FAR/BAR or FAR CONTRACT
WHAT IS THE DIFFERENCE?

Dispute Resolution

The FAR/Bar Contract does not obligate the parties to arbitration or pre-litigation mediation. The FAR Contract (see paragraph 16) requires that, as to all disputes, the parties must attempt to resolve the dispute by mediation. If the dispute concerns disbursement of the deposit paid under the terms of the contract, the FAR Contract gives the escrow agent holding the deposit the discretion and right to choose the manner of dispute resolution and the parties are obligated to participate and are bound by the resolution produced. As to escrow agents who are not licensed real estate brokers, the options available are to arbitrate or seek a resolution in court through interpleader. However, if the escrow agent is a licensed real estate broker, the escrow agent has the additional option provided by Chapter 475 of Florida Statutes to seek an escrow disbursement order from the Florida Real Estate Commission. It should be understood that the decision rendered by the Florida Real Estate Commission is based on information supplied without sworn testimony or the right to cross examine witnesses, conduct discovery, or any of the usual protections of due process. The FAR Contract specifically states that the parties will be bound by any award or order thereby, as a matter of contract, providing the possibility that the Florida Real Estate Commission will render a decision as to who is entitled to receive the deposit paid under the terms of the Contract.

All other disputes under the FAR Contract (not involving the deposit) are to be arbitrated. Mediation and arbitration are to be maintained in accordance with the rules of the American Arbitration Association.

Time Periods

The FAR Contract requires calculation of all time periods in "business days" (see paragraph 11(b)) which are defined as every calendar day except Saturdays, Sundays, and legal holidays. The FAR/Bar Contract calculates time periods as calendar days except as to periods of less than six (6) days which are calculated without counting Saturdays, Sundays or legal holidays (see Standard I). Both agreements provide that if a time period expires on a Saturday, Sunday, or legal holiday, it is extended to the next business day. The FAR Contract provides that all time periods expire at 5:oo pm of the final day, but the FAR/Bar Contract provides for expiration at 5:00 pm only as to time periods extended to the next business day.

It is important to understand the calculation of time periods under the FAR Contract when it is negotiated. The use of "business days" can significantly increase the time periods. For example, a period of thirty (30) days may be a period in excess of six (6) weeks and may be longer if one or more legal holidays falls within that time.

Financing Contingency

The provisions of the FAR Contract (see paragraph 3) do not require specific terms of the loan sought but require a loan at the "prevailing interest rate and loan costs based on Buyer’s creditworthiness." The FAR/Bar Contract requires that the specific terms be stated even though many who use the agreement will complete the blanks with the word "prevailing" (see paragraph IV). Both agreements require the buyer to make application within a specified time period. The FAR Contract requires the buyer to pursue the loan by use of "diligence and good faith." The FAR/Bar and require that the buyer use "reasonable diligence."

The agreements require a time certain for receiving the "loan approval" (FAR/Bar Contract) or the "commitment" (FAR Contract). However, the procedures followed as to notice and termination in the event financing is not received are very different in each for.

The FAR Contract requires the buyer to notify the seller in writing if the commitment is not received and the notice must be provided within the period set forth to receive the commitment. If the buyer does not provide the notice, the buyer forfeits the deposit. However, if the buyer provides the written notice that the buyer has not received the commitment, the provision states that either buyer or seller may terminate the agreement but establishes no procedure or time period for such termination allowing the possibility that either party could cancel at any time prior to an actual closing.

Under the FAR Contract, receipt of the commitment is a waiver of the financing contingency requiring the buyer to close unless the property appraises below the purchase price or the "property related conditions" of the commitment are not met.

The FAR/Bar Contract provides that the buyer must notify buyer in writing by the loan approval date that the buyer has either received the required financing or waives the financing contingency. However, if no such notice is provided, either party may terminate by providing written termination ("cancellation notice") to the other not later than seven (7) days prior to the closing date. The cancellation notice provided by the seller must state that the buyer has three (3) days to deliver to seller a written waiver of the financing contingency and if the waiver is not provided, the contract terminates. If the buyer used "reasonable diligence to seek the financing, upon termination the deposit is returned.

The FAR/Bar Contract specifically provides that any loan approval which has a condition that the buyer must sell an existing property is not a loan approval for the purpose of satisfying the financing contingency.

Risk of Loss

IThe FAR/Bar Contract (see Standard O) provides that if the property is damaged by fire or other casualty and the cost to restore does not exceed 1.5% of the purchase price, the seller is obligated to restore the property. If the restoration is not completed prior to closing, the costs are escrowed. If the cost to restore exceeds 1.5% of the purchase price, the buyer can elect to terminate the contract and receive return of the deposit, or buyer may take the property as is with the credit or payment of the 1.5% of the purchase price or any payable insurance proceeds.

The FAR Contract (see paragraph 9) requires the seller to restore the property to "substantially the same condition" existing prior to the damage by the closing date or within 45 days after the closing date. It would appear that this provision extends the closing date by up to 45 days if that time is required to complete restoration. If the property cannot be restored within that time period, the buyer may terminate the agreement and receive return of deposit or accept the property "as is" but receive credit for the seller’s deductable under the seller’s insurance policy and an assignment of any undisiursed insurance proceeds payable for the damage.

The FAR Contract specifically states that in restoring the property, seller is not obligated to replace trees.

Inspections

There are "As Is" versions of both agreements in which the seller makes no warranties other than that the seller has no knowledge of defects not disclosed and not readily observable which materially and adversely affect the value of the property. These versions also provide that the buyer may make inspections within a stated time and may terminate the agreement for any reason if notice is provided prior to the expiration of the inspection period. The "As Is" versions of these agreements are widely used because the seller is not obligated to make expensive repairs which the seller may not have contemplated and the buyer is not obligated to accept repairs which may not have been done properly. Further, the buyer and seller often negotiate a fixed amount of credit for repairs thereby preventing a future dispute over the cost or nature of repairs or whether repairs were adequately performed. Because the inspections are done immediately after the agreements are entered, the agreement is either terminated or affirmed within a short time period.

In each agreement, except the "As Is" versions (see Standard D and Standard N of the FAR/Bar Contract and paragraph 8 of the FAR Contract), the seller warrants that the components of the property as listed are in "working condition." In each agreement the seller is not obligated to repair "cosmetic conditions." Each agreement provides a time period for inspection and for inspection by an appropriately licensed inspector holding itself out to be qualified to perform inspections. Each agreement provides for a limitation on the amount required from the seller for repairs. Each agreement provides for inspections to determine the existence of wood destroying organisms and for required treatment and repair.

In addition to the inspection and repair provisions, the FAR Contract (see paragraph 8(a)(4) of the FAR Contract) requires the seller to close any open permits and to obtain any required permits for work done on the property. This is an excellent provision addressing a problem not addressed by the FAR/Bar Contract. Often it is determined that work has been done or additions made for which permits were not obtained or, if obtained, final inspections not completed and the permits not closed. This provision also highlights a need for buyers and their attorneys to inspect records of the applicable building department to determine that all permits were issued and closed.

Title Evidence

The two agreements provide essentially the same options for title evidence (see paragraphs 5 (c) and 10 of the FAR Contract and paragraph V and standard A of the FAR/Bar Contract). However, the FAR Contract contains two provisions not in the FAR/Bar Contract: (1) a distinction between customary provisions in Palm Beach County and Miami-Dade County as to how title insurance commitment and policy will be issued (see paragraph 10(a)); and (2) an option allowing the buyer to select the title agent, but the seller will pay for the title commitment and policy (see paragraph 5(c)(1). The FAR Contract gives three options in 5(c)(1) which allow clarification as to who will select the title agent.

Broker Rights and Liabilities

The FAR Contract is prepared to provide as much protection as possible to licensed real estate brokers even though the brokers named in the agreement are not technically parties. In fact, the only provision of the agreement specifically stating that the named brokers are to be treated as parties to the agreement is paragraph 18. This provision contains a comprehensive disclaimer by the brokers and indemnification in favor of the brokers. However, the FAR Contract contains many provisions that treat brokers as though they are parties and that give protection and rights to brokers not given in the FAR/Bar Contract.

Paragraph 19 of the FAR Contract provides space for naming the brokers participating in the transaction and refers to the named brokers as "Broker."

Paragraph 18 of the FAR Contract contains a comprehensive disclaimer by the Broker and indemnification in favor of the Broker.

Paragraph 15 of the FAR Contract provides that if the buyer forfeits the deposit, the broker will receive on demand 50 % of all deposits paid or to be paid. The amount so paid is to be split equally between those brokers identified collectively in paragraph 19 as the broker. This provision does not consider reimbursement of the seller’s expense and cost in seeking the deposit or whether all deposits were paid and collected. Further, it may be argued that this provision obligates payment to the broker even if the seller chooses not to seek the deposit or any other available remedy. Therefore, in any settlement of a dispute arising under the FAR Contract, it is necessary for the brokers designated in paragraph 19 of the agreement to join, and it may be necessary to have the brokers agree that no remedy will be sought by the seller and to provide a release to the seller.

Paragraph 5 of the FAR Contract provides that, as a part of the closing procedure, the closing agent will disburse the brokerage fees due to the Broker as set forth in paragraph 19 of the Agreement. Paragraph 19 states that buyer and seller direct the closing agent to disburse the brokerage commission s due to the brokers as specified in separate brokerage agreements. Although this provision cannot bind a closing agent not a party to the agreement, it does give the brokers named in the agreement a reason to insist that commissions be disbursed even if the seller questions the right to receive commission or a third broker, not named in the agreement, makes a claim to be procuring cause and to receive compensation.

According to paragraph 3 of the FAR Contract, the named brokers are to be ‘fully informed" as to all loan application information and the progress of the loan commitment and the buyer authorizes the mortgage broker to disclose all such information to the brokers.

Paragraph 14 of the FAR Contract appears to enable the brokers named to assign their rights and the obligations and all rights of the brokers will inure to the successors and assigns of the brokers.

Paragraph 15 of the FAR Contract provides that the seller is liable to the named brokers for the full amount of the commission if the seller defaults. Again, this provision may not be enforceable as a contractual provision within the FAR Contract because it attempts to give rights to the brokers as if they are parties to the agreement when they are not.