A breach of contract occurs when a party to a valid contract fails to fulfill their portion of the agreement. The terms of a contract are what guide the parties regarding what they are required to do and how they are required to do it in order to maintain their promise.
If a party does not follow the instructions of the contract, the non-breaching party may be able to take legal action and file a lawsuit in court. A breach of contract may be a partial breach or a complete breach.
A court will assess whether a breach was a substantial breach or a minor breach. This assists the court in determining what type of damages the breaching party should be required to pay.
A real estate contract is a document which contains the many terms and conditions which are integral to a contract for the sale or purchase of real estate. According to real estate contract laws, a breach of a real estate contract occurs when a party to the contract, oral or written, fails to perform any of the contract terms.
What Kinds of Real Estate Contracts are Breached?
There are numerous cases which result from a breach of contract in real estate contracts. However, most relate to real estate purchase agreements.
Real property contracts can also include:
- Breaches in residential or commercial property usage in the rental agreement;
- Breaches in the terms of a lease, such as allowing subleases; and
- Breaches in land usage and/or boundary agreements.
Suing for breach of a real estate contract typically requires a party to ensure there are certain elements present in their case. For example, the majority of breach of contract cases usually involve a party having to prove the following four elements:
- That the parties have entered into an actual contract and that the contract is considered to be valid according to contract laws;
- The party must be able to show evidence that they upheld their end of the bargain despite the other party not fulfilling their obligations;
- The party also must be able to prove that the breach amounted to a material or substantial violation of the terms of the contract. Minor or technical errors in a contract will typically not qualify for breach of contract claims; and
- The party must demonstrate that the losses they suffered were, in fact, caused by the breach and can be calculated with a reasonable degree of certainty.
What are the Most Common Terms in Real Estate Transactions?
As noted above, the most common breach in a real estate contract is related to a real estate transaction. Because these types of contracts involve the transfer of real property, they are required to be written and signed in order to comply with the Statute of Frauds.
Every purchase contract contains essential terms in boilerplate language which are prepared by the local Realtor’s Association. These terms may differ from state to state or even from county to county. However, in general, all real estate purchase contracts include the following terms:
- The purchase price of the property;
- A good faith deposit for the property;
- How the property will be funded, specifically the loan amount and the down payment amount;
- The address of the property;
- The date or amount of days before the sale is finalized, also known as the closing date;
- The items which are included in the sale;
- The items that are excluded from the sale; and
- Which party is responsible for any taxes and additional expenses such as:
- the purchase of hazard reports; and
- local rules and regulations, including the purchase of smoke and carbon monoxide alarms, etc.
What are Some Ways that a Breach of Real Estate Contract Can Occur?
A breach of contract may occur in any number of ways. Examples of real estate breach of contract may include:
- Failure to pay on time, such as failing to close escrow in the time specified;
- Failure 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; and
- Unauthorized subletting of a rental property in either a residential or a commercial lease.
What are some Remedies for Breach of Real Estate Purchase Contracts?
There can be numerous consequences of breaking a real estate contract. If either party fails to comply with the terms and conditions of the real estate agreement, that party is breaching, or defaulting, on the contract.
Many purchase contracts have alternative dispute resolution options, such as mediation, which must be used in order to resolve any problems that arise relating to the transaction. However, 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 will depend on whether the non-breaching party is the buyer or the seller.
If the non-breaching party is the buyer, the remedies may include:
- Suing the seller for money damages;
- Terminating the contract and requesting a return of the good-faith deposit, plus the payment of any reasonable expenses; or
- Specific performance of the agreement, such as making the seller perform within the terms of the contract or complete the home sale.
If the non-breaching party is the seller, the seller can retain the good-faith deposit as well as:
- Terminate the contract;
- Sue for breach of contract to obtain money damages; or
- File a lawsuit for specific performance, such as making the buyer perform within the terms of the contract or complete the home sale.
Prior to filing a breach of contract claim, it is important for an individual to review the contract for any clauses which state whether or not a lawsuit may be brought. For example, a contract may only permit the parties to enter into mediation or arbitration to resolve an issue. There may also be a time limit or a procedure which the parties are required to follow before they are permitted to file a lawsuit.
If the party is permitted, they may file a breach of contract claim with the proper court. When, where, and how the claim can be filed will depend upon the rules of civil procedure, the relevant state laws, and the rules of the court in which the claim is being filed.
What are Remedies for Other Real Estate Contracts?
The legal remedy for a breach of other real estate contracts, such as a landlord accusing a tenant of breaching the terms of a lease by smoking on the premises, depends on the facts and circumstances of each particular case. In general, the non-breaching party can always sue the breaching party for damages.
Beyond that, the non-breaching party may be able to, depending on the circumstances of the case, do one of the following:
- See specific performance;
- Seek restitution; and
- Seek rescission.
Do I Need a Lawyer?
Yes, it is essential to have the assistance of a contract lawyer for any real estate contract issues you may face. A breach of a real estate contract can lead to significant losses for the parties involved.
Your attorney can review your situation, provide you with the legal expertise and guidance you need in order to protect your interests, and represent you in court if a lawsuit is necessary. Your lawyer will represent you during all stages of litigation.