Vacant Land Contracts: What Are They?
Vacant land contracts, similar to "regular" residential home contracts, are a common contract used in the State of Florida. Vacant land contracts are utilized in both new construction and in cases where the land on which a home is to be built is already owned. Vacant land contracts are routinely executed when land is purchased without either a home constructed on it or other pre-existing structures already on the property.
Like a residential purchase agreement, vacant land contracts will set forth the parties, a description of the property together with the legal description (i.e. the lot and block number , or designation as a parcel) of the property together with a description of any structures or improvements on the property. Vacant land contracts also have other provisions relating to the price being paid, what deposits are due and when, whether the purchaser is paying cash, financing the transaction or otherwise, and what contingencies exist. Vacant land contracts between a buyer and seller are typically used in arms-length transactions and can also be used for financing purposes (i.e. in lieu of a mortgage contingency) in financing the construction of a home on the property.
Components of a Florida Vacant Land Contract
There are several essential components in a Florida vacant land contract to help ensure all parties are protected and the sale goes smoothly. A real estate transaction will include the following information:
Parties Involved
A vacant land sales contract must contain the name of the buyer and the seller. It should also contain their contact information, such as address and phone number. This is one of the most critical components of the contract. If you only have a verbal agreement, it is extremely difficult to prove what was agreed on and the terms of the sale. The purchase wouldn’t stand up in a court of law, meaning either party can back out. The same is true if there was no mutual consent. That is why it is critical to have the parties involved correctly identified. Even less than honest sellers have a hard time cheating someone when there is a clear and concise contact.
Description of Property
Another vital piece of the Florida vacant land contract is the land description. This section includes the actual address of the property, lot number, legal description for purpose of taxes (plat book, page number) and any other relevant description that identifies the location of the land. This is vital to avoid problems with legal descriptions during the closing.
Purchase Price
An extremely important component of a vacant land purchase agreement is the price. There are several considerations this should involve, including whether the buyer is obtaining financing for the purchase and their method of payment. The total purchase price for the property and what the buyer is putting down in the form of a deposit will be included in the contract. If the buyer is assuming a mortgage, has an assumable mortgage and is taking over the payments, those details will be included in the contract as well.
Contingencies
The seller often places contingencies on the contract. Some of these are often standard, such as obtaining a title insurance policy or the sale being subject to the buyer’s qualification for financing. Also, the buyer usually has a certain amount of time to obtain a loan approval. If they are not able to and there has been no other agreement with the seller, the buyers deposit will be promptly refunded and the sale drops. However, there are various other forms of contingencies that might be placed on a vacant land contract that does not involve financing. These details will vary from contract to contract.
Legal Requirements and Protections Under Florida Law
Each state has its own set of rules that govern the contractual particulars of vacant land contracts. In Florida, parties who enter into such agreements are obligated to comply with relevant state laws and regulations.
Substantive Requirements
Florida recognizes in its statutes both oral and implied contracts for the sale of real estate. However, typical with real estate transactions, this type of contract is subject to the Statute of Frauds (specifically, the statute of frauds that governs real property). This statute provides a list of requirements for enforceability, including the requirement that the contract be in writing and that it include the signatures of each contracting party.
The statute delineates the required elements for a valid and enforceable land contract. For an agreement to qualify as a valid conveyance of real property, all of the following criteria must be met: There are no additional requirements or restrictions on the parties who enter into a vacant land contract in Florida. In general, there is no prohibition against any individual, group of individuals, company, corporation, or other group entering into a vacant land contract as long as the parties are competent and able to do so per Florida law. Similar restrictions apply to contracts for the purchase of improved real property.
Regulatory Requirements
In addition to the statutory requirements for a valid and legally enforceable land contract, parties are required to comply with regulatory laws that are enforced by the Florida Department of Business and Professional Regulation (DBPR), along with municipal laws at the local level that also apply to the sale of vacant land, including zoning and building ordinances. DBPR is responsible for overseeing a range of professions, including real estate professionals such as real estate agents, brokers, real estate appraisers, real estate schools, and others.
Common Contingencies in Florida Contracts
Zoning Approval – Buyers want to ensure that the vacant land they intend to buy has the necessary zoning designation for their proposed use. It cannot be stressed enough that if you are a seller, no matter the current zoning, it’s best to remember that if the buyer is unsure of how they will be using the vacant land, he/she should close the deal subject to obtaining the necessary zoning approvals. If the buyer has secured the proper zoning approval before closing, they will have an easier time seeking financing for the property.
Environmental Assessment – An environmental assessment is a key component of several vacant land contracts. Buyers want to ensure that the land they are purchasing is free and clear of environmental contaminants.
Financing – Not all purchasers paying cash. Vacant land contract contingencies may include financing contingencies, which simply mean that the buyer may be able to terminate the contract without penalty if not able to finalize financing within the stated period of time.
How to Conclude a Vacant Land Contract
Vacant land contracts in Florida are legally binding real estate contracts. This means that the negotiation, signing, terms and conditions must be accepted by all parties involved, unless waived at any time to bring closure to the transaction. To close a vacant land contract, it is imperative that the buyer and seller negotiate the terms of the contract before finalizing. The final stages of closing refer to the process of closing a deal or getting to the point where the contract can be finalized.
Vacant land contracts in Florida are typically closed upon compliance from both parties. The buyer will receive the deed to the property once the sales price is paid in full or according to the payment schedule outlined in the contract. The buyer is advised to conduct due diligence before proposing a purchase price, which should be discussed with a local real estate attorney. After the buyer and seller agree to a proposed purchase price, the terms and conditions of the contract should be discussed in detail.
Step 1:
Once the offer is accepted, it is important to draft the details of the contract to ensure that the agreement is valid. A real estate attorney is generally recommended to create a valid contract or they can take a look at the proposed agreement to ensure that the deal made is legally binding and fair .
Step 2:
The parties should review the proposed contract to ensure that all terms and conditions are in place to begin the process of closing. If the buyer feels comfortable with the contract or has changed the price of the contract after negotiations, he or she will sign the agreement to allow the process of closing to begin.
Step 3:
Once the closing process has begun, the buyer is advised to conduct due diligence on the property recognized in the contract. Due diligence is the process of reviewing the contract to ensure that the terms and conditions provide for a reasonable number of contingencies before closing. A real estate attorney can prepare the draft of proposed contingencies to protect both parties from unreasonable obligations.
Step 4:
After the buyer has completed due diligence and signed the contract, it is essential to proceed with closing the deal. This involves agreeing with the buyer to sign all necessary documents, such as the deed, and transferring the funds to allow the buyer to acquire the property.
Step 5:
Upon receipt of payment for the vacant land, the seller is required to provide the deed to the buyer to finalize the closing stage of the agreement. The buyer is then the new recipient of the property and the guaranteed rights to buy the property according to the terms and conditions of the contract.
Common Pitfalls and How to Avoid Them
A vacant land contract can be a little more complex than a residential contract despite being a simple concept. The seller owns the land and sells it to another party who pays for it over time. However, there are certain aspects to consider when entering into such an arrangement to decrease the risk of problems later on. Among them are the following:
• Notice of Default: Because vacant land contracts involve land use, that can sometimes involve governmental approvals, which may involve zoning, building codes, environmental regulations, etc. It is not uncommon to enter into a vacant land contract when the parties or one of the parties is under the impression that the property can be developed in a certain fashion. It is also not uncommon for that impression to ultimately be wrong. If you are a buyer, you would want the right to terminate the contract if any governing body imposes a moratorium on or alters development regulations in a way that precludes your intended use of the land. If you are a seller, you would want the right to terminate the agreement if the buyer cannot demonstrate that he has the means and capability to develop the property as intended.
• Property Inspection: When real property is sold, the buyer typically conducts, at a minimum, a basic inspection. With regard to vacant land, some buyers will forego inspections because they hope to get "a bargain". That is always a gamble and may have to be revisited if the buyer determines that he is not capable of developing the property in conformance with the applicable regulations. If the proper inspections were conducted, then he may terminate the contract in lieu of developing a worthless parcel. For the seller, he will want to make sure the buyer is risking his money on his own inspection. That is, the seller may want to insert a provision that specifically states that the seller has no obligation to conduct joint inspections with the buyer or provide the buyer with any documentation of inspections or studies conducted on the property without the express agreement of a specific cost to be borne by the buyer and with a specific deadline on when the part of the contract is to be executed and delivered.
• Disclosure: One thing that tends to be glossed over when entering into vacant land contracts are disclosures that must be made. For example, many sellers of vacant lots have no knowledge of the existence of hazardous substances on the property. In fact, the federal Environmental Protection Act requires sellers of certain real property (including lots) to provide notice to the buyer and obtain permission from the buyer to conduct an environmental audit on the property as a condition precedent to closing. Failing to conduct a proper environmental audit could result in significant liability to the seller.
More information on vacant land contracts in Florida is covered in detail in our article titled "Vacant Land Contracts." Remember, always engage an experienced Florida real estate attorney to help you review and finalize a vacant land contract.
The Importance of a Real Estate Lawyer
Over the years, I’ve represented many vacant land clients. With most of them, a vacant land contract was signed, sometimes ordered by the buyer, sometime ordered by the seller, sometimes even drafted by me. Some of these contracts were straight up agreements, reviewed and executed without much back and forth. The problem is that, in these cases, these agreements did not include special provisions for vacant land. Among the issues that could have been addressed in these contracts, but were not, were the closing costs and taxes.
So, do you really need to hire a real estate attorney for a vacant land contract?
• Section 689.053, Florida Statutes, is clear that a contract for the sale of real property be in writing and signed by the parties. However, to be enforceable, a contract must include all essential elements to form a binding agreement, namely an offer, acceptance, consideration, a subject matter, and the intent to create a legal obligation.
• In addition, the contract must be clear and unambiguous. Ambiguous contracts are often misconstrued by property appraisers for purposes of imposing additional property taxes, which has ultimately resulted in numerous defeated tax appeals.
Notwithstanding the above, not everyone who owned property in Florida understood the requirements of a valid and enforceable contract prior to January 1, 2008. Even after the effective date of the Statute, there are still some people who don’t understand the requirements. It’s what you don’t know that can really get you in trouble.
In order to prevent the sale from being delayed, or worse, litigation over an unenforceable contract, it is highly recommended that an experienced real estate attorney look over the contract before the purchase price is paid and the title is transferred.
What can your attorney do for you?
• Review the terms of the sales contract
• Submit the sales contract to the property appraiser
• Prepare and record an affidavit of value for the assessment of the final sale
• Assist with financing arrangements
• Assist with homeowner’s association documents, short sale documents, if any
• Help resolve title issues and any other issues related to the transaction
• Prepare all necessary documentation for a successful closing It’s obvious that there are numerous benefits of having a real estate attorney review your vacant land contract, and that is only a few of them. If the amount of money spent on an attorney ultimately saves the buyer money on taxes, then it’s worth it.
Conclusion: Safeguarding Your Land Investment
Whether you are a buyer or seller , vacant land contract law in Florida can be a little tricky to navigate. A real estate lawyer can help you both structure and negotiate a vacant land contract that will afford you the protection and peace of mind needed to make a secure land investment. Experienced real estate attorneys are able to recognize and avoid some of the most common pitfalls with land purchase agreements. Properly structuring your contract is a crucial component of the land buying process here in Florida.