Judge: Pre-construction contracts binding if you can pay
Trying to back out of a pre-construction purchase on a condo? If you're rich, forget it. If you have money troubles, it might be easier.
That's the finding of a Palm Beach County judge. Earlier this month Judge Jonathan Gerber ruled that D&T Properties could not back out of a contract to buy a $495,000 unit at Marina Grande, a $200 million waterfront condominium in Riviera Beach, based on higher-than-expected maintenance costs.
In short, Gerber concluded, the buyer could afford it.
The ruling is important because condo buyers throughout South Florida are eager to get out of pre-construction contracts signed during the recent real estate frenzy. Now that the market has turned and the flippers market has died, many buyers are trying to undo their deals based on even minor changes to a project by a developer.
Nowhere in Palm Beach County is this battle raging more hotly than at Marina Grande. During the past year, more than two dozen lawsuits have been filed by buyers wanting out of pre-construction contracts for more than 30 units. Buyers claim in lawsuits that Marina Grande Ltd., a developer associated with Deerfield Beach's Boca Developers, changed the terms of the deal, giving them a possible escape clause. D&T's 2006 lawsuit was the first of these cases to go to trial in May.
In its lawsuit, D&T, a partnership of two investors, objected to a proposed 30 percent increase in Marina Grande's maintenance fees. D&T said the increase triggered a Florida law allowing D&T to undo its 2005 pre-construction contract. Under Florida law, buyers can void purchase contracts if developers make changes a buyer considers ``material and adverse.''
Unfortunately, the law is vague about what ''material and adverse'' means, creating confusion among buyers and developers. In his July 6 ruling, Gerber for the first time sought to clarify the law when it comes to examining changes in a condo's proposed budget -- a big issue for buyers facing sky-high insurance increases.
Gerber wrote that a budget change is adverse only if a buyer cannot afford the proposed cost increases, based on that buyer's specific financial condition. If a buyer shows evidence the rise in costs ''outweigh the buyer's financial capabilities . . . the buyer should be able to void the agreement,'' he wrote.
Marina Grande attorney Manuel Garcia said he was pleased with the ruling, saying it was right to consider a buyer's individual circumstances. ''We think the conclusion is correct,'' said Garcia, of Fort Lauderdale.
But D&T lawyer Gary Nagle said Gerber's financial litmus test will create an unequal playing field.
''If you're a well-to-do buyer, you won't get out of this contract,'' said Nagle of Juno Beach. ``But if you're a marginal buyer with minimal financial resources, you can get out of that deal. We're going to appeal.''
Gerber's ruling is not binding on dozens of other cases now in the works because the ruling does not come from an appeals court, said Charles W. Edgar III, a Palm Beach Gardens real estate lawyer not involved in this case.
But it is the first time a judge has tried to define the law's meaning, he said. ''It's not precedent, but it is a predictor of where other judges would go,'' Edgar said.
Although ruling for Marina Grande, Gerber rejected several arguments by the developer.
Gerber said he was not moved by Marina Grande's assertion that D&T was reneging simply because the flippers' market had died.
Gerber also would not toss the D&T lawsuit based on a recent change in the law. In May, Gov. Charlie Crist signed a bill that specifies that budget cost increases are not considered ``materially adverse.''
Gerber said he would not apply the new law to the D&T case because the purchase contract was signed before the law took effect.
BY ALEXANDRA CLOUGH Palm Beach Post - Fri, Jul. 13, 2007