Navigating the Minefield: 7 Common Pitfalls in Florida Commercial Real Estate Contracts

Published on October 27, 2023

Commercial real estate transactions in Florida represent significant opportunities for growth and investment. However, the complexity of these deals, governed by a unique set of state statutes and case law, can turn a promising venture into a costly legal dispute if the contract is not meticulously crafted and reviewed. At Finberg Firm PLLC, we frequently counsel clients on the intricacies of these agreements. Below, we outline the most common pitfalls we encounter in Florida commercial real estate contracts and provide guidance on how to avoid them.

1. Inadequate Due Diligence and “As-Is” Clause Misconceptions

Florida law often enforces robust “As-Is” clauses in commercial contracts. A critical pitfall is assuming this clause absolves the seller of all responsibility. Buyers must understand that “As-Is” does not negate the seller’s duty to disclose latent defects or prohibit fraudulent misrepresentation. Failing to conduct exhaustive due diligence—including surveys, environmental assessments (Phase I/II), zoning verification, and title examination—before the due diligence period expires can leave a buyer with no recourse for discovered issues post-closing.

2. Ambiguous or Insufficient Due Diligence Contingencies

The due diligence contingency is your contractual right to investigate the property. A common mistake is defining this period or its scope too vaguely. The contract must explicitly state the duration, the specific studies to be performed, and the buyer’s unambiguous right to terminate and recover deposits if the property fails to meet objective or subjective criteria. Vague language like “satisfactory inspections” can lead to disputes over what constitutes “satisfactory.”

3. Misunderstanding Florida’s Specific Performance Remedy

Unlike some jurisdictions, Florida courts strongly favor the remedy of specific performance in real estate contracts, viewing each property as unique. This means a seller can be compelled to sell, or a buyer compelled to buy, if the other party breaches. Parties often underestimate this binding nature, entering contracts with a casual attitude. It is essential to be certain of your commitment and financing before signing.

4. Improper Handling of Earnest Money Deposits

The escrow agreement for the earnest money deposit is a frequent source of conflict. Pitfalls include: failing to designate a neutral, licensed escrow agent; not clearly outlining the conditions under which the deposit is refundable or forfeitable; and not linking the release of funds to specific contractual milestones. In disputes, poorly drafted escrow terms can tie up funds in litigation for years.

5. Overlooking Title and Survey Exceptions

Accepting a title commitment or survey without a detailed review of the listed exceptions (easements, covenants, restrictions, liens) can be disastrous. A utility easement may preclude your planned development. A restrictive covenant may limit your business use. The contract must allow the buyer to object to unacceptable title matters and must specify who is responsible for removing any liens or encumbrances prior to closing.

6. Ambiguous Closing Conditions and “Time is of the Essence”

Florida courts strictly enforce “time is of the essence” clauses in commercial contracts. Missing a closing date by even a day can constitute a material breach. Pitfalls include not having all financing, permits, or other closing conditions definitively satisfied well in advance. The contract should clearly delineate the responsibilities of each party to meet these conditions and the consequences of failing to do so.

7. Failing to Address Florida-Specific Environmental and Zoning Issues

Florida’s sensitive ecosystem brings specific environmental regulations (e.g., wetland delineations, sovereign submerged lands). Similarly, local zoning and comprehensive plans can be complex. A contract that does not make closing contingent on verifying the property’s permissible uses and compliance with environmental rules risks purchasing an asset that cannot be developed for its intended purpose, leading to significant financial loss.

Hao Li, Esq., CFA, CAIA, CGMA, EA
Finberg Firm PLLC