Florida Real Estate after Hurricane Irma: Who Pays?
Real Estate Alert 10/24/17 Noel J. Davies, Jonathan D. Bonello
In the wake of Hurricane Irma, Florida property owners are left searching for answers — what happens if my neighbor’s tree fell on my property? Who pays? What happens if my property suffered damage after I signed a contract but before closing? Is buyer liable, or seller? Will deadlines in my contract be extended? For how long?
Included below are answers to common questions received by clients in the weeks following Irma’s visit to Florida.
Question: Who pays when my neighhor's tree falls on my house?
Answer: You do.
If you were unlucky enough to arrive back at your Florida residence only to see a tree leaning on top of it, you’re in for some more bad news. The general rule in Florida is that you are responsible for the damage caused by your neighbor’s tree falling on your house. It may seem unfair, but that’s the rule. The only exception is when the tree is rotting or otherwise in a dangerous condition before the storm event; in that case, the negligence of your neighbor makes them responsible for the damage.
Question: Who pays for hurricane damage if I'm under contract?
Answer: Seller pays.
If you’ve signed a contract to purchase Florida property, but the closing hasn’t occurred yet, there’s no need to worry. The seller is typically the one responsible for the damage. Your purchase and sale contract likely includes a “risk of loss” provision that almost always places the risk on seller in the event property damage happens before the closing.
For example, in the Naples Area Board of Realtors Contract (“NABOR Contract”), which is used in nearly all real estate transactions in Naples, the “risk of loss” provision puts the blame on seller for property damage:
“MAINTENANCE OF PROPERTY; RISK OF LOSS: SELLER shall maintain the Property, including without limitation the lawn, shrubbery, and landscaping and the Personal Property in the condition existing on the Effective Date until the Closing Date or date of possession, whichever is earlier, except for ordinary wear and tear. Any future loss and/or damage to the Property or the Personal Property between the Effective Date of this Contract and the Closing Date or date of possession, whichever is earlier, shall be at SELLER’s sole risk and expense. SELLER shall maintain all existing casualty insurance until disbursement.”
Note that it doesn’t matter whether the property damage was a result of a storm event, or some other unforeseen occurrence; so long as the property condition has deteriorated since the execution of the contract, the seller is on the hook.
Elsewhere in Florida, the Florida Realtors-Florida Bar Contract (“FAR-BAR Contract”) is most frequently used. The FAR-BAR Contract also assigns the risk of loss to seller, but provides specific remedies depending on the severity of the damage. It also requires that the damage be a casualty loss. Here’s the FAR-BAR Contract “risk of loss” provision:
“RISK OF LOSS: If, after Effective Date, but before Closing, Property is damaged by fire or other casualty (“Casualty Loss”) and cost of restoration (which shall include cost of pruning or removing damaged trees) does not exceed 1.5% of Purchase Price, cost of restoration shall be an obligation of Seller and Closing shall proceed pursuant to terms of this Contract. If restoration is not completed as of Closing, a sum equal to 125% of estimated cost to complete restoration (not to exceed 1.5% of Purchase Price) will be escrowed at Closing. If actual cost of restoration exceeds escrowed amount, Seller shall pay such actual costs (but, not in excess of 1.5% of Purchase Price). Any unused portion of escrowed amount shall be returned to Seller. If cost of restoration exceeds escrowed amount, Buyer shall elect to either take Property “as is” together with the 1.5%, or receive a refund of the Deposit thereby releasing Buyer and Seller from all further obligations under this Contract. Seller’s sole obligation with respect to tree damage by casualty or other natural occurrence shall be the cost of pruning or removal.”
In layman’s terms, the seller has to pay for the damage, but the buyer then has options depending on whether the cost of restoration exceeds one and a half percent of the purchase price. If under the threshold, seller pays and buyer still has to close. If over the threshold, buyer can either close with the one and a half percent discount, or walk.
Warning: In the unlikely event that your contract does not include a risk of loss provision, the default rule in Florida (based on the old common law concept known as the doctrine of equitable conversion) is that the buyer is responsible for any damage. While nearly all contracts today allocate the risk of loss to seller as a means of contracting around this default rule, always double check the language of your contract to confirm this has been addressed.
Question: Do I still have to close? Will the deadlines in my contract be extended?
Answer: It depends.
The FAR-BAR Contract includes the following language:
Section 5(b) states, “If an event constituting ‘Force Majeure’ causes services essential for Closing to be unavailable, including the unavailability of utilities or issuance of hazard, wind, flood or homeowners’ insurance, Closing Date shall be extended as provided in STANDARD G.” (Emphasis added.)
STANDARD G includes hurricanes in its definition of “force majeure” and states, “Buyer or Seller shall not be required to perform any obligation under this Contract or be liable to each other for damages so long as performance or non-performance of the obligation, or the availability of services, insurance or required approvals essential to Closing, is disrupted, delayed, caused or prevented by Force Majeure.” STANDARD G further extends all time periods, including the closing date, “for a reasonable time up to 7 days after the Force Majeure no longer prevents performance under this Contract.” (Emphasis added.) However, if the force majeure event continues to prevent performance for more than thirty days after the closing date, then either party may terminate the contract and the buyer is refunded the initial deposit.
The NABOR Contract is similar to FAR-BAR, but it does not contain a “force majeure” clause. Instead, it provides that if the buyer is unable to obtain hazard, flood, wind, or homeowners insurance at a reasonable rate due to extreme weather conditions, the buyer may delay the closing up to five days after such coverage becomes unavailable. If the coverage does not become available for a period of 30 continuous days, either the seller or buyer may terminate the contract.
Question: How can I better protect myself in the next transaction?
Answer: Use the "additional terms" or "other terms and conditions" section and/or execute amendments.
At the end of both the NABOR and FAR-BAR Contracts, there’s a blank section to include additional terms. (Note: Your counsel can also add a simple addendum to include items not contemplated by the standard form contract.) Don’t hesitate to use this section to anticipate storm events or other unique circumstances. For example, include a provision that states that buyer has the right to re-inspect in the event a hurricane or tropical storm passes through the area.
If your contract is already executed, always consider amending it in anticipation of the arrival of a storm. Your amendment could include re-inspection rights or you could simply extend your existing inspection period if it hasn’t yet expired. For buyers, this means your deposit funds won’t be at risk until a date certain after the storm.