Every Property is Unique! Why Specific Performance Matters in Real Estate

Picture of Leticia Dubois, Ph.D.

Leticia Dubois, Ph.D.

The Legal Significance of Specific Performance in Real Estate/Property Contracts

Like other intricate sectors, the realm of real estate and property law is filled with its lexicon and concepts that parties involved in property transactions need to understand.

One such vital principle is the remedy of “specific performance.”

This article seeks to shed light on why specific performance matters in real estate and the legal significance of specific performance in real estate contracts.

What is Specific Performance?

Specific performance is an equitable remedy that the court may award when monetary damages are deemed inadequate to compensate a party for a breach of contract.

Essentially, this remedy compels the defaulting party to perform their obligations as stated in the contract.

Instead of just paying damages for not performing, the breaching party is ordered to fulfil their original contractual obligations.

Why Specific Performance Matters in Real Estate - specific performance in real estate contracts
Every Property is Unique! Why Specific Performance Matters in Real Estate

Why Specific Performance Matters in Real Estate Transactions?

The fundamental reason specific performance in real estate is significant is that every piece of real estate is unique, with distinct characteristics such as location, architecture, and history.

As a result, if a party defaults on a real estate contract, it is often impossible to find an exact substitute on the market.

Therefore, monetary damages might not adequately remedy the aggrieved party. Recognising this, courts might opt for specific performance to ensure justice and fairness.

When Can Specific Performance be Awarded in Real Estate Contracts?

The remedy for specific performance in property is not handed out liberally. For it to be granted, certain conditions must be met:

  • The uniqueness of the Property: As previously noted, one of the primary reasons specific performance in real estate contracts is considered is the uniqueness of each property. The party seeking this remedy must prove that no money could adequately compensate for the property’s distinct value to them.
  • Clean Hands Doctrine: This principle implies that a party seeking an equitable remedy must be free from fault in the contractual dispute. If a party has acted dishonestly or unfairly, they might not be granted specific performance.
  • Feasibility of Enforcement: Courts are generally hesitant to order specific performance in real estate contracts if the enforcement would be too complicated, burdensome, or lead to continued supervision of the parties’ conduct.

How is a property deemed ‘unique’ for specific performance?

The concept of uniqueness does not merely revolve around a property’s physical attributes, such as its architecture, layout, or size. Rather, it delves deeper into intrinsic characteristics that cannot be quantified easily in monetary terms.

A property’s location, for instance, can render it unique due to its proximity to vital establishments, natural features, or historical significance.

Similarly, the historical context of a property—like a home that has been in a family for generations or has a notable past—contributes to its distinctive nature.

Furthermore, subjective factors also play a role. For a buyer, the emotional attachment, the envisioned future, or specific personal reasons for wanting that property can amplify its unique value.

For the courts, this means that no amount of money can adequately substitute or compensate for the loss of that specific property.

Therefore, in instances where the uniqueness of a property is evident, specific performance becomes a more fitting remedy than mere monetary damages, as it addresses the irreplaceability of the asset in question.

Limitations and Concerns of Specific Performance in Property Contracts

While specific performance stands as a potent remedy, it isn’t without its constraints:

  • Mutuality: The contract must be mutual for a specific performance to be awarded. This means both parties must have the same understanding of the obligations and be capable of performing their duties.
  • Contractual Ambiguities: If the contract is too ambiguous, a court might refrain from awarding specific performance because of the complexities involved in interpreting the exact obligations of the parties.
  • Undue Hardship: If a specific performance would cause undue hardship or inequity to the defaulting party, the court might reconsider.

See article: When Was My Property Built? 4 Ways To Ascertain the Age of Your Property

Importance for Contracting Parties

Given the above, here’s what parties entering into real estate contracts need to be aware of:

  • Precise Drafting: To avoid ambiguities, it’s crucial to have clear, precise, and detailed contracts. This clarifies both parties and fortifies the position if one seeks specific performance as a remedy.
  • Conduct Matters: Since equity pays significant heed to fairness, parties must maintain clean conduct throughout the transaction. Any semblance of unfairness or dishonesty might jeopardize one’s chances of obtaining a specific performance.
  • Alternative Remedies: While specific performance in property contracts is a sought-after remedy, it is not always granted. Parties should be prepared for alternative resolutions, including monetary damages or rescission.
  • Professional Counsel: Given the complexities involved and the significant consequences of specific performance in property transactions, consulting with legal professionals experienced in the field is paramount. They can provide guidance, ensure fair terms, and resolve disputes.

Does specific performance apply only to the buyer?

Specific performance is not exclusive to the buyer in real estate transactions.

While buyers commonly seek it when sellers fail to convey the agreed-upon property, sellers too can invoke this remedy under certain circumstances.

For instance, if a buyer breaches their obligations, a seller might seek specific performance to compel the buyer to complete the purchase, especially when a significant monetary deposit or unique financing arrangements are involved.

The crux of the matter is the irreplaceability of the contractual obligation for either party.

Whether it is a buyer’s unique attachment to a specific property or a seller’s particular reliance on the agreed-upon terms, the principle remains that specific performance can be a recourse for either party when monetary damages fail to address the breach’s impact adequately.

What happens if the property is damaged or changed during litigation for specific performance?

Suppose a property undergoes alterations or incurs damage while the case progresses.

In that case, the court must evaluate the nature and extent of the change to determine whether to grant specific performance in the real estate contract.

Significant alterations or damage might render the property fundamentally different from what was initially agreed upon in the contract.

In such cases, specific performance in property might no longer provide an adequate or just solution, as the buyer would not receive the property they had originally bargained for.

Consequently, the court may decide that monetary damages are a more suitable remedy.

Alternatively, if the changes are repairable or minor, the court could mandate restorations as a precondition to the execution of a specific performance. The underlying principle remains to ensure fairness to the aggrieved party.

Both parties should be diligent during litigation, with the aggrieved party monitoring the property’s state to maintain its integrity.

In contrast, the defaulting party refrains from actions that might complicate or jeopardise the proceedings.

What if the property value increases or decreases during the litigation?

A significant change in value can impact both parties’ positions with respect to specific performance in real estate contracts.

If the property appreciates, the buyer stands to benefit from the increased value, underscoring their desire for specific performance over monetary damages.

Conversely, the seller might argue that they are at a financial disadvantage, given that they could potentially sell the property for a higher price in the open market.

On the other hand, if the property’s value decreases, the buyer might be obliged to proceed with the purchase at the originally agreed-upon price, even though the property is now worth less.

In this case, the seller may be more inclined to push for specific performance to secure the initially agreed amount.

It is worth noting that courts typically hold buyers to the original contract price instead of granting any specific performance in real estate contracts, viewing market fluctuations as inherent risks in real estate transactions.

However, significant market changes or unforeseen events can sometimes be grounds for contract renegotiation or termination, depending on jurisdictional laws and the specific terms of the contract.

Conclusion: Why Specific Performance Matters in Real Estate

Specific performance occupies a crucial position within real estate contracts due to the unique nature of properties. While it offers a promising solution for aggrieved parties, it’s laden with intricacies.

As such, contracting parties must be diligent, informed, and, ideally, consult professional expertise when navigating the intricate waters of real estate transactions.

See article: Selling a Tenanted Rental Property: An Essential Guide to Selling a House With Tenants

Picture of Leticia Dubois, Ph.D.

Leticia Dubois, Ph.D.

Leticia has a first class LLB Degree from University of London, an LLM Degree and a Doctorate in International Commercial Law from Glasgow and Université Paris 1 Panthéon-Sorbonne. Leticia teaches Finance Law, Insurance, Land Law, Insolvency Law and Entrepreneurship Law.

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