Definition
A breach of contract in real estate occurs when one party fails to fulfill their obligations under a legally binding agreement. This can include a buyer backing out of a purchase without cause, a seller refusing to transfer ownership, or either party failing to meet agreed-upon deadlines.
Explanation
Real estate contracts are legally enforceable agreements that outline the terms of a property transaction. When one party fails to perform as promised, they are in breach of contract, and the non-breaching party may be entitled to legal remedies.
Common Examples of Real Estate Contract Breaches:
- Buyer’s Breach:
- Failing to secure financing after agreeing to a loan contingency.
- Backing out after all contingencies have been removed.
- Missing the closing deadline without cause.
- Seller’s Breach:
- Refusing to sell the home after signing the purchase agreement.
- Failing to disclose known defects in required disclosures.
- Accepting another offer after signing a contract with a buyer.
- Landlord or Tenant Breach (Lease Agreements):
- Tenants breaking a lease early without notice.
- Landlords failing to make agreed-upon repairs or violating tenant rights.
Legal Remedies for Breach of Contract:
✅ Monetary Damages – The breaching party may have to compensate the other for financial losses.
✅ Specific Performance – A court may force the breaching party to fulfill the contract (e.g., forcing a seller to complete the sale).
✅ Contract Termination & Earnest Money Refund – If a seller breaches, the buyer may be able to cancel the contract and recover deposits.
✅ Liquidated Damages Clause – Some contracts include a pre-set penalty for breaching (e.g., forfeiting the earnest money deposit).
Example of Breach of Contract
A buyer enters a purchase agreement for a $500,000 home, deposits $10,000 in earnest money, and later backs out without a valid contingency.
- If the contract includes a liquidated damages clause, the seller may keep the $10,000 deposit.
- If the seller sues for specific performance, the court may force the buyer to complete the purchase.