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The Florida 3rd District Court of Appeals (Dade) appears to have departed from the rule that a seller can not keep the buyer’s deposit for breach if the contract also gives him the remedy of specific performance.

In San Francisco Distribution Center, LLC, v. Stonemason Partners, San Francisco signed a contract to buy a commercial property in Miami Beach for $5,250,000.00 with a deposit of $400,000, to close in 45 days. The contract provided that in the event of buyer breach,  the seller had the choice of keeping the deposit (liquidated damages) or suing for specific performance.

San Francisco failed to close and the seller demanded the deposit. Subsequently the seller sold the property to a third party for $200,000 more.   In defending the law suit for liquidated damages San Francisco argued that

1) the liquidated damages clause in the contract was an unenforceable penalty clause because the seller had the choice of specific performance; and

2) it was “unconscionable” that they lose their deposit because the seller did not suffer any actual damages

Regarding the issue that a liquidated damages clause was unenforceable when the seller has a choice of liquidated damages or specific performance, the 3rd DCA distinguished the Florida Supreme Court ruling in Lefemine v. Baron, 573 So. 2d 326 (Fla. 1991) which struck down a liquidated damages clause where the seller had a choice of remedies noting that the Lefemine court expressly noted that it was not “imply[ing] that a liquidated damages clause which merely provided the option of pursuing equitable remedies would be unenforceable.” The 3rd DCA went on to state that a suit for specific performance was an equitable remedy and not only a suit for damages that would fall under Lefimine. The court also cited to Mineo v. Lakeside Village of Davie, LLC, 983 So. 2d 20 (Fla. 4th DCA 2008) distinguishing Lefemine and holding a forfeiture clause enforceable when it gave seller the option of retaining the deposit or enforcing the contract by specific performance and obtaining damages for delay

The court also analyzed whether the liquidated damages provision was “grossly disproportionate to any damages that might reasonably be expected to follow from a breach” and concluded that as $400,000 was 7.6% of $5,250.00, it was not. Florida courts addressing this issue have held that a forfeiture amount of ten percent or less of the total purchase price is not unconscionable. See Lefemine, 573 So. 2d at 328 (ten percent); McGuiness v. Prospect Aragon, LLC, 981 So. 2d 496, 499 (Fla. 3d DCA 2008)(eight percent); Bradley, 943 So. 2d at 222 (4.85 percent); Hot Developers, Inc. v. Willow Lake Estates, Inc., 950 So. 2d 537, 541 (Fla. 4th DCA 2007)(9.65 percent).

Regarding the unconscionability of forfeiting the deposit when the seller had actually sold for more to a third party, the court noted the volatility of the Florida real estate market and cited other cases in which courts upheld the forfeiture of the deposit even where the seller eventually sold the property to a third party for more.

As an interesting footnote: the parties allowed the buyer’s broker to hold the deposit. As it turns out not only was only $100,000 deposited, but the buyer’s broker returned it to the buyer when they failed to close.   A separate law suit is pending against the broker.

San Francisco Distribution Center, LLC, v. Stonemason Partners, LP, No. 3D13-2320
Lower Tribunal No. 12-16756 Third District Court of Appeal State of Florida, Opinion filed: April 16, 2014.

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