Real Estate Breach of Contract

Legal Options for Breaches of Real Estate Contracts

Whether you’re buying or selling a home or a commercial property, your real estate transaction is likely one of the largest purchases you’ll ever be involved with. Even when everything goes smoothly, these transactions can be mentally draining and time-consuming. When something does go wrong and the other party breaches the contract, it could cost you substantial time and money. It’s important to understand your legal options should this happen.

Common Real Estate Contract Breaches

There are several ways one party in a real estate transaction can breach the contract. If they fail to fulfill the terms outlined in the contract, that is considered a breach. A minor breach generally does not require legal action; these breaches occur when one party fails to uphold a specific part of the contract but ultimately comes through, making the other party whole. Unless there are documented financial damages, the wronged party is unlikely to take legal action.

An actual breach occurs when one party opts not to fulfill some or all of their responsibilities as listed in the contract. For example, a seller lists their home on the market. They come to an agreement with an interested buyer, who then sells their home and is counting on moving into the new home on the closing date. The seller decides not to sell and breaches the contract, leaving the buyer significantly financially worse off and without a home to live in. This is a serious and obvious breach.

An anticipatory breach is one that has not yet occurred but is expected to occur shortly. Using the example above, an anticipatory breach would be the seller indicating that they do not plan on selling the home and will be pulling out of the contract. Even though they have not yet pulled out of the contract, the buyer can still take steps to protect themselves.

Material breaches occur when one party does not receive what they expected in a contract. Consider a homebuyer who contracted to purchase a home, including the all-new stainless steel appliances. When they take possession of the home, the seller has removed the stainless steel appliances and replaced them with decades-old appliances worth a fraction of the cost. Or imagine a seller who agreed to replace the roof of a home after it failed to pass inspection. When the buyer takes possession, they realize the roof was never replaced.

Securing an Outcome via Mediation or Negotiation

In many cases, your best option is to secure a favorable outcome via informal negotiations or mediation. These actions are often taken by the buyer or seller, not their realtor or attorney. Once their realtor or attorney gets wind of what they’ve done, they may step in, tell the buyer or seller what is at stake, and get them back on board. This is often the best solution since it prevents you from having to go to court and incur additional expenses.

Breach of Contract Lawsuit

If the other party still refuses to fulfill the contract, you will have to move forward with a lawsuit with the help of a real estate attorney. This is obviously not the outcome you were hoping for, but it is often necessary when you’re dealing with a stubborn buyer or seller. Depending on the specifics of your case, you may either sue for specific performance or monetary damages.

Specific Performance

When you sue for specific performance, you are essentially asking the court to force the other party to uphold their end of the contract. Using the examples above, this means asking them to make the other party sell the home to you, replace your defunct roof, or replace the stainless steel appliances in your kitchen. The court generally only considers specific performance as a remedy when the buyer has been wronged. If a buyer backs out of a contract, the court typically won’t require them to go through with the contract. However, this doesn’t mean that the seller doesn’t have options—we’ll go into those in a bit.

If a seller refuses to go through with a contract, the buyer can ask for specific performance. It is generally far harder for buyers to find a home than it is for sellers to find a new buyer, which is why buyers can request specific performance.

Seeking Compensation

You can also request compensation from the other party. This may include your legal fees and any extra expenses you’ve incurred as a result of their delays. If a seller loses a contract due to a buyer backing out, they must mitigate their losses by relisting the property—but if they sell the home for less than what the original buyer had contracted for, they can request the difference in court.