In real estate transactions, written contracts are designed to protect both the buyer and the seller, ensuring that each party fulfills their obligations. But what happens when one party fails to perform their end of the bargain? In these cases, specific performance may be used as a legal remedy. This remedy forces the party in breach to carry out the terms of the contract. In New Hampshire, specific performance is a remedy for a seller’s breach of a real estate contract, though it can also apply in other situations. Let’s take a closer look at specific performance including when it’s used, how it works, and the legal considerations that buyers and sellers should be aware of.
When Is Specific Performance Used?
Specific performance is typically invoked when a seller tries to back out of a deal, or when a buyer wants to enforce a purchase agreement. In real estate, the remedy is often sought when damages—the monetary compensation typically awarded in breach of contract cases—are deemed insufficient. This is particularly true when the property involved is unique, or when determining the exact damages would be difficult or impossible.
Real estate is considered unique by nature, meaning that no two properties are exactly alike. So, when a seller breaches a contract by refusing to complete the sale, it’s often the case that the buyer cannot easily find a comparable property. The “unique character of real estate” renders damages in a breach of a land sales contract irreparable as a matter of law. Jesseman v. Aurelio, 106 N.H. 529, 532 (1965). In these situations, monetary compensation would not be enough to make the buyer whole, and a court may opt to enforce the original agreement through specific performance. When a buyer of real property proves a breach of contract, the default remedy of specific performance may only be denied because of “significant equitable reasons.” Chute v. Chute, 117 N.H. 676 (1977). With regard to contracts for the sale of land, specific performance will be decreed unless the circumstances of the case make it inequitable or impossible to do so. Shakra v. Benedictine Sisters, 131 N.H. 417, 421 (1989).
How Does Specific Performance Work?
Specific performance is a court order that requires a party to perform their obligations under the contract. In a real estate context, this could mean ordering a seller to go through with the sale of a property to a buyer, or conversely, ordering a buyer to complete the purchase from the seller.
For a buyer to be awarded specific performance, they must show they were ready, willing, and able to perform their side of the contract at the time of the breach. Lancaster Development Corporation v. Kattar, 110 N.H. 163, 167 (1970). This usually means having the necessary financing and being prepared to close on the property. If the buyer cannot prove they had the ability to perform, the court may deny the request for specific performance.
Notice of Pendency: Protecting the Buyer’s Interest
In some cases a buyer may file a notice of pendency (also called a lis pendens) to attempt to prevent the seller from selling the property to someone else while the lawsuit is ongoing. This is a public notice recorded in the registry of deeds that informs third parties, such as potential buyers, that there is a legal dispute over the property.
Generally, a party seeking to attach real estate is required to ask the court for the attachment and give notice to the defendant. The process to obtain an attachment is set forth in RSA 511-A. However, there is an exception to such application and notice under RSA 511-A:8, III. In cases for specific performance of a purchase and sale agreement for the transfer of land where there is imminent danger of transfer to a third party, a lis pendens may be filed at a registry of deeds without prior application to the court and notice to the defendant.
The notice serves as a legal mechanism to preserve the buyer’s claim to the property during the pendency of the lawsuit, ensuring that the seller cannot transfer the property to a third party while the dispute is being resolved in court.
Time Considerations: The Long Road to Specific Performance
One important factor to consider when seeking specific performance is time. These actions can take a long time to resolve in court, as real estate disputes tend to be complex and can be delayed by a variety of factors, including backlogs in the court system or lengthy discovery processes. During this time, the seller’s property could be tied up in the legal process, preventing them from selling it to another buyer.
As a result, specific performance can be a lengthy and costly remedy. Buyers and sellers alike should be prepared for the possibility of a prolonged legal battle.
Equitable Considerations: When Specific Performance Is Denied
While specific performance is often granted, there are certain circumstances in which a court may decide that it would be inequitable or unjust to enforce the contract. The most common equitable reasons for denying specific performance include:
Bad Faith: If a party is found to be acting dishonestly or with the intention of frustrating the contract, the court may refuse to order specific performance.
Mistake: A court may deny specific performance if there was a mistake in the contract, such as a misunderstanding about the terms of the agreement that goes to the heart of the contract.
Impossibility: If fulfilling the contract becomes impossible due to factors like the property being destroyed, specific performance may not be granted.
The Bottom Line: A Powerful But Complex Remedy
Specific performance is a powerful tool in New Hampshire real estate law, particularly when a buyer is seeking to enforce a contract for the purchase of a unique property. However, it’s not without its challenges. A buyer must be ready to prove they were financially prepared to close on the property and must also be prepared for the possibility of a lengthy legal battle. Moreover, sellers and buyers alike should be aware that a court could deny specific performance for equitable reasons, such as bad faith, mistake, or impossibility.
Buyers and sellers should always consult with an experienced real estate attorney to fully understand their rights and options when it comes to specific performance.
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