Forcing the Sale: Specific Performance in Real Estate

Typically, parties enter contracts for the purchase and sale of real estate with some degree of enthusiasm, and intentions to consummate the transaction under the terms agreed-upon. However, circumstances (and minds) change. Sometimes, these change results in a buyer or seller failing or refusing to close on a purchase/sale transaction, thereby leaving the other party “at the altar” and unable to proceed with the plans they have made.

The results of such a failure to honor the contract can be catastrophic.

When a Buyer refuses to close, the Seller loses out on the benefit of the transaction in the form of the sale proceeds. Occasionally, the lost sale causes a domino effect whereby the Seller is unable to use the sale proceeds to purchase other real property, or to satisfy an immediate financial obligation that necessitated the sale.

When the Seller fails or refuses to close, a Buyer’s life can be up-ended — especially when that Buyer’s plans are to immediately occupy the subject property. I have encountered cases where a Buyer is literally rendered homeless as the result of a Seller’s refusal to close on a transaction as contracted-for.

Barring a legally valid excuse, failure by a Buyer or a Seller to close upon a real estate contract constitutes breach of that contract. Under Texas law, contractual breaches can subject the breaching party to damages and attorneys’ fees. But what happens when monetary damages are inadequate to compensate the non-breaching party?

Both under Texas law of contracts, and under the Texas Real Estate Commission‘s promulgated contract forms, a non-breaching party to a real estate contract is entitled to the remedy of SPECIFIC PERFORMANCE under certain circumstances.

WHAT IS SPECIFIC PERFORMANCE?

Specific performance is an equitable remedy that may be awarded, at the trial court’s discretion, for a breach of contract, Stafford v. S. Vanity Magazine, Inc., 231 S.W.3d 530, 535 (Tex.App.-Dallas 2007, pet. denied), and is an alternative remedy to damages, Levetz v. Sutton, 404 S.W.3d 798, 805 (Tex.App.-Dallas 2013, pet. denied) (citing Paciwest, Inc. v. Warner Alan Props., LLC, 266 S.W.3d 559, 571, 575 (Tex.App.-Fort Worth 2008, pet. denied)).  That is, a non-breaching party is typically not entitled to recover both monetary damages and specific performance. Rather, specific performance is only an appropriate judicial remedy when the recovery of monetary damages is inadequate to compensate the complainant.  In those cases, and upon a Plaintiff meeting its other burdens, the transgressor is compelled to perform the promise of its contract. S. Plains Switching, Ltd. v. BNSF Ry., 255 S.W.3d 690, 703 (Tex.App.-Amarillo 2008, pet. denied).

It is important to note that specific performance is not a separate cause of action, but rather it is an equitable remedy used as a substitute for monetary damages when such damages would not be adequate.

WHEN IS SPECIFIC PERFORMANCE AVAILABLE?

Unless expressly authorized by a contract (note on this below), whether to award specific performance is within the discretion of the Judge. See Davis v. Luby, No. 04-09-00662-CV, 2010 WL 3160000, at *3 (Tex.App.-San Antonio Aug. 11, 2010, no pet.) (mem.op.) (“Specific performance is an equitable remedy that may be awarded at the trial court’s discretion upon a showing of breach of contract.”).

The Texas Supreme Court has stated that “[T]o be entitled to specific performance, the plaintiff must show that it has substantially performed its part of the contract, and that it is able to continue performing its part of the agreement. The plaintiff’s burden of proving readiness, willingness and ability is a continuing one that extends to all times relevant to the contract and thereafter. DiGiuseppe v. Lawler, 269 S.W.3d 588, 593 (Tex.2008) (internal citations omitted).

In the context of a real estate contract, compliance with all terms of the contract means that the buyer  who is seeking specific performance must prove an actual tender of the purchase price. That is, the Buyer must show that he is ready, willing and able to close, and has the purchase funds available. See Wilson v. Klein, 715 S.W.2d 814, 822 (Tex.App.-Austin 1986, writ ref’d n.r.e.) (“Generally speaking, it is a prerequisite to the equitable remedy of specific performance that the buyer of land shall have made an actual tender of the purchase price … [unless] actual tender would have been a useless act….”.

CAN A SELLER SUE FOR SPECIFIC PERFORMANCE?

The remedy of specific performance is definitely available under law to force a Buyer to close upon an agreed purchase.

However, in real life (as opposed to the sometimes theoretical world of the law) pursuing specific performance against a Buyer is often futile. In my experience (particularly in the residential context), Buyers most often fail to close on a purchase due to a change in finances.  I have represented numerous Sellers whose Buyers didn’t close because they simply could not. The Buyers  lost their loan approval, were laid-off from their employment, etc., etc. In those cases, reality dictates that the Seller not “throw good money after bad” because —  even in the face of a court order compelling a Buyer to close — compliance is an impossibility if the purchase money is not available. Judges also recognize this reality, and seem to be reluctant to issue orders commanding the impossible.

When the Buyer fails or refuses to close for other reasons — or when they have financial the ability to do so — the remedy of specific performance can be exercised by the Seller.

SPECIFIC PERFORMANCE IS CONTEMPLATED BY THE TREC-PROMULGATED CONTRACT FORMS

All of the TREC-promulgated purchase contract forms expressly provide the remedy of  Specific Performance in their provisions related to “Default” (see below).  Notably, the remedy is granted to both Buyers and Sellers, so either party may bring a suit for specific performance if the other fails to close.

TREC Form 20-13 (One to Four Family Residential Contract) (Paragraph 15)

DEFAULT: If Buyer fails to comply with this contract, Buyer will be in default, and Seller may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract. If Seller fails to comply with this contract, Seller will be in default and Buyer may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money, thereby releasing both parties from this contract.

TREC Form 9-12 (Unimproved Property Contract) (Paragraph 15)

DEFAULT: If Buyer fails to comply with this contract, Buyer will be in default, and Seller may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract. If Seller fails to comply with this contract, Seller will be in default and Buyer may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money, thereby releasing both parties from this contract.

TREC Form 25-11 (Farm and Ranch Contract) (Paragraph 15)

DEFAULT: If Buyer fails to comply with this contract, Buyer will be in default, and Seller may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money as liquidated damages, thereby releasing both parties from this contract. If Seller fails to comply with this contract for any other reason, Seller will be in default and Buyer may (a) enforce specific performance, seek such other relief as may be provided by law, or both, or (b) terminate this contract and receive the earnest money, thereby releasing both parties from this contract.

TREC Form 30-12 (Residential Condominium Contract) (paragraph 15)