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The 411 About Specific Performance: It’s Unique And YOU Must Have It!

by Douglas Dowell on December 20, 2013 · 6 comments

  
Specific Performance

Man… that Van Gogh painting was going to look great on your wall in your office.

You paid a princely sum. You have signed, sealed…then suddenly, for some unknown reason, the seller balks. Delivery never occurs.

Your options after a breach of contract are always are to

  1. Do nothing and move on
  2. Negotiate
  3. Litigate

If the first two are unsatisfactory…one outstanding remedy for this scenario is specific performance.

Specific performance is defined as: An extraordinary equitable remedy that compels a party to execute a contract according to the precise terms agreed upon or to execute it substantially so that, under the circumstances, justice will be done between the parties. (Source)

Ordinarily, your primary objective in a breach case is a money award. Practically, whether you actually collect is an important factor to consider…wouldn’t you agree?

Snap back to our imagined Van Gogh scenario. You have spent a lot of money that is not longer in your hands. Neither is the painting. Tough position to be in. Your legal counsel will offer this approach. The picture is so unique that money won’t really fix the harm done. The only way to make this right is to compel specific performance!

Notice that there is a very close similarity to art work and real estate. Each property is unique in and of itself.

For example California has a five prong test whether this powerful tool will be allowed to be used:

Specific performance of a contract may be decreed whenever:

  1. its terms are sufficiently definite;
  2. consideration is adequate;
  3. there is substantial similarity of the requested performance to the contractual terms;
  4. there is mutuality of remedies; and
  5. plaintiff’s legal remedy is inadequate.

Blackburn v. Charnley, 117 Cal. App. 4th 758, 766 (Cal. Ct. App. 2004). See https://gweston.wordpress.com/tag/elements-of-specific-performance-in-california/

The first three prongs are about a meeting of the minds. Was the deal really a deal? The fourth prong brings up the next important point about specific performance. It cuts both ways! A buyer conceivably can force the seller to commit was the parties have reached a point of no return.

Ultimately, the judge will have tremendous discretion in this type of case. Your opponent will try argue that money instead will be sufficient. The fifth prong of the California test bring us right back to where we started. Will money substitute for that Van Gogh?
Photo Credit: steve-uk

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{ 6 comments… read them below or add one }

Adrian December 20, 2013 at 2:09 pm

I think it depends on what you intend to use the property for. If it’s going to be a personal residence, I imagine the Court would be inclined to grant the specific performance, as there really is no substitute as each house is different.

If it’s an investment property, I imagine the Court would not, as any other house would be acceptable for that purpose. Not sure how the Court would calculate damages though.

Reply

Douglas Dowell December 21, 2013 at 8:25 am

I think you make a great point Adrian. It may cause a judge to look to do something other. I could imagine a scenario with a wholesaler getting a great deal but the seller decided to balk. It would be interesting to see what the judge would do in that scenario.

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Dennis December 20, 2013 at 2:25 pm

Using lawyers to press a specific performance claim is a great way to loose a lot of time and money. Better to include a fee the seller agrees to pay the buyer and vice versa to terminate the purchase agreement.

In the past while purchasing homes in foreclosure or just properties with extremely motivated sellers. I put in a line on my purchase agreement that would be filled in by the seller. It would simply state buyer or seller agrees this contract can be made void with the payment of $X amount. I would tell the seller the traditional figure was $1500, most of the time the seller would demand the figure be $3000-$10,000 thinking this would stop me from not buying their house. In only one instance did a buyer try to pull out of a deal, about a month after the agreement was signed, where I mentioned “No problem, you will be paying me $3000 for the option to do so, yes? The seller decided better to sell, and they were very happy at settlement. The issue was a relative who said he would pay more, but didn’t want to put any money forward as good faith.

Reply

Douglas Dowell December 21, 2013 at 8:28 am

I think that poison pill liquidated damages clause is really a great idea. I also agree a investor has to be wise on what deals to litigate and which ones to just drop. Time, attorney fees and heartache of litigation are seldom worth it in my opinion.

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Gerald Harris December 20, 2013 at 7:36 pm

Many investors instead of going through with this deal would kill the deal. Coming from the Southern CA area you have to weigh your time vs the investment vs value. Which is more valuable to you? If you time holds the most value you will simply cancel the contract and move on. If the value you determine to make is a substantial amount in equitable interest or rental income than you may want to hang in there and fight. This being said, still your time has value. Hire it away to a real estate lawyer and be done with it. But make sure you have a future projection of the fees involved. Sellers get cold feet all the time.

Reply

Douglas Dowell December 21, 2013 at 8:30 am

That’s a really on point Gerald. The cost benefit analysis is definitely a key way to operate for real estate investors.

Reply

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