Real Estate Developers: Make sure all of your important contract provisions are included in the Agreement of Sale
One of the most important pieces of advice I give builders and developers is to “get it in writing.” It turns out that when you get it in writing is also critical. A big national builder found itself in Court with a home buyer because the builder did not put its arbitration clause in the Agreement of Sale. The builder used a form purchase agreement which referenced the builder’s limited warranty. Months later, at the settlement table, the builder finally gave the buyers the limited warranty. The limited warranty contained a requirement to arbitrate all disputes. When the buyers later had problems with their home, they went directly to Court instead of to arbitration. The Pennsylvania Superior Court said the arbitration clause was not enforceable because it was not provided at the time of the Agreement of Sale. The only mention of arbitration was provided months later, after the Agreement of Sale was signed.
Lots of builders and developers want to use mediation or arbitration to settle any disputes. If the builder wants to count on these requirements being upheld, they have two choices. First, they can make the mediation or arbitration clause part of the Agreement of Sale itself. Or second, if they put it in a limited warranty document, they need to make sure that the limited warranty is given to the buyer before the Agreement of Sale is signed. If the development is a planned community or condominium, the developer needs to give a public offering statement to the buyer before settlement. Builders and developers (and their realtors) should get into the habit of providing all of the important documents – the declaration, the public offering statement, budgets, limited warranties, etc. – when the buyer is signing the Agreement of Sale. This is the only way to make sure that everything you want in the contract actually becomes part of the contract.