Breach of Real Estate Contracts

Legal Article

Breach of Real Estate Contracts

No matter if you are purchasing your first home or are a seasoned real estate investor, you know that the time between signing a real estate contract and closing on the property is a stressful period. Many real property closings are completed without issue. However, certain real estate contracts are not properly created or will be breached before closing.

When a buyer and seller sign a real estate contract, these parties agree to all of the terms contained within the agreement. Thus, a breach of contract occurs if either party violates any of these contractual terms.

Because a breach of contract will terminate or seriously complicate a real estate transaction, it is vital that you understand the terms of your agreement. By knowing what you are signing, you can ensure your rights under the contract and prevent inadvertently breaching the contract yourself.

When is a real estate contract breached?

A breach of contract can be any violation of a term contained within your real estate contract. However, the remedies available to the non-breaching party will depend on whether the breach was material or non-material.

Material Breach

A material breach of contract is any action—or failure to act—that significantly impacts the non-breaching party. A significant impact is any result that leads the non-breaching party to not get the result they bargained for.

Non-Material Breach

On the other side, A non-material breach refers to a minor or tangential contract violation. If a non-material breach occurs, the non-breaching party may be entitled to compensation. However, the non-breaching party will only be eligible for compensation if they can prove the ways in which they were damaged by the breach.

Material Breach Versus Non-Material Breach Matter?

The difference in remedies available to non-breaching parties after a material and non-material breach are significant. When a material breach of contract occurs, the non-breaching party could elect not to perform their responsibilities under the contract.

In addition, the non-breaching party will have the option to sue the breaching party for monetary damages and, in some cases, seek specific performance.

Specific Performance

Specific performance is a legal remedy that binds the parties to a contract to the terms of the contract. This remedy asserts that parties to a contract are to perform the exact terms of the contract as they promised to do when the contract was signed. When the breaching party is found guilty of a material breach, the wronged party can pursue specific performance as a remedy to the breach.

Other remedies include collecting damages in the value of money determined by the court, or a settlement. The specific performance remedy requires taking an objective approach to the language of the contract. Since the remedy is requiring the breaching party to perform the specific terms of the contract, it is important to know exactly what those specific terms imply. Once specific performance is identified as the appropriate remedy, the wronged party will ask the court to issue a mandate that requires the breaching party to comply with the terms of the contract.

Seller’s Remedies When a Buyer Breaches Real Estate Contract

If you are the seller of the real property and the buyer has breached the contract, the remedies available to you will depend on whether the buyer made a material or non-material breach. In most cases, the real estate buyer will commit a material breach by failing to close on the property. This means that the buyer does not actually pay for and take possession of the property as agreed to in the contract.

If a buyer breaches the real estate contract, the seller will likely be entitled to monetary damages. In this scenario, it is unlikely that the buyer will be ordered to perform a specific action such as taking possession of the property. The reason why specific performance is typically not used against buyers is that monetary damages are generally sufficient to compensate a non-breaching seller. In most cases, sellers can usually find another buyer in the market easier than it is for a buyer to find a replacement property.

The seller’s primary damages will usually be calculated based on the difference between the amount due under the real estate contract and the fair market value of the property at the time of the breach. Additionally, the seller can also recover other consequential damages and interest.

Buyer’s Remedies When a Seller Breaches Real Estate Contract

If a seller refuses to close on a property after signing a real estate contract, they may be in breach of contract.

In this scenario, specific performance is likely the most common remedy for a buyer as it will force the seller to go through with the sale. In addition to specific performance, a buyer may also receive damages including the price actually paid, title and escrow expenses, the difference between the price agreed on and the value of the property at the time of breach; expenses in preparing to enter the property; consequential damages; and interest.

How to Avoid Breach of Real Estate Contract

No matter if you are dealing with a real estate contract or a general business contract, the best way to avoid a dispute over a breach of contract is to have a clear written agreement stating all relevant information, the expectations for each party involved in the agreement, and the remedies available if there is a breach of contract.

Contact Our DC Law Office for More Information

Finally, for more information regarding breach of real estate contracts, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding real estate law, check out our blog.