What is Specific Performance as it Relates to Sale/Purchase of Real Estate?
A specific performance lawsuit is an action brought in civil court requesting the Court to order the other party to perform under the terms of the contract in order to close escrow. A lis pendens is recorded when the lawsuit is filed to prevent the seller from selling to another party.
The idea behind specific performance actions is that because real property is unique, money damages are not sufficient to compensate the injured party. California law states that, “In the case of a single-family dwelling which the party seeking performance intends to occupy, this presumption is conclusive.” What this means is that a court will always find that money damages are inadequate and therefore specific performance is available if a buyer is trying to force the sale of a single-family home he or she intends to live in.
When Can a Buyer Sue for Specific Performance?
There are limited circumstances that a seller can refuse to honor a contract and close escrow. If a seller needs more time due to varying circumstances and the buyer can allow additional time with concessions, such as a per diem for each extra day, this should be memorialized in an addendum signed by the seller and buyer.
However, if a seller is refusing to close escrow because they want to cancel the transaction and has no valid grounds to do so, then the buyer would need to file a specific performance lawsuit. You would start with a demand letter to the seller requesting mediation of the dispute under the purchase agreement with a tight deadline for them to respond. If the seller continues to refuse to complete the transaction, the next step is a specific performance lawsuit.
To win, the buyer must show that there was a valid contract for the sale with specific terms and conditions, that the buyer is willing, ready and able to complete the sale, and the seller refuses.
Is there a Defense to Specific Performance Lawsuit?
The only way to defend a specific performance lawsuit is to show that the party seeking performance has not met the requirements for specific performance, that there was a breach or fraud by the party seeking specific performance, or that specific performance is not the adequate remedy.
Recently, Kendall Law represented a seller who did not want to complete the transaction because the agent involved had done some questionable things and did not represent her best interests in the transaction.
The buyer sued the seller and our office filed a cross-complaint against the agent, broker and seller alleging fraud and breaches of the contract. We explained to our client that a Judge would likely require her to sell, but that she may get some compensation for the action of the agent. The parties mediated the case and while the seller had to sell, the Kendall Law team was able to reduce the commissions paid to the agent/broker significantly by putting more money in our client’s pocket at the end of the deal.
Selling or buying real estate can get complicated especially if an agent’s performance comes into question. This experience shows that while there may be contractual obligations that cannot be broken, there may be ways that the Kendall Law team can help you achieve a better outcome with effective legal representation. Connect with us or call (310) 619-4941 for help with real estate matters.