In a commercial real estate transaction, just as in life, what is fair is not the same as what is equal. Generally, the remedies in a breach of real estate sale agreement are (1) return or retention of a deposit, (2) suit for damages, and (3) the right to sue for specific performance. The right to sue for specific performance allows a buyer to go to court to force the seller to sell the property to the buyer for the agreed upon purchase price. Though theoretically available to both sellers and buyers, specific performance is rarely a remedy for sellers and is much more common as a remedy for buyers.
A fair approach to remedies in real estate transactions might provide that in a buyer default, the seller is entitled to keep the deposit as its sole remedy, while, in a seller default, the buyer is either entitled to the return of their deposit or to sue for specific performance.
Why the discrepancy?
First, the buyer generally has more costs in a commercial real estate transaction. For example, the buyer likely has to perform due diligence, including environmental reports, and review the title to ensure there are no issues. The buyer may also have to obtain permits for any particular uses or development of the property. In contrast, the seller generally does not have similar costs—only costs of carrying the property, such as taxes and insurance, which it would be required to pay regardless of the transaction. In the event the seller breaches the agreement after the buyer has spent money performing this diligence, return of the deposit alone may not compensate the buyer.
Second, and perhaps more importantly, allowing the buyer to sue for specific performance prevents the seller from strategically breaching the agreement if a better offer comes along after the agreement is signed. If the only remedy for the buyer were return of the deposit, there would be no disincentive for the seller to stop accepting offers on the property. Return of the deposit and even allowing the buyer to sue for damages (to recover the previously mentioned costs) may not be enough to prevent the seller from breaching the agreement, based on the new, better offer. A right to sue for specific performance, however, removes any incentive to breach for a better offer because the buyer can always go to court and enforce the sale.
In Summary
In the event of a breach of real estate sale agreement, there are certain remedies available to both sellers and buyers. Specific performance is a distinct, equitable remedy that may be available – usually to the buyer – to prevent the seller from breaching the agreement if they receive a better offer after they’ve already signed a valid and binding contract. If you would like further information on purchase and sale agreements in real estate transactions, please contact Attorney Joshua J. Butera at 401-824-5100 or email [email protected].
