A breach of contract occurs when one or both parties fail to perform a necessary term of the contract, such as payment or provision of services. Contracts are binding agreements which describe the reciprocal duties each party to the contract must perform. Enforceable contracts can be verbal or written. However, written contracts are easier to interpret and enforce.
Real Estate Contracts
Real estate contracts cover a broad range of issues, including rental and leasing agreements, purchase agreements, use agreements, and boundary agreements. The type and function of the real estate agreement will dictate how the agreement is interpreted and litigated in court.
Real Estate Purchase Agreements
Real estate purchase agreements are contracts for the purchase and sale of real property – commercial or residential. These contracts involve financing and real property; therefore, they must be in writing and comply with the statute of frauds. The statute of frauds also requires contracts to identify essential terms such as the parties, price, and delivery. Some other essential terms may include:
- Address of the subject property,
- Number of days before the sale is finalized (the escrow period),
- Good faith or earnest money deposit,
- Funding mechanism,
- Items included and excluded in the sale, and
- Assignment of fees, taxes, and other expenses related to the sale.
Breaching Real Estate Purchase Agreements
Breaches can occur in different ways. For example, if the buyer misses the date to make the good faith deposit or transfer the down payment into escrow, a breach is identified. Similarly, the seller may fail to deliver the deed pursuant to the agreed method. In the event of a breach, the parties have different options to resolve their differences.
Most agreements provide for mandatory mediation to encourage the parties to settle their dispute out of court. However, if mediation and negotiation fail, either party may file an action in court to enforce his or her rights. The compensation for most parties is money damages to reimburse them for their out-of-pocket economic losses. However, in some situations, such as real estate purchase agreements – the purchasing party can compel the sale of the property.
For example, if the breaching party is the seller, the buyer may demand a return of the good faith deposit and reimbursement for costs. Similarly, if the breaching party is the buyer, the seller may demand to keep the good faith deposit.