In a hot real estate market and equally in an uncertain one, a Seller may try to get out of an agreed-upon purchase contract, perhaps to take a better offer. What does a frustrated Buyer or real estate agent do? The answer may be found in the law of Specific Performance, and that is the subject of today’s Article.
Here’s the scenario: The Buyer has finally found the home of their dreams and they and their real estate agent are excited that the Seller has accepted their offer. Suddenly, the agent gets an e-mail from the Seller’s agent: the Seller has found a buyer willing to pay more and is refusing to go forward unless the first Buyer meets or beats the new offer. Sound far-fetched? Not at all. This scenario is played out with great regularity both in residential property sales (including rental properties) as well as commercial and industrial transactions. So what do you do if you are the Buyer or agent facing this situation? The key is to understand the law of Specific Performance.
Specific performance is an Order of a court which requires a party to perform a specific act, usually what is stated in a contract… such as completing the sale agreed to in a real estate purchase and sale agreement. Unlike a lawsuit for money damages for breach of contract (which is what is actually occurring), a lawsuit for Specific Performance is seeking for the Court to force the Seller to perform their obligations under the Contract. As such, this is considered an “equitable remedy” forcing the seller to act fairly towards the Buyer and giving the Buyer the benefit of what they contracted to receive. In fact, if the Seller still refuses to cooperate, the Court can actually complete the sale on the Seller’s behalf. Of course, since this claim arises because the Seller has violated the Contract, the Buyer can generally also recover their attorney fees and costs incurred in bringing this lawsuit.
While specific performance can be in the form of any type of forced action, it is usually used to complete a previously agreed upon real estate transaction where all of the essential terms are contained in a written agreement and signed by both Buyer and Seller. In California, this law is located in CA Civil Code Sections 3384 et seq. which includes certain conditions on when this remedy can be used. For …read more