despite its apparent simplicity, the contract has many nuances that many agents may lose sight of or never be aware of in the first place.

For example, many agents may assume that once a Seller has signed the contract, there is virtually no way for the Seller to back out – unless the Buyer lets them out or the Seller defaults. However, this is not the case. There is a possible “out” for the Seller that is often overlooked, and it has to do with the Buyer’s financing contingency under Section 8 of the Contract.

Per Section 8, the Contract can be made contingent upon the Buyer receiving financing approval. If it is, then the Buyer has a window of time (called the “Loan Approval Period”) during which they must “use good faith and diligent effort” to obtain loan approval. If they do this and still cannot obtain loan approval, they can terminate the contract and receive their deposit back within the Loan Approval Period under section 8(b)(iv).

This is a good way for a Buyer to protect themselves if they cannot get their loan approved. However, there is a tradeoff: under Section 8(b)(ii), the Buyer is required to keep the Seller, and Broker informed about the status of financing, and under Section 8(b)(iii), the Buyer must let the Seller know once they do obtain loan approval (or if they can’t get it, but are nevertheless still willing to proceed, then they must tell the Seller that as well).

Here is where things get interesting: if the Buyer forgets to deliver that written notice as required by Paragraph 8(b)(iii), and they haven’t already backed out by using 8(b)(iv) to the seller before the expiration of the Loan Approval Period, The Seller can terminate the Contract.

That’s because Section 8(b)(v) grants the seller the right to terminate the contract by delivering a written notice of termination to the buyer within three (3) days after the expiration of the Loan Approval Period. To effectively utilize Section 8(b)(v) for terminating the Contract, the Seller should consider the following steps:

  1. Monitor Loan Approval Period: Keep track of the dates specified in the Contract for the Loan Approval Period to ensure compliance and identify any potential Buyer default.
  1. Assess Buyer's Compliance: Confirm whether the Buyer has provided the required written notices as outlined in Paragraph 8(b)(iii) or (iv) within the specified timeframe. If the Buyer fails to deliver the notice before the Loan Approval Period expires, the seller's termination right under Section 8(b)(v) may be invoked.
  1. Timely Provide Notice of Termination: If the Buyer fails to provide the necessary notice, the Seller has three (3) days from the expiration of the Loan Approval Period to deliver a written notice of termination to the Buyer. This notice should clearly state the seller's intent to terminate the contract and release both parties from further obligations.
  1. Refund the Deposit: If the termination is valid and the Buyer is not in default, the Seller must refund the Buyer's deposit as stated in the Contract. Adhere to the contractual obligations regarding the refund process.

In conclusion, section 8(b)(v) of the standard-form, FAR-BAR (FloridaRealtors/FloridaBar) “AS IS” contract provides Sellers with the option to terminate the Contract if the Buyer fails to provide the required written notice within the Loan Approval Period. Sellers should carefully monitor the timelines, assess buyer compliance, and, if necessary, deliver a written notice of termination within three days after the Loan Approval Period expires.

Given the potential legal implications and complexities involved in terminating a contract, Sellers and their agents are advised to seek guidance from a licensed Florida real estate attorney. A knowledgeable attorney can provide personalized advice based on the specific circumstances and ensure compliance with contractual requirements and applicable laws.