Land Sale Contracts

Question 1

Formation

Answer 1

Subject to general contract requirements

1. Real-estate broker
   • Seller’s agent—helps set selling price and advertises property; entitled to commission for finding a “ready, willing, and able” buyer
   • Buyer’s agent—may also receive a commission
   • Dual agent—represents both buyer and seller; prohibited in many jurisdictions
2. Statute of Frauds (SoF)
   • Formalities—land sales K must be in writing, signed by the party to be charged, and contain all of the essential terms (parties, property description, terms of price/payment). Also applies to other property interests such as assignments and options regarding the purchase of real property; leases over one year and the deed must also be in writing
   • Part performance (SoF exception)—buyer takes possession of land, buyer remits all or part of purchase price, and/or buyer makes substantial improvements (most jurisdictions require at least two acts)
   • Detrimental reliance—specific performance (SP) permitted when party seeking enforcement has reasonably relied on K 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

Question 2

Performance

Answer 2

1. Marketable title
   o Title free from defects or unreasonable risk of litigation
   o Seller generally not required to deliver marketable title until closing
   o Buyer can rescind/recover out-of-pocket and earnest money payments, sue for breach, or sue for SP with an abatement of purchase price
2. Time of the essence—not enforced unless part of K (express/implied), but party failing to perform on closing date is in breach
3. Implied warranty of fitness—only for new homes, and disclosure duty of known material physical defects not readily observable/known to buyer for all homes
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 B must give S sufficient time to cure title defect
6. Merger—land sales K obligations merge into deed upon delivery unless obligations collateral to/independent of conveyance

Question 3

Remedies for breach

Answer 3

1. Damages—difference between K price and market value (some jurisdictions: limited to B’s out-of-pocket expenses if seller (S) is unable to deliver marketable title but acted in good faith). Buyer’s deposit as liquidated damages—generally, deposits of no more than 10 percent of the purchase price have been found to be reasonable liquidated damages, but courts may consider factors relating to the transaction or refuse to enforce
   liquidated damages clauses when the S suffers no actual loss
2. Specific performance (mutuality of remedies)

Question 4

Equitable conversion

Answer 4

S’s interest converted by K into interest in proceeds of sale not in RP, once K is signed, B is owner of land subject to the condition he pay the purchase price at closing, but in interim between K and closing, B bears risk of loss if land is destroyed

Question 5

Options and rights of first refusal

Answer 5

Options:

• Option to purchase RP. One pty acquires right to purchase property during specific period in exchange for consideration.
• Subject to SoF.
• Valid unless unreasonable.

Rights of first refusal:

• Preemptive right that gives its holder the opportunity to acuire the RP prior to transfer to another.
• Valid unless unreasonable.
• Subject to SoF.