After successfully completing this topic, you will be able to
• describe the elements of an option contract,
• recognize what constitutes fraud, and
• recognize what constitutes culpable negligence.
A commercial property investor often needs to do economic, land use, or environmental studies before completing a purchase. Unless the property can be “tied up,” the investor may spend time and money for studies only to have the property sold to someone else. To tie up the property, the investor will pay the owner for the right to buy that property at a specified price for a certain period. The agreement is an option contract. The property owner is giving the option and is called the optionor. The prospective buyer who receives the right to purchase is the optionee.
An option contract must be written and signed by the parties to be enforceable.
Option contracts are unilateral contracts, since only one party, the owner (optionor), is required to perform. The optionee is not obligated to perform. If the optionee does not purchase the property, the consideration paid for the option belongs to the optionor. When the optionee exercises the option, the option becomes a sale contract that is bilateral.
Normally, an option contract is not valid unless substantial valuable consideration has been paid. This prevents unlicensed persons from using options to control property and act like brokers. Real estate licensees who wish to obtain an option contract should give the seller a no brokerage relationship notice and provide substantial valuable consideration for the contract.
If the contract requires a refund of the option money if the optionee does not buy the property, it is not a valid option contract because no consideration is present. Unless the contract prohibits the assignment of the contract, the optionee may sell and assign the option.
When a broker’s efforts have resulted in a sale, the broker is the procuring cause of the sale. A broker who has an exclusive right of sale contract is automatically the procuring cause of the sale. A broker who shows a property to a prospect who buys it six months later directly from the seller would not be the procuring cause of the sale unless the broker could show that a series of continuing actions during that period led directly to the sale.
Sometimes the dispute is not between a broker and an owner, but between two brokers. The Florida Real Estate Commission will not settle broker disputes.
The Florida Real Estate Commission will discipline any licensee who commits fraud, misrepresentation, or breach of trust in any business transaction. The FREC will also discipline a licensee who has violated a duty agreed in terms of a listing contract, or who has conspired with any other person engaged in any such misconduct.
Licensees may not advertise property or services that is fraudulent, false, deceptive, or misleading.
Brokers can be disciplined for failing to direct, control, or manage a broker associate or sales associate employed by the broker. A licensee who does not give careful attention to business duties resulting in damage to a consumer my be charged with culpable negligence.