What Is a Breach of Contract in Real Estate?
Contracts govern a wide variety of situations involving real estate. You must sign a real estate contract when you buy or sell a property. In addition, a rental or lease of property is a contractual relationship between a landlord and a tenant.
Like other types of contracts, it is possible to breach a real estate contract. A breach of contract occurs when a party fails to abide by its contractual obligations. In real estate, a breach of contract can be a serious issue, potentially resulting in the termination of a transaction.
Whether engaging in a buyer/seller or landlord/tenant agreement, you should understand what constitutes a real estate contract breach. By doing so, you will know how to enforce your contractual rights and prevent yourself from accidentally breaching the contract.
When Does a Breach of Contract in Real Estate Occur?
When a party breaches a real estate contract depends on whether it is a sales contract or lease agreement.
Rental Agreement Breaches
There are many ways in which breaches can occur in residential or commercial lease contracts. Some common ones include:
- Unapproved property usage (unauthorized leasing, subletting, etc.)
- Improper termination of the agreement
- Dispute over which party is responsible for repairs
- Implied warranty of habitability (a doctrine of landlord/tenant law requiring landlords to ensure their properties are livable and safe).
Purchase Contract Breaches
Most real estate contract breaches involve real estate transactions. Some of the most common sales agreement breaches include:
- The buyer misses the payment date.
- The seller fails to deliver the title deed.
- There are disputes over the amount or payment of closing costs.
- The property does not pass its inspection.
If you become involved in a lawsuit regarding a real estate breach of contract, you should hire an experienced real estate attorney to represent your interests.
What Are the Different Types of Real Estate Contract Breaches?
In general, there are four types of contract breaches. Your remedies in a breach of contract case will depend on which type of breach the other party committed.
Minor (Non-Material) Breach
A minor (or non-material) breach occurs when a party commits a contractual violation that is relatively inconsequential. In these situations, the non-breaching party may receive compensation only if they can prove damages, which are rare occurrences.
An example of a minor breach in a real estate contract would be the seller forgetting to include a specific fixture or appliance in the description of items included in the sale. Even though this is a breach of contract, the buyer does not suffer any damages (provided they receive all items they agreed to buy) and is unlikely to receive any remedies.
A material breach is a breach of contract that significantly impacts the non-breaching party. The damages for these breaches are easy to prove because the loss is evident.
A common material real estate contract breach is the buyer withholding payment and refusing to take possession of the property described in the agreement.
An actual breach is when one party, either accidentally or intentionally, does not fulfill a contractual obligation.
An example of an actual breach would be a renter refusing to pay rent after signing a lease agreement.
An anticipatory breach is an actual breach that is yet to occur but is imminent based on a party’s indications or behavior.
For example, a buyer and seller agree to a property transaction and sign a contract. Then, a couple of days before the closing date, the seller is notified by the buyer that the buyer does not intend to come to closing, but has not taken any actual steps yet that are a breach of the contract. Based on the information from the buyer, the seller can anticipate that the buyer will commit a breach of contract.
What Are the Remedies for a Breach of Contract in Real Estate?
In a real estate breach of contract case, the remedies available to you will depend upon the type of breach and your relationship with the other party. There are four remedies for a breach of contract case.
Money damages are a popular remedy for a loss resulting from a real estate contract breach. The process for calculating money damages can vary, depending on the jurisdiction. However, the general rule is that the compensation should make the non-breaching party whole.
For example, the monetary damages awarded to a seller who was the victim of a “cold feet” buyer could be the difference between the contract purchase price and the property’s fair market value or the amount the property eventually sells for.
Specific performance is a remedy that involves a court requiring the breaching party to perform a contractual obligation. Generally, specific performance is an option only in situations where monetary damages would be inadequate compensation.
An example of a situation requiring specific performance as a remedy would be when a seller refuses to sell a unique property (e.g., the only historic mansion in a neighborhood) to a buyer.
Many real estate contracts, especially standard residential sales contracts, contain a liquidated damages provision. This clause sets forth in advance an amount payable as damages should either party breach the agreement.
Nevertheless, liquidated damages are unenforceable if the intent is to punish the breaching party. Courts will also not enforce a liquidated damages provision if actual damages in the case are easy to calculate.
In certain situations, termination of the contract is the most equitable remedy. Termination generally involves the buyer receiving a refund for their deposit and reimbursement for expenses related to the failed transaction. Some of these expenses include:
- Attorney fees
- Survey fees
- Title inspection fees.
How Can You Avoid a Real Estate Breach of Contract?
As with any contract, the best method of avoiding breaches is to ensure the agreement explicitly outlines each party’s obligations. In addition, the contract should anticipate the many challenges that may arise during real estate sales by including a contingency clause.
Contact Us to Resolve Your Real Estate Breach of Contract Case
If you are involved in a breach of a real estate contract, you should immediately seek legal assistance. These types of cases are challenging to navigate without the help of an attorney.
At Lusk Law, we assist our clients with every aspect of real estate contracts. We have over a decade of experience providing legal advice and have an understanding of what is a breach of contract in real estate.
We are advocates for life’s obstacles and opportunities. Contact us today or call us at (443) 535-9715 to learn how we can help your case.
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What Is a Breach of Contract in Real Estate?
Contracts govern a wide variety of situations involving real estate. You must sign a real estate contract when you buy or sell a property. In addition, a rental or…