Purchase and Sale Agreement Remedies: Why They Are What They Are

By Matthew Zwiren

So, your real estate deal went bust –whether you were the buyer or the seller – the other side backed out, leaving you only with a breached contract. Maybe the other side failed to deliver on one of its many obligations, such as delivery of the deed or failure to pay the balance of the purchase price at closing. So now what? What options do you have to recover anything from this broken deal? What remedies are most readily available? Here is what you should know about the remedies available to you, depending on which side of the deal you are on. 

If You are the Purchaser 

Say you are purchasing a new home or building that you want to use as the foundation to build your business on, and the Seller for some inexplicable reason has a change of heart and backs out or fails to include something explicitly promised in the Purchase and Sale Agreement – you are left with a breach of contract by the Seller. You decide to take the Seller to court and successfully show that the Seller has breached your Purchase and Sale Agreement – but what remedies are at your disposal? More often than not, in the event of a seller breach or default under a real estate contract, the contract should allow the Buyer to have available all remedies at law or in equity, including an award of specific performance of the contract by the breaching party. 

Specific performance simply means that the breaching party (in this case the Seller) must, by court order, perform its obligations under the contract that are in currently in breach. For example, if the Seller backs out of the deal and fails to deliver a deed to real property, the court will force the Seller to deliver the deed to the Buyer. New York Courts have consistently held that, “specific performance is appropriate when money damages would be inadequate to protect the expected interest of the injured party …. Traditionally, specific performance has been held to be a proper remedy in actions for breach of contract for the sale of real property…”¹  This is not, however, the case for all purchase and sale contracts. 

In most other cases of a breach of a purchase and sale contract, Courts will generally award money damages to the affected parties. Do remember, however, that this is not usually the case in real estate contract breaches; this is because monetary damages in these cases are oftentimes considered inadequate, and are not an equitable remedy to a breach of contract of this magnitude.  Real property, of course, is extremely valuable, and each piece of real property is unique and different from any other.  Due to this fact, the only equitable remedy available to the Buyer is for the contract to be performed, and the for the Seller to be forced to transfer the deed to the real property.  Real property is always deemed unique for a multitude of reasons, but the following example will demonstrate why. When you buy a home, you are buying it not just for the building itself, but for: the property and land it rests on, the neighborhood around it, the school district it belongs to, the surrounding businesses and amenities – and so on. This can rarely, if ever, be replicated or recreated on another available piece of real property. It is because of this very fact that the only remedy available would be for the Seller to transfer the real estate to which it promised the Buyer in the relevant purchase and sale contract. 

If You are the Seller 

What if you are selling your home and the Buyer pulls out of the deal at the last moment?  The Buyer does so even though it has signed a legally binding contract, refuses to pay, and does not take possession of the home – what remedies are you left with? 

Most of the time, Sellers will have the right to retain the contract deposit as liquidated damages upon a breach of contract. This money will not be able to be recovered by the Buyer whatsoever. Most real estate contracts will contain provisions allowing for the Seller to retain the deposit following a material breach, such as failing to purchase the real property. However, when Buyers breach a real estate contract, Courts generally do not enforce specific performance in a similar manner. Rather, they will enforce the Seller’s right to retain the contract deposit paid by the Buyer, and will terminate the contract. This, again, is done for the sake of equity – here are a few reasons why: 

1. Specific performance may not be possible in these cases because Buyers may not be able to financially afford the real property 

1. It is extremely hard to force a Buyer to take possession of said real property 

1. There are other Buyers to whom the Seller can sell the property, so the Buyer is not deemed to be unique.  

1. There is also the argument that to force a Buyer to come up with the money to pay the balance of the purchase price due at closing would be unconstitutional. 

Although the Courts will oftentimes not enforce specific performance of the contract, especially in cases when money damages or some other form of relief would be more appropriate and suitable under the circumstances, they will instead award money damages in the form of general damages. The New York Court of Appeals has held that, in order to determine damages when a Buyer breaches the contract that, “[t]he measure of a Seller’s damages for a Buyer’s breach of a contract to sell real property is the difference, if any, between the contract price and the fair market value of the property at the time of the breach.”² What makes this difficult, however, is how Courts will determine fair market value. Oftentimes fair market value will not stray too far from the contract price, and the determination of fair market value will come down to several factors determined by the court.³ This makes recovering additional damages extremely difficult. 

The bottom line is that, when entering a real estate purchase and sale contract, it is always best to be fully prepared and protected. Contact the experienced Transactional Division attorneys at KI Legal for all your real estate needs. 

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¹ Maestro W. Chelsea SPE LLC v. Pradera Realty Inc., 38 Misc. 3d 522, 534, 954 N.Y.S.2d 819, 828 (Sup. Ct. 2012). 

² White v. Farrell, 20 N.Y.3d 487, 987 N.E.2d 244 (2013). 

³ See id. 

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