Laying Down the Law – Specific Performance as a Remedy in Real Estate Contracts
April 1, 2022
Anytime the real estate market heats up, claims for breach of contract and specific performance of real estate contracts skyrocket.
Like any legal contract, real estate contracts are enforceable in court if one party or the other defaults on the contract or fails to perform one or more terms of the contract. One major issue in contract disputes often is the remedy that will cure the breach of contract. Depending on the circumstances, specific performance , or requiring the breaching party to perform the contract as agreed, can be a potential remedy in a real estate contract dispute. Indeed, per Arizona law, because real property is unique, our courts routinely find that in the event of a seller’s refusal to close on the sale of real property, money damages are inadequate and the remedy of specific performance is the correct equitable remedy. Tower v. Halderman, 162 Ariz. 243, 782 P.2d 719 (App. 1989) (affirming award of specific performance of real estate purchase contract in favor of purchaser against vendor); see also Sabin v. Rauch, 75 Ariz. 275 (1953).
In the case of specific performance, if the court grants this remedy, then the breaching party will be compelled to perform their obligations under the real estate contract, including closing on the sale of the property, at least to the extent possible.
Enforcing the Terms of Contract in Court
Assuming that a contract to purchase real estate meets all the requirements under the law to be legally valid and enforceable, the party seeking to enforce the contract must prove that the other party breached the contract terms. They also must prove that they suffered some sort of damages due to the other party’s breach of contract. And because specific performance is an equitable remedy, the party seeking to enforce the contract must not have “unclean hands.”
If the aggrieved party can successfully establish a breach of contract, the question then concerns the appropriate remedy. In the absence of an agreement of the parties, the court must decide the remedy for the contract breach that is most likely to make the innocent party whole or put the party back in the same position they were in before they entered the contract.
Specific Performance as a Remedy
Specific performance is often considered an exceptional remedy and is not always realistically available in a contract dispute for various reasons. Simply put, specific performance requires the parties to move forward and complete the contract as they previously agreed, as if there had never been a breach by one party. However, since real estate is often a unique asset with no adequate replacement, specific performance may be a preferable remedy for many parties.
A court typically may order specific performance as a remedy under the following conditions:
- The parties had a legally valid and binding real estate purchase agreement in writing
- The contract contained specific and definite terms governing the real estate purchase
- The contract provided for both parties to have obligations under the contract and remedies in the event of a breach
- The non-breaching party was ready and able to fulfill its obligations under the contract
In some real estate contracts, money damages for the breach of the contract may be insufficient. For instance, if a purchaser has sought to buy a specific parcel of land in a particular location for a certain purpose, there may be no comparable real estate available for purchase. In that case, money damages may be inadequate to compensate the purchaser for losing out on the real estate, so specific performance of the contract may be necessary.
Specific performance is likely an available remedy when a seller can sell the property as agreed but simply has changed their mind about the transaction. In this case, the purchaser likely would have the right to sue the seller and insist upon specific performance. Even if the seller went ahead and sold the property to a third party, that third party might still be required to turn over the property to the original purchaser and seek damages from the seller.
Defenses to a claim for specific performance sometimes include impracticability or unclean hands.
Attorney Christopher Charles represents buyers and sellers regarding commercial and residential real estate transactions. If you or someone you know has a real estate contract issue, or any other real estate matter, contact us today to schedule an office meeting or virtual consultation with one of our real estate attorneys.
Christopher J. Charles is the founder and Managing Partner of Provident Law ®. He is a State Bar Certified Real Estate Specialist and a former “Broker Hotline Attorney” for the Arizona Association of REALTORS ® (the “AAR”). Mr. Charles holds the AV ® Preeminent Rating by the Martindale-Hubbell Peer Review Ratings system which connotes the highest possible rating in both legal ability and ethical standards. He serves as an Arbitrator and Mediator for the AAR regarding real estate disputes; and he served on the State Bar of Arizona’s Civil Jury Instructions Committee where he helped draft the Agency Instructions and the Residential Landlord/Tenant Eviction Jury Instructions. Christopher regularly teaches continuing education classes at the Arizona School of Real Estate and Business, and he can be reached at chris@ProvidentLawyers.com or at 480-388-3343.