Disputes over the purchase and sale of real estate differ from other legal disputes because the jilted party in a real estate transaction can often ask the court to actually enforce the contract. Rather than awarding money damages, a court can order parties to go through with the transaction. This is crucial when a project relies on a specific location or the land under contract is part of a bigger development project. However, an uninformed party can unintentionally impair his right to this unique remedy if not careful. Here is what it takes to prosecute a successful lawsuit for Specific Performance.
1. What is Specific Performance?
Specific Performance asks the court to force the opposing party into a contract that binds them to actually perform the contract at issue, rather than awarding damages for breach of contract. In real estate litigation, a buyer can force a reluctant seller to live up to the purchase and sale agreement.
2. What are the requirements for a Specific Performance lawsuit?
A complaint for specific performance must allege: (a) the making of a specifically enforceable type of contract, sufficiently certain in its terms; (b) adequate consideration, and a just and reasonable contract; (c) plaintiff's performance, tender or excuse for nonperformance of the contract; (d) defendant's breach of the contract; and (e) inadequacy of a remedy at law.
3. What does this mean in plain English?
Specific performance typically arises in a real estate transaction. The law considers real property to be unique and therefore a contract to purchase real property can be specifically enforced. It is presumed that monetary damages are not enough to compensate for a breach of contract to sell real property and therefore a court will force an owner to sell the property according to the contract.
The terms must be certain.
Essential factors include identifying: (1) the seller, (2) the buyer, (3) the price to be paid, (4) the time and manner of payment and (5) the property to be transferred. In other words, the court must be able to figure out what to enforce. What is "essential" depends on the circumstances of the agreement, including the agreement and its context, the subsequent conduct of the parties, the remedy sought and, quite frankly, which judge is hearing your case.
In some instances, where certain terms are missing, the court will insert "reasonable terms," often based on custom in the industry. For example, when no time is specified for payment, the court may decide upon a 'reasonable time.' When a manner of payment is lacking, the court will assume that the payment will be by cash or cash equivalent. However, some courts have found the lack of a time for payment in the contract to render the contract unenforceable.
The buyer paid adequate consideration and the contract was just.
In many cases, the payment of even $1 is adequate consideration. Moreover, where the seller enters into the contract willingly, he is often presumed to have waived any argument that the price of the deal was inadequate. Typically contracts are negotiated at arms length and their adequacy is not an issue.
The plaintiff must have performed the agreement.
A buyer who failed to deposit the purchase price in escrow by the deadline cannot then turn around and sue the seller for specific performance. In order to enforce a contract, a party must have met his obligations under the contract to show a reason why his performance is excused.
The defendant must have breached the agreement.
The failure to convey the property will usually constitute a breach of the purchase and sale agreement. Typically the defendant will argue that the plaintiff is the one who breached the agreement and that is why the deal was not completed.
A money award must be inadequate.
Again, the law presumes that real property is unique and therefore an action to enforce the sale of a particular piece of property can typically be enforced by specific performance.
4. What happens when you win a Specific Performance lawsuit?
When a party wins a Specific Performance lawsuit, the court will seek to put the parties in the position they would be in if the contract had been performed pursuant to its terms. This means the court will order the sale of the property at the price and terms agreed upon. Moreover, the victorious party will also be entitled to a judgment for the rents and profits from the time he was entitled to the conveyance under the contract.
The court will consider an equitable accounting to relate the performance back to the contract date of performance. For example, if a tenant has been paying rent on a building, the buyer would be entitled to those rents during the time that the matter was tied up in litigation. Conversely, if the owner has been making payments on the mortgage, property taxes and insurance, these payments must be taken into account as well.
5. Lessons Learned
When a purchase and sale deal starts to unravel, seek legal advice. While the other party may have breached the agreement, the wrong response (i.e., refusing to perform your obligations) can destroy your chances for success on a subsequent lawsuit. Proper legal advice can also help you ascertain your legal right to seek specific performance.
The author has permitted the reprinting and redistribution of this article.