If you have or are looking to purchase, invest in, or sell residential or commercial real estate, it is important to understand what options are available to you if the other party in the agreement backs out before closing on the property. Though most real estate transactions are completed without any issue, in some cases, one or both parties in the agreement will not perform a duty or even directly breach the contract. If one party breaches the contract, this can prevent the closing of the property or result in a different outcome than the parties initially agreed to.

In most cases, for a real estate contract to be binding, the contract must be in writing. Further, when each party involved in the agreement signs the contract, they agree to all of the terms and conditions within the agreement. If either or both parties violate these terms, that means the contract is breached.

When looking to buy or sell a piece of real property—especially commercial property—you must understand the terms of the agreement. The reason why you should know the terms of the agreement is so you can secure and protect your rights under the specific contract. Additionally, if the other party in the contract breaches the agreement, knowing and understanding the contract allows you to identify if they breach their agreement.

Below are different types of contractual breaches and the different kinds of damages you can recover if one party breaches the contract.

What Constitutes a Contract Breach in Real Estate

A breach of contract can occur if one or multiple parties violate any term or condition within the real estate contract. However, the remedies and damages available to the non-breaching party largely depend on whether the breach of contract was material or minor.

Material Breach

A material breach of contract refers to an action, or failure to act, that substantially affects the non-breaching party in a way that makes it so the non-breaching party does not get the result as outlined in the contract.

Non-Material Breach

A breach of contract is non-material when one party violates a minor condition in the contract that does not derail the entire agreement. If a non-material breach of contract occurs, the non-breaching party may petition the court for compensation. However, to receive this compensation, the non-breaching party must show that they were damaged by the breach.

Why the Material and Non-Material Distinction Matters

There are different remedies available to the non-breaching party depending on whether the breach of contract is material or non-material. If the breach of contract is material, the non-breaching party can choose to still perform their responsibilities under the contract. Further, the non-breaching party may also be able to sue the breaching party for damages.

Below are the types of damages and specific remedies available to both real estate sellers and buyers.

Compensatory Damages

Compensatory damages are civil damages awarded to an injured party for the defendant’s unlawful conduct or omission. Further, compensatory damages fall into two categories: general and special damages.

General Damages

General damages constitute those that are a direct result of the breach of contract. The reason for these damages is to put the non-breaching party in the position they would have been in had the contract been completed. As the parties can contemplate this position at the time the contract was signed, the damages are considered sufficiently predictable. As the damages are implied by law, these damages do not need to be specifically pled.

Special Damages

Special or consequential damages are damages that equal the specific damages the non-breaching party suffered. These damages are not implied by law and thus the non-breaching party must prove reasonable certainty of the damages suffered. Further, a party may only receive these damages if they were foreseeable by the parties when agreeing to the contract.

Exemplary or Punitive Damages

Punitive damages are private fines that are meant to punish the defendant—deterring any future wrongdoing. However, punitive damages are not normally available for a simple breach of contract. Instead, the breach of contract must include alleged fraud or negligence that significantly hurt the non-breaching party. Finally, the plaintiff must prove the defendant was guilty of oppression, fraud, or malice before receiving punitive damages.

Seller Remedies for Buyer’s Breach

These are the most common remedies available to real property sellers when buyers breach a real estate purchase agreement.

Liquidated Damages

The most common seller remedy is liquidated damages, the retention of deposit monies at the time of contract signing. This remedy allows the seller to keep any deposit the buyer places on the property. This is true even if the buyer does not fulfill their promise to purchase the property.

Specific Performance

Specific performance refers to a court order that requires a buyer to go through with purchasing the property. This is a rare remedy as the court typically finds monetary damages as adequate payment.

Preserve Indemnity Obligations

A seller may also seek to indemnify the buyer of the property for any damages the buyer caused to the property when examining the building. One important note is that the seller of the property should ensure that the buyer has sufficient insurance in the case that the buyer causes personal or property damage.

Delivery of Due Diligence Materials

If the buyer breaches or terminates the real estate purchase, the seller may seek that the buyer pay title commitment, survey, environmental, property condition and zoning reports, and any approvals, at no cost to the seller. However, the court will seek a distinction between the delivery of these services to the breach of contract.

Buyer Remedies for Seller’s Breach

Real property sellers also breach contracts, and the two most popular remedies include termination, return of deposit, and compensation and specific performance.

Termination, Return of Deposit, and Compensation

In certain cases, the seller of the property cannot deliver a clean property title—thus ending the sale of the property. If this occurs, the buyer can seek the return of their initial deposit. Additionally, they can seek other fees they paid when working through the sale of the property.

Specific Performance

Specific performance is also a tool that buyers can use when a seller breaches a contract. For example, a buyer may seek specific performance when the property they intended to purchase has a unique feature.

Final Thoughts

With over 20 years of experience, Antonoplos & Associates real estate attorneys have the knowledge and experience required to assist clients with real estate litigation in DC, Maryland, and Virginia. Furthermore, because our attorneys have a strong background in real estate, construction law, and business law, we can assist clients with a variety of real estate litigation issues.

Contact Our DC Law Office for More Information

Finally, for more information regarding breach of real estate purchase contracts, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding real estate law, check out our blog.