Sterling Crest, Ltd. v. Blue Rock Partners Realty Group, LLC

District Court of Appeal of Florida
2015 Fla. App. LEXIS 8924, 2015 WL 3631608, 164 So. 3d 1273 (2015)

ELI5:

Sections

Rule of Law:

To obtain summary judgment for specific performance of a real estate sale, a purchaser relying on third-party financing must prove they have binding loan commitments, and a general partner cannot bind a limited partnership to a sale outside the ordinary course of business without the limited partners' actual or apparent authority.

Facts:

Sterling Crest, Ltd. (Sterling) is a limited partnership that owns a single asset, an apartment complex in Florida.
The partnership agreement designates Royal American as the General Partner but requires the consent of the Limited Partners to sell the property.
In early 2013, the General Partner negotiated with Blue Rock Partners Realty Group (Blue Rock) to sell the apartment complex.
Dr. Reich, the representative for the Limited Partners, exchanged emails with the General Partner expressing concerns about tax implications and requesting information, but she did not explicitly approve a sale price.
On February 11, 2013, the General Partner executed a contract to sell the property to Blue Rock for $27,250,000, representing that he had unanimous partner approval.
Ten days later, Dr. Reich explicitly informed the General Partner that she did not consent to the sale.
To fund the purchase, Blue Rock relied on financing from third parties, holding only 'term sheets' that explicitly stated they were not binding commitments to lend.
Blue Rock demanded to close on the property, but the Limited Partners refused to recognize the contract's validity.

Procedural Posture:

Blue Rock sued Sterling and Royal American in state trial court seeking specific performance to compel the sale.
Blue Rock moved for partial summary judgment, arguing there were no disputed facts regarding the contract's validity or its ability to close.
The trial court granted partial summary judgment in favor of Blue Rock and issued a mandatory injunction requiring Sterling to close the sale within ninety days.
Sterling and Royal American appealed the judgment to the District Court of Appeal of Florida.

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Issue:

Is a purchaser entitled to summary judgment for specific performance of a real estate contract when there are disputed facts regarding the general partner's authority to sell the property and the purchaser's possession of binding financial commitments to close the deal?

Opinions:

Majority - Judge Orfinger

No, a purchaser is not entitled to summary judgment under these circumstances because genuine issues of material fact exist regarding both the seller's authority and the buyer's financial readiness. The court reasoned that the General Partner lacked actual authority because the Limited Partners never gave the required unanimous consent to sell the partnership's sole asset. Furthermore, the sale of the partnership's only property falls outside the 'ordinary course of business,' meaning statutory authority did not apply. Regarding apparent authority, the court noted that such authority must be created by the principal (the Limited Partners), not the agent (the General Partner); the Limited Partners did nothing to represent to Blue Rock that the General Partner had authority to sell without their consent. Finally, regarding the specific performance remedy, the court found that Blue Rock failed to prove it was 'ready, willing, and able' to close. Because Blue Rock relied on third-party funds, it was required to show binding loan commitments. The documents provided were merely non-binding term sheets or unexecuted agreements, which are insufficient to prove financial ability at the summary judgment stage.

Analysis:

This decision reinforces strict standards for both partnership agency law and specific performance in real estate transactions. First, it clarifies that a general partner cannot unilaterally sell a limited partnership's sole asset without clear authorization, as this is legally considered an act outside the ordinary course of business. It emphasizes that third-party buyers have a duty to verify authority when a transaction is fundamental to the entity's existence. Second, the ruling imposes a rigorous evidentiary burden on buyers seeking specific performance who rely on financing. A buyer cannot merely claim they have the funds or a 'strong relationship' with a lender; they must produce a legally binding commitment. This prevents parties from tying up real estate in litigation when they may not actually possess the capacity to consummate the purchase.

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