Adapted from article from Winter 2006 issue of Real Estate LEADER authored by Ron Farris, MAR's general counsel and legal hotline attorney.

Complex legal issues arise during hurricanes

Hurricane seasons confront Mississippi REALTORS® and homeowners with a complex set of legal issues relating to interrupted transactions, damaged properties, unusual leasing scenarios and environmental concerns, among others. Here are some:

Q: Is real estate considered in the guidelines of gouging? If so, what is considered a reasonable mark up value if the seller wants to increase his home?

A: The Mississippi Attorney General's office does not consider it gouging to list a piece of real property at a higher price due to changes in the market following a natural disaster.

Q: Is a Seller in breach if he wants to back out of a contract because he learned the place he was planning to move to (i.e., the coast) has been damaged or destroyed?

A: As indicated in clause 18 in the standard MAR Contract for Sale and Purchase of Real Property (F1), in the event of material damage to residential property by "fire, etc." before closing, the Purchaser may declare the contract void and shall be entitled to the return of earnest money, or Purchaser may elect to complete the transaction in accordance with this contract provided the property is restored by Seller at Seller(s) expense prior to closing of the sale. This clause does not give the Seller any right to void the contract based upon the fact that any property to which the Seller planned to move has been destroyed or damaged nor does it bind the Seller to restore the property. However, if the Seller included existence or availability of the Seller's new residence or a similar condition as a condition precedent to the Seller's obligation to sell in Section 25, "Special Provisions & Contingencies," of the Purchase Agreement, the Seller would have the right to void this contract if this contingency could not be met as a result of the contingency.

Q: Does a landlord in affected areas have the legal right to increase rent due from a residential tenant who is in a verbal month-to-month lease?

A: Mississippi's Attorney General says that existing law prohibits any increase in the amount of rent on property during a declared emergency. They further suggest, however, that they see no prohibition against a change in the terms and/or conditions of a new or renewing lease to provide for a month-to-month term until the state of emergency is dissolved.

Q: Buyers are wanting to buy properties in their "as is" condition. What steps should the property owner take to reduce his risk of liability if environmental issues, such as mold or toxic contamination, later occur?

A: There are no laws which suspend the normal environmental laws governing mold or toxic issues in real estate transactions; thus normal rules continue to apply. Generally speaking, both residential and commercial Sellers seeking protection against environmental liability should not rely on "as is" provisions in contracts, but should include "release" or "hold-harmless" provisions specifically stating the Buyer releases or holds harmless the Seller for all existing and future possible environmental liability due to mold or any other toxic substances. It should also become part of the deed, since the contract merges into the deed, to ensure protection from all possible liability. Any property that may be regulated by the Comprehensive Environmental Response Compensation, and Liability Act of 1980 (CERCLA), specifically commercial property that falls into the definition of a "facility," should include an indemnification agreement where the buyer agrees to indemnify the seller for any and all liabilities arising under the Act. There is generally no liability under CERCLA for the release of toxic substances resulting from an Act of God.

Q: Can a Seller who has listed a piece of property at one price raise the price even if there is an ongoing negotiation with a possible Buyer when the price is raised?

A: Normal rules apply, meaning that an offer to sell can be withdrawn at any time prior to acceptance. If the parties have not had a "meeting of the minds" and agreed in writing to all terms of the sale, thereby forming a binding contract, a Seller is free to raise the price or change any other term of the sale, which functions as a rejection of any standing offer to purchase and becomes a counter-offer on new terms, subject to acceptance, rejection and/or counter-offer by an interested Buyer.