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Wednesday, October 1, 2008

How Not to Draft (or Interpret) a Real Estate Contract

Lawyers are criticized for many things, and their writing is one of the most popular. Legal documents of all kinds often read as if they were prepared by an attorney from a Charles Dickens novel. My wife and I recently had our wills redone by a good friend of mine, and I told him that I had a hard time figuring out what the documents meant, and I’m an attorney! Of course, we also get our share of criticism for the cost of drafting the documents, with many comments suggesting that we charge by the letter, the word or page. Many of us try to make our documents simpler, but it just never seems to catch on.
 
So it was with some amusement, and then disbelief, that I read a recent decision by the Connecticut Appellate Court entitled WE 470 Murdock, LLC v. Cosmos Real Estate, LLC, 109 Conn. App. 605 (2008). This case involved a large commercial real estate transaction gone bad. Two parties entered into a purchase and sale agreement for the property, but they were not able to complete the closing because one of the owners was not a party to the contract and ultimately refused to sell. The buyer was not able to sue to force the sale to go through (specific performance) because not all the owners had signed the contract. So the buyer’s only option was to terminate the contact because the seller could not deliver clear title.
 
In many contracts, when a buyer terminates because of inability to deliver clear title, the buyer is entitled to recoup some out of pocket costs. In this contract the buyer was entitled to get its deposit back plus “any expenses actually incurred by the buyer for attorney’s fees, nonrefundable fees of lending institutions, title search costs and inspection fees (the total cost of which shall not exceed the cost of fee title insurance based upon the amount of the purchase price.” The parties agreed that the amount of the title insurance would be $4,650, but disagreed how the limit applied. The seller said this was a limit on all the expenses, while the buyer said it only limited the amount of inspection fees because that was the category that immediately preceding the limitation. This was an important point because the buyer claimed its expenses exceeded $100,000.
 
The court ruled that the language of the contract was clear and did not require any consideration of the parties’ intent. It said that the “parenthetical places a limit on the ‘total cost,’” but that the “the logical and sensible conclusion is that the use of that term in the parenthetical is limited to the total costs of the inspection fees.” According to the court, “interpreting the provision so that the parenthetical modifies the entire preceding list results in an illogical result that obviates the need for an enumerated list.”
 
Does that make sense to anyone else? How does it obviate the need for a list? In drafting contracts we often include lists which are not exclusive. I do not have access to the court transcripts, testimony or other records, so I don’t know what other evidence of the parties’ intent might have been provided to the court. But why would the parties’ limit the cost of only one item? If the seller was concerned about writing a blank check for reimbursing expenses, I would think that the seller would want a limit on the total costs, not just one item. Inspection fees are not typically the biggest cost in these transactions, so I don’t know why anyone would be especially concerned about that amount.
 
I suppose the language could have been drafted a little clearer. There is room for more clarity in all legal writing, although it typically requires more words. For example, a good way is to use a defined term, such as “Buyer’s Expenses.” Buyer’s Expenses would be defined as all the buyer’s reimbursable costs, and then it would be subject to the limit. Or maybe it would have been sufficient to say “the total cost of all of the foregoing expenses shall not exceed …” Every contract needs a few “foregoings” and “thereafters”. Frankly I thought the language was pretty clear as is.


Monday, June 16, 2008

Conveyance Tax Rates Extended by Special Session

In a special session on June 11, the Connecticut legislature extended the existing municipal conveyance tax rate which was set to expire on July 1. Therefore, there will be no change to any existing conveyance tax rates.

 

 

 




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