Land-Sales Contract

Formation

—subject to general contract requirements

Real estate broker

—agent who owes principal duties of loyalty, care, competence, diligence, disclosure, and confidentiality

Seller’s agent

• Listing broker—helps set asking price and advertises property

• Selling broker—subagent of listing broker; finds buyer

• Listing broker and selling broker generally share commission

Buyer’s agent

—may also receive commission

Dual agent

—represents both buyer and seller; prohibited in many jurisdictions

Transactional broker

—does not represent either buyer or seller but instead facilitates sale by performing various functions; owes each party duty to perform with skill, care, and diligence and to deal fairly with each party but does not owe either party duty of loyalty

SoF - Formalities

—land-sales contract must be in writing, signed by party to be charged, and contain all essential terms (parties, property description, terms of price and payment)

• SoF also applies to other property interests such as assignments and options regarding purchase of real property, leases over one year

• Deed need not satisfy SoF but must be in writing, signed by grantor, contain description of property, and identify grantee; deed must contain words of transfer

Part performance (SoF exception)

—buyer takes possession of land, buyer remits all or part of purchase price, or buyer makes substantial improvements (most jurisdictions require at least two acts)

Detrimental reliance

—specific performance permitted when party seeking enforcement has reasonably relied on contract and would suffer hardship

Exceptions to SoF

• Part performance—consider payment of all or part of purchase price; possession by purchaser; substantial improvement by purchaser

• Detrimental reliance

• Admission

Performance

1. Marketable title

2. Time of essence

3. Implied warranty of fitness

4. Duty to disclose defects (all homes)

5. Tender of performance

6. Merger

1. Marketable title

• Title free from defects or unreasonable risk of litigation

• Seller generally not required to deliver marketable title until closing; seller can use sale proceeds to pay off existing mortgage, eliminating related title defect

• Buyer can rescind or recover out-of-pocket and earnest money payments, sue for breach, or sue for specific performance with abatement of purchase price

2. Time of essence

—not enforced unless part of contract (express or implied), but party failing to perform on closing date is in breach

3. Implied warranty of fitness

—only for new homes, warrants use of adequate materials and workmanship; includes latent construction defects

4. Duty to disclose defects (all homes)

—seller must disclose all known material physical defects not readily observable

5. Tender of performance

—concurrent conditions, so if one party repudiates, then nonrepudiating party excused, but buyer must give seller sufficient time to cure title defect

6. Merger

—land-sales contract obligations (e.g., duty to deliver marketable title) merge into deed upon delivery unless parties intend otherwise or obligations are collateral to or independent of conveyance

Remedies for breach - Damages

—difference between contract price and market value (some jurisdictions: limited to buyer’s out-of-pocket expenses if seller is unable to deliver marketable title but acted in good faith)

Buyer’s deposit as liquidated damages

—generally, deposits no more than 10% of purchase price have been found reasonable liquidated damages, but courts may consider factors relating to transaction or refuse to enforce liquidated-damages clauses when seller suffers no actual loss; when contract is silent, courts consider same factors and usually allow seller to retain deposit when reasonable

Specific performance (mutuality of remedies)

• DE Distinction—must prove by clear and convincing evidence that (1) valid contract exists, (2) party is ready, willing, and able to perform, and (3) balance of equities favors party

Equitable conversion

—seller’s interest converted by contract into interest in proceeds of sale not in real property; once contract is signed, buyer is owner of land subject to condition that buyer pay purchase price at closing, but in interim between contract and closing, buyer bears risk of loss if land is destroyed

Options and rights of first refusal

—subject to SoF