Real Property Purchase and Sale Agreements: Beware of the Notice Provisions
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Real property purchase and sale agreements often contain detailed requirements pertaining to termination, inspection, placing of deposits, and even the form in which certain notices to parties must be provided. Of course, parties to such agreements must read and understand their material terms and failing to strictly comply with material terms of a real property purchase and sale contract can be disastrous. However, when it comes to providing notice in connection with those contracts, strict compliance is not always required.
Recently, in the case of Megacenter US, LLC v. Goodman Doral 88th Court LLC, the court interpreted the notice provision of a real property purchase and sale agreement, and whether the buyer provided timely notice of termination to the seller under that provision.
In Megacenter, the purchaser of real property wanted to buy the property for use as a self-storage facility, but it was uncertain whether the city would allow for such use. In the purchase and sale agreement, the parties negotiated the terms by which the buyer could terminate the agreement and recover the deposit, if certain conditions were not met. In addition, the buyer of the property had a 45-day inspection period within which to evaluate the property. The inspection provision allowed the buyer to terminate the agreement, at its sole discretion, if it was not satisfied with the property, by providing written notice of cancellation to the seller by the end of the inspection period.
The real property purchase and sale agreement contained the following notice provision:
[a]ny notices required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been given if delivered (i) by registered or certified mail, return receipt requested, postage prepaid, (ii) by hand delivery, (iii) by recognized overnight courier (such as Federal Express), or (iv) by facsimile with confirmed receipt, and addressed as follows: …. Notice shall be deemed given when delivered or upon refusal to accept delivery, and may be given on behalf of any party by its respective counsel. A copy of any written notice sent by either party to the other shall also be sent to all parties above via electronic mail at the addresses set forth above simultaneously with the sending of such notice via the delivery methods described above.
The parties eventually extended the inspection period by an additional four days, to allow the buyer additional time to obtain the appropriate zoning letter from the city. That modification extended the inspection period until 5:00 p.m. on March 17, 2017. The modification also provided that the buyer could terminate the contract by providing evidence that the city would not approve the buyer’s desired zoning.
On March 17, 2017, at 4:23 p.m., the buyer notified seller’s counsel that it had not received the zoning letter from the city. In that same email, the buyer requested a signed second modification to the agreement by 5:00 p.m. that day, otherwise, the buyer would terminate the agreement. Neither the seller nor its counsel responded to the buyer’s email before the deadline; therefore, at 5:00 p.m., the buyer notified the seller of its formal notice of termination. Seven minutes later, counsel for the seller acknowledged receipt of the notice of termination from the buyer.
Thereafter, the buyer demanded the return of its $250,000 initial deposit, but the seller refused. The seller argued the buyer had not provided proper notice of termination. The buyer then filed a complaint for breach of contract for the return of its deposit.
The trial court found that the buyer did not deliver timely written notice of cancellation of the agreement, as required by the purchase and sale agreement. According to the trial court, the seller was entitled to all of the deposits to be paid under that agreement. The trial court reasoned the termination notice was not sent in the proper form and to all required individuals. The appellate court, however, disagreed with the trial court’s ruling.
One of the issues on appeal was whether the buyer provided proper written notice of termination to the seller. The buyer argued it gave timely notice to the seller that it was terminating the agreement, that the seller received the notice and, thus, the buyer substantially complied with the agreement’s notice provisions. The appellate court found that under Florida law, strict compliance with a notice provision is not required if one of the parties (in this case, the seller) has actual notice. The purpose of delivering such notice by the methods outlined in the purchase and sale agreement is so a party cannot claim it did not receive the notice, while the other party alleges it provided such notice.
In the Megacenter case, the seller accepted the buyer’s written notice and had actual notice of the termination. Therefore, summary judgment should have been entered in favor of the buyer and against the seller because there was no issue of fact that the buyer properly terminated the agreement and was entitled to return of the deposit.
While the holding in Megacenter demonstrates that strict compliance with a purchase and sale agreement’s notice requirements is not always necessary, it is best to simply follow the contract’s requirements to avoid disputes as to whether notice was given and whether it was timely.