A real estate contract contains many terms and conditions that are integral to the contract. A breach of contract occurs when a party to the contract, either oral or written, fails to perform any of the contract’s terms.
There are a myriad of cases that result from breach of contract in real estate contracts, but most relate to real estate purchase agreements. Notwithstanding, real property contracts can also include a breach in residential or commercial property usage or in the rental agreement, breach in the terms of lease (such as allowing subleases), and breaches in land usage and or boundary agreements.
As stated above, the most common breach in a real estate contract relates to real estate transactions. Because they include the transfer of real property, they must be written and signed to comply with the Statute of Frauds. All purchase contracts contain essential terms in boilerplate language prepared by the local Realtor’s Association. The terms differ from state to state or even county to county, but in general, all real estate purchase contracts include the following terms:
- Property’s purchase price
- Property’s good-faith deposit
- Property funding (specifically the loan amount and downpayment amount)
- Address of the property
- Date or amount of days before the sale is finalized (also known as the closing date)
- Items that are included in the sale
- Items excluded in the sale
- Which party is responsible for taxes and additional expenses such as warranties, the purchase of hazard reports, local rules and regulations (such as purchase of smoke and carbon monoxide alarms), etc.
A breach of contract can occur in any number of ways, but the most common breaches are as follows:
- Failing to pay on time (ie. Failing to close escrow in the time specified)
- Failing to deliver the deed of property in the correct way
- In landlord/tenant law, a landlord can be liable for breach of contract for renting a unit that does not comply with the implied warranty of habitability
- Unauthorized subleasing of a property in either residential or commercial leases
If either party fails to comply with the terms and conditions delineated in the agreement, that party is breaching or defaulting on the contract. Most purchase contracts have alternative dispute resolution options (such as mediation) that must be used to resolve any problems relating to the transaction, but these clauses are only included if the parties sign that term. If the parties do not agree to an alternative dispute resolution clause, the remedy depends on whether the non-breaching party is a buyer or a seller.
If the non-breaching party is a buyer, the remedies include suing the seller for money damages, terminating the contract and requesting a return of the good-faith deposit, plus payment of reasonable expenses, or specific performance of the agreement (ie. Making the seller perform within the terms of the contract, or complete the home sale).
If the non-breaching party is a seller, the seller can retain the good-faith deposit and terminate the contract, sue for breach of contract to obtain money damages, or file suit for specific performance (ie. Making the buyer perform within the terms of the contract, or complete the home sale).
The legal remedy for breach of other real estate contracts (such as a landlord accusing a tenant of breaching the terms of the lease by smoking on the premises) depends on the facts and circumstances of the particular case. Generally, the non-breaching party can always sue the breaching party for damages. Beyond that, they may be able to seek specific performance, restitution, and rescission depending on the facts of the case.
Breach of real estate contracts can sometimes lead to significant losses for either party. You may need to hire a real estate attorney if you need assistance filing a claim for breach of contract. Your attorney can provide you with the legal expertise and guidance that you need to protect your interests. Your lawyer can further represent you during all stages of litigation.