Remedies When a Purchase Agreement Fails

Specific performance

Courts will order a contract for the sale of land to be performed, rather than leave the injured party with damages. The reason is simple: one particular parcel cannot be replaced by going out and buying another.

That reasoning helps buyers most. A buyer who wanted this property, and was refused it, can ask the court to compel the transfer. A seller has a harder argument, because what a seller wanted was the price, and money is money.

Specific performance also asks something of the party seeking it, who has to be ready, willing and able to perform their own side. In practice that means showing the funds were available then and still are.

Damages

Where the remedy is money, the measure is usually the gap between the contract price and the property's value at the time of breach. On top of that come the costs you ran up in reliance on the deal.

Whether that adds up to a real number depends on what the market did between contract and breach. A rising market makes a buyer's damages claim large, while a flat market can leave it close to nothing. That is why it pays to test the arithmetic before you commit to litigation.

The deposit

Residential agreements often carry a liquidated damages provision, which fixes what the seller can recover at the deposit. That is subject to the limits in the statute, and to the clause having been properly initialled.

Where it applies, it makes things much simpler, because the seller keeps the deposit and the argument is over. Where it was not properly agreed, or where the seller wants more than the deposit, the ordinary damages analysis returns.

Before filing

Most California residential purchase agreements require mediation before litigation, and in many of them the right to recover attorney fees depends on having attempted it. File first, and the party who prevails can quietly lose its fees.

The other early step is an honest look at the number. These disputes are often about a sum that will not survive the cost of pursuing it. Work that out at the start, rather than find it out later.

Working out what the claim is worth

For a buyer, damages usually come to the gap between the contract price and what the property was worth at the time of breach. Add the costs you ran up in reliance on the deal, such as inspection fees, appraisal and loan charges.

In a rising market that gap can be large, and the claim is worth bringing. In a flat market it can be close to nothing, and the case becomes about recovering costs rather than about the property.

For a seller the measure works much the same way. In a residential transaction it is often displaced by the liquidated damages provision, which caps recovery at the deposit, subject to statutory limits.

Running this arithmetic before filing is the step that most often changes what a client decides to do.

Specific performance, in practice

A buyer seeking to compel the sale must be ready, willing and able to perform. That means showing the funds were available at the time and remain available, so proof of funds and loan approval matter here.

A lis pendens is commonly recorded, which is a notice on the public record that a lawsuit affecting the property has been filed. An action to compel the transfer plainly affects title. It stops the seller conveying to someone else while the case runs. It is also the step a seller will move to expunge, so the claim needs to support it.

Delay is the enemy. If the buyer waits while the seller sells to a third party who takes without notice, the remedy can be gone. Only damages are left.

Mediation first, again

As with disclosure claims, the standard residential agreement ties attorney fee recovery to attempting mediation before filing. On a contract dispute over a moderate sum, the fee provision is often worth more than the claim itself.

Put the mediation request in writing, keep the request and the response, and only then consider filing. It is a five-minute step, and it protects the economics of the whole case.

This article is general information about California law and is not legal advice for any specific situation. If you are dealing with this issue, the facts of your matter will change the analysis.