Risk of Loss During the Executory Period
The executory period is the period of time in a real estate transaction between the signing of the contract for sale and the closing of the property. A key consideration during the executory period of any real estate transaction is which party bears the physical risk of loss of the property. It is important to determine who bears the risk of loss, as that risk establishes liability for losses from floods, fires, and similar occurrences. The parties, and particularly the buyer, should determine who will bear the risk of loss prior to executing the contract for sale. Otherwise, the courts will make that determination for them.
In Florida, the risk of loss of the property is on the buyer, in the absence of an agreement to the contrary. See O’Neal v. Commercial Assur. Co. of America, 263 So. 2d 246, 247 (Fla. 3d DCA 1972); Munshower v. Martin, 641 So. 2d 909, 910 (Fla. 3d DCA 1994). The impact of Florida’s rule is that the courts will determine the risk of loss to the detriment of the buyer. Florida provides an insurance remedy for the buyer’s risk. If the property is insured, the buyer is entitled to insurance proceeds resulting from any loss. See Munshower, 641 So. 2d at 910. The insurance remedy places the buyer in the unenviable position of relying on the seller to purchase insurance and to provide the proceeds to the buyer. The entitlement to insurance proceeds has been the source of much litigation.
The parties do not need to rely on the insurance remedy. Prior to executing a contract for sale, the parties should contemplate their expectations regarding the risk of loss. Florida’s presumption is that the risk of loss falls to the buyer. However, the parties may agree by contract that the seller will assume all or part of the risk. It may be in at least one of the parties’ best interest to shift the risk to the seller.
If you are about to enter into a contract for the sale of real property, call one of our South Florida real estate attorneys today at (954) 779-7009.