Ben Lee, Esq. 
Real Estate Broker / Licensed Attorney
ben@benleeproperties.com
Coldwell Banker
Beverly Hills North Office
301 N. Canon Drive, Suite E
Beverly Hills, CA 90210
(310) 858-5489 direct
(310) 704-6580 cell
Ben Lee has sold properties throughout the Westside of Los Angeles, including Cheviot Hills, Pacific Palisades, Santa Monica, Brentwood, Beverlywood, Westwood and Beverly Hills. Ben is a Cheviot Hills resident. Learn more about Ben here.
| Available Remedies for Breach of Real Property Purchase Agreements |
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After more than a decade of rising housing prices during the last five years, it is sobering to accept that a real estate market downturn is in full swing. Logic and experience tells us that breaches and defaults of property purchase agreements are likely to become more prevalent given today’s declining markets compounded by tight credit. Hence a renewed look at the legal and equitable remedies available to sellers and buyers of real property in failed transactions is timely. While the money damages remedy for a seller generally is not favorable in a stable or rising market it may be advantageous in a declining market. Under the California Civil Code, a seller’s measure of damages for breach is the difference between the contract price and the value of the property to the seller on the date of breach (usually the market value), plus consequential damages and interest. Liquidated Damages Because the money damages remedy is not usually advantageous in a stable or rising market, sellers routinely rely on “liquidated damages” provisions to compensate for a buyer’s breach. Liquidated damages are a fixed amount defined in the purchase agreement. In theory, upon the purchaser’s breach, the seller automatically is entitled to recover the liquidated damages, even when the actual damages remedy would result in little or no recovery. Buyer Remedies The damages available to a buyer in the event of a seller’s breach also are affected by market conditions. If the seller breaches his promise to convey the real property, the buyer’s damages include, (among other things) the difference between the contract price and the value of the property at the time of breach. In a declining market these damages are usually zero, while in a rising market, they can be significant. While liquidated damages are theoretically available to buyers, they are rarely provided in a real estate purchase agreement. However, in today’s declining market, a buyer might benefit from a liquidated damages clause, recoverable in the event of the seller’s default, even when actual damages are zero. Specific Performance In light of the aforementioned limitations and impact of market conditions on the measure and recoverability of actual and liquidated damages, sellers should now consider the equitable remedy of “specific performance” usually employed by buyers in a rising market. The primary “downside” to the seller’s specific performance remedy is that the seller must refrain from attempting to sell the property while the lawsuit is pending in order to establish that the seller is ready, willing and able to perform once the buyer is ordered to complete the purchase. Considerations The law generally allows the non-breaching party to pursue alternative remedies in the same legal action, pleading them “in the alternative.” Often, a non-breaching buyer does not have to elect between the available remedies until after the verdict, before the judgment is entered. However, a seller has less flexibility, requiring them to make choices among available remedies early in the process after (and sometimes even before) the buyer’s breach. Choosing the Right Remedy The Recent reversal in the market conditions, from increasing to decreasing real estate values, means that the most appropriate remedy for breach of real property purchases and sale agreements has changed as well. Careful analysis of available remedies is critical at the time of contracting. It is also critical time to consider legal action to maximize the recovery of the non-defaulting party and/or defend an alleged defaulting party against excessive and inappropriate relief. |
