Florida Real Estate Disputes: The Role of ADR Clauses in Real Estate Purchase Contracts

Introduction

Despite high inflation rates, experts predict Florida real estate market in 2023 will continue to grow, although at a slightly slower pace compared to 2020. According to them, Florida housing will return to 2018-2019 levels, with supply and demand becoming more balanced (in contrast to the surprisingly turbulent pandemic period of 2020-2021). 

Future real estate transactions will depend on mortgage rates, insurance costs, and the overall economic situation affecting consumer confidence. Regardless of the volume, real estate purchases will inevitably involve disputes. A different interpretation of contractual provisions, non-compliance with agreed-upon terms, and other reasons will continue to bring disputed parties before the court, arbitrators, and mediators.

Depending on dispute resolution methods, parties will experience different outcomes, which will determine their consumer confidence and willingness to invest in Florida’s housing markets. 

This article will explore typical real estate disputes and underscore the benefits of alternative dispute resolution methods, emphasizing the significance of ADR clauses in real estate purchase contracts. 

The Anatomy of Real Estate Purchase Contracts

Florida real estate purchase agreement (also known as residential purchase and sale agreement) defines the terms of the relationship between buyer and seller during the real estate transaction. The contract deals with price, property condition, financing, disclosures, dispute resolution, and other aspects of the ownership transaction. 

By signing a residential purchase and sale agreement, the buyer promises to pay for the real estate (through various financing methods), and the seller obliges themselves to transfer the ownership over the property.

In Florida, sellers must fill out the Property Disclosure Statement, guaranteeing the property is free from defects and issues that could affect its value.

Common Types of Real Estate Disputes

Real estate disputes in Florida occur between individuals or companies residing or occupying neighboring properties, sometimes even involving government bodies. Typical real estate disputes include the following:

• Property line disputes between neighbors regarding the exact location of the dividing line between properties;
• Disputes between homeowners and real estate developers about construction issues and repairs;
• Zoning disputes;
• Ownership disputes dealing with the rightful ownership over the property;
• Disputes between homeowners and government agencies about utility easement issues;
• Landlord-tenant disputes.

The Advantages ADR: A Smarter Way Out of Real Estate Disputes

Unlike time-consuming and financially-draining litigation, alternative dispute resolution methods such as negotiation, mediation, arbitration, collaborative law, and early neutral evaluation offer numerous benefits making them on-the-go conflict resolution tools for property owners.

Typical advantages of ADR that give them an edge over traditional methods are:

• Time-effectiveness: Out-off-court methods are known for their efficacy and short procedures;

• Lower costs: Without court filing fees and hefty litigation costs, ADR is a cost-friendly way to end a real estate dispute;

• Confidentiality: In contrast to public litigation, alternative dispute resolution methods are confidential, keeping your privacy out of public sight;

• More control: ADR allows the parties to control the process – instead of outside decision-makers (state-appointed judges), the parties determine the outcomes with the help of neutral intermediaries;

• Flexibility: Most ADR tools use advanced technology, such as online dispute resolution (ODR) platforms, adjusting the process to your needs.

The Role of ADR Clauses in Real Estate Purchase Contracts

As mentioned, Florida real estate purchase contracts define crucial aspects of the transaction involving the property description, the price, disclosures regarding its conditions, etc. 

In addition to other provisions that define mutual obligations between the parties, the contract also contains a clause defining dispute resolution mechanisms and other related questions. The parties can agree to initiate litigation in case of a dispute or to resolve the dispute out of court. If they choose the latter, such a contract provision is called an ADR clause.

The parties can include the ADR clause in the original text, defining it as a primary method for resolving all disputes that eventually arise during their relationship (for example, a mandatory pre-trial mediation). On the other hand, the ADR clause can result from contract amendments once the parties initiate litigation, realizing they will be better off out of the court.

In any case, the ADR clause has a crucial role in building and maintaining the integrity of your relationship involving real estate. Parties are more likely to commit to their contractual obligations when they know that any potential dispute will be the subject of informal, out-of-court deliberations. The prospect of lengthy and expensive litigation does not prevent parties from breaching the contract. On the contrary, its unpredictability and time-ineffectiveness can even encourage non-compliance. In contrast, stakeholders respect their relationship more if amicable dispute resolution methods are part of the contract.

The Do’s and Don’ts of Drafting ADR Clauses

Drafting ADR clauses is as crucial as other real estate purchase agreement provisions. To ensure your dispute resolution clause is on point, follow these recommendations:

• Use obligatory terms. Language such as “parties shall” will raise awareness about the importance of dispute resolution and improve the chances of compliance.

• Use clear and concise terms. Defining the dispute resolution process is a crucial part of your contract. Clearly define the situations that will trigger the ADR mechanism you agree upon.

• Define the specific ADR method you will use. The beauty of ADR is a long list of mechanisms you can select as your go-to method for your dispute. Choose among negotiation, mediation, arbitration and early neutral evaluation.

• Outline the scope of the dispute subject to ADR. When drafting the ADR clause, define whether you want to resolve the entire dispute or only some aspects using one of the ADR methods. If you choose the latter, the remaining issues will be the subject of the court process.

• Define the time frame for each phase. To avoid confusion, ineffective time management, and costs, define each stage’s time frame and commit to following it rigidly. 

• Deal with the allocation of costs. Dealing with expenses will be easier if you draft an ADR clause in your contract before the dispute arises. Agree on who will pay the mediator or arbitrator fees. If you share the costs, determine the percentage each party will bear.

• Specify the consequences of non-compliance. Despite defining all the aspects of resolving your real estate disputes in ADR, sometimes one of the parties fails to comply with the agreed-upon terms. Define the consequences for a non-complying party. Breaching the ADR clause is like non-compliance with other contractual terms. For example, the complying party can request a stay of the proceedings if the other party initiates litigation.

To avoid common mistakes when drafting ADR clauses for real estate transactions in Florida, have in mind the following tips:

• Avoid vague terms. Drafting ADR clauses requires clarity and preciseness. Avoid language that will create confusion, different interpretation, and a further complication in your relationship. Bear in mind that even some conventional ADR terms (good faith, amicable negotiations, etc.) can cause misinterpretation should the dispute arises.

• Don’t use a permissive tone. ADR clauses deal with resolving disputes that can compromise your long-term relationship. Therefore, do not use permissive language (for example, parties may) because it can result in a lack of discipline and an ineffective dispute resolution process.

• Don’t let excessive informality compromise the dispute resolution. Out-of-court methods are inherently informal. The lack of rigid rules is one of ADR’s advantages over traditional court settings. But informality should not become an obstacle, preventing adherence to schedules and defined time frames. Finding balance is key.

Key Takeaways

• A balance between supply and demand may occur in Florida real estate market in 2023;
• Despite high inflation rates, Florida residents continue to buy houses, apartments, and condos, signing residential purchase and sale agreements;
• Real estate purchase contracts define the price, property condition, financing, disclosures, dispute resolution methods, and other aspects of a property transaction;
• Real estate disputes are inherent to any real estate transaction. The most common are landlord-tenant disputes, HOA, zoning, and ownership disputes;
• ADR clauses in real estate contracts set in place out-of-court dispute resolution mechanisms, promoting clarity, legal certainty, and consumer confidence;
• To draft ADR clauses, use obligatory, clear, and concise terms, define an ADR method, outline the scope of the dispute, deal with time frames and costs allocation, and specify the consequences of non-compliance;
• Common mistakes to avoid when drafting ADR clauses include vague terms, permissive language, and excessive informality.

Joseph P. Farina: Your Top-Tier Real Estate ADR Expert in Florida

A retired Chief Judge from the 11th Judicial Circuit, Joseph P. Farina, proves that legal excellence knows no boundaries. A certified Florida mediator, arbitrator, special magistrate, neutral evaluator, and neutral empire – Mr. Farina is an undisputable authority in Florida’s ADR world.

As a top-notch ADR expert, Mr. Farina has little or no competition. His in-depth real estate disputes expertise puts him at the top among our nation’s most distinguished legal pundits. 

Regardless of the ADR method you choose to resolve your real estate dispute – Joe’s excellence, dedication, and commitment to the highest ethical standards will exceed all your expectations. 

Please reach out today to schedule your appointment at 305-371-5267 or jfarina@jamsadr.com.