Forcing the Sale of Property After Breach of Sales Agreement
When parties enter into an active contract on the purchase of a home, they assume that the contract will close on the agreed upon closing date listed in the sales contract. Sometimes, however, notwithstanding that obligation, one of the parties changes their mind. What remedies are available when the other party refuses to close?
The answer to this isn’t as simple as it seems. Forcing the breaching party to perform under the contract and either buy or sell the property can be a tricky matter. “Specific Performance” is a remedy in equity, which can be brought by one party to force the other to perform as agreed. The only problem with trying to force the purchase through specific performance is that the remedy is very rarely provided and only given at the Court’s discretion. Florida Courts deem specific performance as a remedy available only when no other monetary remedy is available.
Furthermore, when a lawsuit is filed on the property seeking specific performance, a notice of lis pendens is filed against the property, tying it (and the parties) up for up to three years in protracted litigation to obtain the remedy. Either party can seek to utilize the remedy, but only if the contract terms are definite and certain in all of its essential elements, the defending party has no affirmative defenses, monetary damages are inadequate, and the terms of the enforcement are reasonable.
For a buyer who seeks this remedy, there are certain conditions precedent which need to occur:
- Unless the seller has repudiated the contract, the buyer must prove that he was “ready, willing and able” to complete the purchase. If the buyer is financing the purchase, the buyer must prove that it was able to tender the purchase price at the time of breach.
- The buyer must file suit and a lis pendens as soon as practicable, or risk the conveyance of title to another, defeating the claim.
- Any suit for specific performance must be commenced within one year from the breach, or be barred by a statute of limitations.
For the buyer, there is a strategic advantage in suing for specific performance. Some have referred to it as “legal blackmail.” Once the buyer files the lis pendens, the seller will no longer be able to covey the property to another due to the cloud on title. Any other purchaser will be unable to obtain marketable title, effectively holding the seller and the property hostage until a resolution is obtained. Most times, a seller will be forced to settle.
For the seller, seeking specific performance is a crapshoot. Unless the purchaser has a cash offer and proof of funds are provided prior to contract, Courts will not speculate as to whether the buyer is capable and therefore should be forced to purchase. Furthermore, there is a liquidated damage clause in most sales contracts. This means that the seller must elect between taking the earnest money or bringing the action for specific performance. It cannot do both. Although there is a prevailing party attorney’s fees provision in the sales contract, a seller will be required to outlay the attorney’s fees up front and finance the litigation while holding the property off the market while the lawsuit is pending. Technically, the seller may choose not to file a lis pendens, but any other buyer will need to be apprised of the lawsuit, or otherwise the seller has failed to disclose. Essentially, for the seller to elect specific performance, it must be a “slam dunk” breach with no facts in dispute as to why the buyer didn’t perform and the buyer must be wealthy enough to be forced to purchase.
In conclusion, while Specific Performance is a remedy, it is and should be used sparingly. Only those who have undisputed facts of a breach should consider it and the party seeking same needs to be mindful that they will need to finance the litigation out of pocket until a resolution is found between the parties or by way of a court order.