Millions of real estate transactions hurtle through U.S. realtors’ offices every day, and most of them close without a hitch, resulting in many happy buyers and sellers. But occasionally, a home sale may go off the rails, and one party, through no intentional fault of their own, may find themselves either in breach of contract or having their contract breached by the other party. Let’s look at the basics, should this ever happen to you.
As we shared in a previous post, for a contract to be legally binding and enforceable, it must have three components: an offer, an acceptance of that offer, and consideration, i.e., each party must provide something to the other party. In Florida, a real estate contract can be breached if either party does something to break one of these three things.
The breaching event often occurs before closing and can be due to a number of factors. Perhaps the buyer wasn’t able to obtain financing or couldn’t come up with the earnest money. Maybe the seller failed to make the agreed-upon repairs before the sale or didn’t show up for the closing.
What To Do If Your Real Estate Contract is Breached?
First of all, don’t panic. Homebuying can be an emotional experience even when everything goes right. You’ll want to address the situation in your best state-of-mind, so take a deep breath and remain calm.
Next, read your contract. A standard real estate contract contains guidelines for what must happen in the event one of the parties has violated its terms. That’s where Specific Performance comes in.
When a real estate contract has been breached there are two types of remedies—equitable and monetary. An equitable remedy requires the breaching party to do something or refrain from doing something. A monetary remedy is when the breaching party must pay the other party for damages associated with the breach.
Specific Performance allows a court to order the breaching party to complete their side of the real estate contract. This remedy is available to both sides.
So, what does this look like? If the buyer is asking for specific performance, they usually want the court to order the seller to complete the sale. When a seller seeks this remedy, they usually want the same thing, but this can become complicated when the buyer doesn’t have the financing, or they must wait until their current home sells to have the available funds. Cases in which the seller is granted a specific performance are rare.
Specific Performance in Florida Real Estate Law
The remedy of specific performance is recognized in every state, as well as federal law. But there are variations in how it must be asked for and proven, as well as when it will be legally awarded, that are unique to each state.
In Florida for example, specific performance is generally available to both the buyers and sellers, but the contract terms must be unambiguous, include the obligations of both parties, the time and method of performance, and a legal description of the property. The complaint or counterclaim must meet these same criteria as well.
However, it is important to remember that specific performance is not a matter of right to either party, and is entirely at the court’s discretion. In other words, the court can deny this remedy even when the contract’s terms are unambiguous, and the remedy is available.
How to Plan for a Real Estate Contract Breach
Breach of contract in real estate transactions happens more often than you may think, and can occur even when both parties are earnest and forthright in their desires regarding the transaction. For example, if a homebuyer really loves a home and wants to buy it but can’t secure financing, they are in potential contract breach even though that wasn’t their intention. Fortunately, there are things you can do to mitigate or lessen the risk of a breach.
Adding a contingency clause to your real estate contract can protect you in case of a breach. A contingency clause states that certain obligations are contingent upon some preceding condition being met. For example, an inspection contingency makes a home’s sale contingent upon it passing an inspection. An appraisal contingency allows a buyer to back out or ask for a lower price if the home appraises for less than the asking price.
Follow Your Real Estate Lawyer’s Advice
We aren’t suggesting you should attempt to edit your own contract. It goes without saying that your safest bet is to allow a real estate law professional to construct your contract. He or she will have the knowledge and legislative acumen you need to ensure any contracting situation you enter into will be in your best interests.
Contact Florida Bar Board-Certified Attorneys David E. Klein, Esq. and Guy Rabideau at Rabideauklein.com. They have the expertise and experience you need to ensure that your interests are protected throughout your real estate transactions in the Town of Palm Beach, across the Palm Beaches and throughout Florida. Contact Rabideau Klein today to discuss the legal implications of your Florida property transactions.