Land sale contracts: liability

Question 1

Form of liability

Answer 1

At the contract stage, breaches are based on contract provisions.

By contrast, under the deed stage, breaches flow from the deed warranties.

Question 2

Form of liability: merger doctrine

Answer 2

Upon sale, covenants under the land sale contract merge into the deed.

Question 3

Remedies: breach by the buyer

Answer 3

Upon breach by the buyer, a seller may seek:

(1) Damages—the difference between the contract price and market price;
(2) Rescission; or
(3) Specific performance.

Question 4

Remedies: breach by the seller

Answer 4

Upon breach by the seller, a buyer may seek:

(1) Damages:
(a) Ordinarily, the difference between contract price and market price;
(b) Unless the seller acted in good faith—in which case, the buyer can only recover out-of-pocket expenses;
(2) Rescission—i.e., returning payments to the buyer and cancelling the contract; or
(3) Specific performance pursuant to the mutuality of remedies doctrine.

Question 5

Specific performance

Answer 5

Specific performance is presumptively available in real estate contracts—so long as the party seeking specific performance was ready to perform within a reasonable time from the date set for performance.

Question 6

Liquidated damages

Answer 6

A non-breaching seller may collect liquidated money damages for costs relating to reselling the property, as long as:

(1) The seller actually suffered a loss; and
(2) The liquidated damages are reasonable.

Question 7

Liquidated damages: reasonableness

Answer 7

Traditionally, many courts have found that a deposit of no more than 10 percent of the purchase price to be reasonable as a liquidated damages amount.

But courts may consider other factors, such as:

(1) the sophistication of the buyer, and
(2) the nature of the transaction—i.e., whether commercial or residential,

in determining the reasonableness of the seller’s retention of the buyer’s deposit.