Specific Performance of Real Estate Contract

Specific Performance or Money Damages for Breach of Real Estate Contract

Is the Real Estate Contract of Sale Enforceable?

A properly drafted contract of sale for a house, condominium, co-op apartment, commercial property or land in New York State should be binding upon both the purchaser and the seller. There are however certain contingencies in most contracts which must be satisfied before the buyer or the seller is required to complete the transaction.  If the seller refuses to close the transaction, we will discuss the client’s options, including the possibility of commencing an action for Specific Performance of Real Estate Contract.

Contingency Clauses in Real Estate Contracts

Many contracts for the sale of real estate in New York State contain a mortgage contingency clause which enables the purchaser to cancel the contract in the event that a mortgage commitment is not obtained within the period of time specified in the contract. New York real estate contracts may also give the purchaser a certain period of time to have the property inspected for termite infestation, termite damage, lead paint, asbestos, leaking underground oil tanks, or other environmental hazards. If any of the contingencies contained in the contract are not satisfied, that may be a legitimate ground for canceling the contract.

Similarly, the buyer’s obligation to complete the transaction is usually contingent upon the seller’s ability to deliver good and marketable title to the property, as well as a valid certificate of occupancy or certificate of completion for the property (unless it was constructed or renovated prior to the time that such certificates were required.) In addition, there should be a requirement that the property complies with zoning laws and other municipal or local rules and regulations.

Contracts for the purchase of a co-op apartment should contain a provision stating that the transaction is contingent upon the purchaser obtaining approval from the Co-op Corporation’s Board of Directors.

What Happens If One Party to the Contract Changes Their Mind?

Real estate contracts in New York are meant to bind both the buyer and the seller to complete the transaction, provided that the contingency clauses have been satisfied. Typically, neither the seller or the buyer may terminate the contract merely because they change their mind, or because a different purchase or sale would be more advantageous to them. However, sometimes a party to the contract might be able to use a contingency clause to his or her advantage, even though the clause wasn’t meant to protect that party.

Seller May Prefer to Cancel the Contract If Approached by Another Potential Buyer Offering More Money for the Same Property

If approached by another potential buyer offering more money for the same property, the seller may prefer to cancel the contract.of sale. Generally the seller will have no legal right to terminate the transaction merely because another potential buyer offered a higher price or better terms. Nevertheless, in some instances, circumstances might occur which could possibly enable the seller to take advantage of a poorly drafted provision in the contract, in order to cancel the contract. Oftentimes, this might be the result of the seller taking unfair advantage of a contingency clause in the contract. If the seller is able to successfully terminate the contract, although his true motivation was to get a higher price from another buyer, this is probably an unforeseen result of a contract provision that was probably meant to protect the buyer rather than the seller. In many instances, careful draftsmanship by the buyer’s attorney might have prevented that unfair result.

Buyer May Prefer to Cancel the Contract If the Buyer Finds a Different Property for a Lower Price

If the buyer finds a different property that he or she prefers, or that can be bought for a lower price, the purchaser may prefer to terminate the signed contract, and instead take advantage of the opportunity to purchase a different property.  If all the contingencies of the contract have been satisfied, the purchaser will probably have no legal right to terminate the transaction. If the buyer nevertheless insists on terminating the purchase, he will probably be compelled to forfeit the down payment as “liquidated damages”. Alternatively, if the contract does not contain a liquidated damages clause, the purchaser might be liable for even more money, such as the difference between the agreed purchase price and the sales price when the seller sells the property to a different purchaser, as well as other money damages.

Actions for Specific Performance or Money Damages for Breach of Real Estate Contract

If a party to the contract of sale wrongfully refuses to complete the transaction, the other party may have a legal right to either sue for money damages, or in some instances, to sue for specific performance. The goal of a lawsuit for specific performance is for the court to force the other party to close the transaction in accordance with the terms of the contract of sale. The goal of a lawsuit for money damages is for the court to force the other party to reimburse the aggrieved party for the extra cost that will be incurred as a result of the other party’s breach of the contract.

Whether the aggrieved party to the contract of sale will receive money damages or specific performance of the contract of sale will depend on the terms of the contract, as well as the circumstances of the other party’s breach of the contract. In order to be awarded either money damages or specific performance of the contract of sale, the aggrieved party will need to prove that he or she was ready, willing and able to close the transaction. For example, for a buyer to be awarded either money damages or specific performance of the contract of sale, the buyer will need to prove that he or she had the available funds to complete the purchase of the property. For the seller to be awarded either money damages or specific performance of the contract of sale, the seller will need to prove that he or she was able to deliver good marketable title to the property, together with the documents required by the contract of sale, such as a certificate of occupancy.

What Happens If a Contingency in the Contract Is Not Satisfied?

Sometimes a contingency in the contract is not satisfied. For example, an inspection of the property reveals termite infestation or termite damage, a leaking underground oil tanks, or other environmental hazard. Depending upon the specific provisions of the contract, these conditions may give the purchaser the legal right to compel the seller to rectify the condition at the seller’s cost. Another possibility is that the contract provision might give the buyer or seller an opportunity to cancel the contract.

Sometimes a purchaser or a seller might be able to take advantage of a contingency clause in order to legally cancel a contract, although the real motivation to terminate the transaction is completely unrelated to the contingency clause.  For example, depending on the terms of the real estate contract, a buyer might be able to take advantage of a contingency clause in order to cancel a sale, when the real reason is that the buyer found a different property that he would prefer to purchase  Sometimes, a seller might be able to take advantage of a contingency clause in order to cancel a sale, although the real motivation to terminate the contract is that the seller was offered a higher price from another purchaser. Whether a buyer or seller can legally terminate a contract of sale depends on the specific language of the real estate contract, as well as the particular circumstances that have arisen.

What Can the Seller Do If the Buyer Refuses to Complete the Transaction?

Depending upon the language of the contract, and the specific reason provided by the buyer for terminating the transaction, the Seller might have a legal right to start a lawsuit for “specific performance” or for money damages. For example, if the seller is forced to sell the property quickly to another buyer for less than the contract price in the contract of sale that was breached by the buyer, the seller might be entitled to recover that monetary loss from the buyer who breached the contract.

What Can the Buyer Do If the Seller Refuses to Complete the Transaction?

Depending upon the language of the contract, and the specific reason provided by the seller for terminating the transaction, the buyer might have a legal right to start a lawsuit for “specific performance.”  In addition, the real estate litigation attorney’s discussion with the seller’s attorney of a contemplated lawsuit for specific performance, might result in an agreement to complete the purchase, or a negotiated settlement.

Lawsuit for Money Damages

If the property is not unique, the purchaser might consider finding another similar property to purchase, and then sue the seller who breached the contract of sale by refusing to close the transaction.  Money damages sought in that lawsuit may include the difference between the purchase price in the contract breached by the seller, and the price paid by the purchaser for the replacement property.  Other money damages sought in that lawsuit may include the buyer’s other costs and expenses incurred as a result of the breach of contract.

Lawsuit for Specific Performance of the Contract of Sale

If the property is unique, the purchaser might consider a lawsuit for specific performance seeks to obtain a court order directing the seller to complete the transaction at the agreed price, in accordance with the terms of the contract. Before rushing into a lawsuit for specific performance, it is important to carefully review the terms of the contract of sale. That will assist the real estate litigation attorney in analyzing the likelihood of the buyer being able to obtain a court order granting specific performance of the contract, or seller being able to convince the court that the cancellation was permitted under the terms of the contract.

Lawsuit for Specific Performance or for Money Damages May Lead to a Settlement

The real estate litigation attorney’s commencement of a lawsuit for specific performance or for money damages, or perhaps even discussion with the seller’s attorney of the contemplated lawsuit for specific performance or for money damages, might result in an agreement to complete the transaction, or a negotiated settlement.

Notice of Pendency (Lis Pendens)

If the purchaser starts a lawsuit for specific performance, it is important to simultaneously file a Notice of Pendency (Lis Pendens), which gives notice to anyone checking the real property records that there is litigation pending against the property.

Is Your Real Estate Transaction Lawyer Also a Real Estate Litigation Attorney?

If you are the buyer or seller of a New York property, faced with any of the situations described above, we suggest that you first ask the attorney representing you in the real estate transaction to discuss your options, and tell you whether he or she has the experience to represent you in resolving the controversy, either by negotiation or litigation. In our real estate litigation practice, many clients have told us that their real estate transaction attorney is not a real estate litigator, and has advised them to hire a real estate litigation attorney.

Contact Us to Discuss Your Real Estate Contract Dispute

If the attorney representing you in your real estate transaction has been unable to force the other party to close the real estate sale, it might be time to contact a real estate litigation attorney. We invite you to contact our New York real estate litigation attorney to discuss your real estate contract dispute, and possible lawsuit for specific performance of the real estate contract of sale, or for money damages.

How Our Real Estate Litigation Attorney Can Help You

It has been our experience that when a buyer or seller hires a real estate litigation attorney such as our firm, the litigator may be able to persuade the party attempting to breach the contract of sale, to reconsider their position, in order to avoid litigation.  The result may be that the party attempting to cancel the contract decides to either complete the transaction, or negotiate a solution that is acceptable to our client.

If a negotiated settlement is not possible, we will discuss with our client the options, including the pros and cons of commencing an action for either specific performance or for money damages.

Law Offices of Michael W. Goldstein

Real Estate Litigation Attorney

Real Estate Contract Disputes

Actions for Specific Performance

Actions for Breach of Contract