The Remedy of Specific Performance in Real Estate Contracts

One remedy potentially available for breach of a contract is specific performance, which requires the defaulting party to fulfill the terms of the contract. Specific performance is an equitable remedy that is available when legal damages, or monetary awards, are deemed insufficient to remedy the default. In granting specific performance, a court orders the party to act or refrain from acting in a specific manner. In the context of real estate transactions, this remedy requires the buyer and seller to perform the agreement set forth in the real estate contract to transfer the property when a court determines that monetary damages do not fully compensate for the breach.

In many cases, real estate agreements are particularly amenable to specific performance due to the unique nature of real property. A court may determine that a property is distinctive, the transaction is fair and the consideration is adequate, and order conveyance of the property in accordance with the agreement. Despite the special nature of this transaction, however, specific performance is not always awarded in real estate contractual breaches, as some properties do not present with the same qualifying factors (such as undeveloped land), or damages can adequately compensate for the breach. Specific performance may also be denied if it would result in undue hardship on the breaching party, the agreement is illegal, unconscionable, or the result of fraud or mistake, or the enforcing party cannot perform.

In California, as in other states, a party must petition the court for specific performance immediately upon occurrence of the breach. The plaintiff must file a notice of pendency (or a notice of lis pendens) to prevent a subsequent transfer of the property. This notice effectively precludes the seller from selling the property to another person until disposition of the claim. The buyer must demonstrate that he was prepared to execute the terms of the contract at closing in order to obtain this remedy. In rare cases, a seller may also file an action requesting specific performance upon buyer’s breach of the contract. However, the remedy in this action is recovery of the agreed-upon purchase price of the property. Moreover, if the agreement specifies an independent remedy in the event of a buyer’s breach, such as liquidated damages and/or forfeiture of a deposit, the seller may not bring an action for specific performance to recover the purchase price of the property.

Shane Coons counsels clients on residential and commercial real estate contracts and disputes. If you are a party to a real estate contract and need assistance, contact Shane Coons at 949-333-0900 or visit www.ShaneCoonsLaw.com to schedule a consultation.

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The Remedy of Specific Performance in Real Estate Contracts

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