• Ronald A. Flate

Real Estate Sales Contracts And Specific Performance Actions

Dear Clients and Friends,

When a real estate purchase agreement or contract of sale is entered into, a binding contract is in place for Court enforcement. Upon the contract being signed by the seller and the buyer – and the buyer has given the seller a deposit – the parties are obligated to meet the terms and conditions of the contract. If either party fails to perform, the other party has a right to enforcement through various legal remedies. One remedy, called Specific Performance, requires the defaulting party to complete the contract.

Specific Performance is a form of relief requiring the party who breached or defaulted to fulfill the terms of the contract. For example, if the seller is able to perform his agreements in the contract, but is unwilling to do so, the buyer may bring a lawsuit for Specific Performance. The courts generally recognize that each parcel of land is unique and that a monetary award would be inadequate. They will order the seller to convey the property to the buyer, according to the terms of the contract.

A buyer may also obtain Specific Performance from the seller when the seller can’t convey all of the property covered by the contract. For example, when the parcel is smaller in area than that agreed to be sold or when additional defects in the title are uncovered. The seller may be compelled to perform to the extent possible, with an abatement (reduction) of the purchase price to compensate for the defect or deficiency. The amount of the abatement is usually equivalent to the value of the property not conveyed.

When a lawsuit is brought for Specific Performance, the plaintiff routinely files a notice of the pendency of a lawsuit. This notice is standardly referred to as a Notice of Lis Pendens. It prevents the seller from selling the property to another buyer while the lawsuit is pending.

To obtain Specific Performance, the buyer must show that he or she was ready and able to perform at the closing.

A seller of real property may also file a lawsuit against a defaulting buyer for Specific Performance of the sales contract. The relief actually obtained by the seller in this kind of lawsuit is the recovery of money because the court can only enter a judgment requiring the payment of the purchase price amount.

A seller who retains the buyer’s down payment can still sue for Specific Performance. However, if the contract provides for a specific, exclusive remedy in the event of the buyer’s breach, the seller is precluded from bringing a lawsuit for the purchase price. For example, in some states the buyer’s deposit is considered earnest money, which suggests an agreement of liquidated damages in the event of a breach of the sales contract, and specific performance can’t be ordered.

Specific Performance is granted at the court’s discretion. The court will only grant such relief if there is a valid contract between the parties and if the buyer has signed the contract. Moreover, all of the conditions of the contract applying to the seller must have been performed. The seller must be ready, willing and able to comply with the contract.

If you, or others you know, have any questions on the remedy of Specific Performance or on any other part of a Real Estate sales transaction, we invite you to call us for a free initial phone evaluation to see if we can be of help.

Best,

Ron

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