What is a Breach of Real Estate Contract?
When engaged in real estate transactions, whether for personal or residential property or commercial property, a valid contract that has been written and establishes all goals and roles is essential to both buyers and sellers. A breach of contract occurs when one party fails to fulfill the duties understood in the real estate agreement. The terms of the real estate contract should clearly state the responsibilities of all parties involved and what they must do to maintain their promise to other parties. Suppose a party does not follow the instructions of the real estate deal or otherwise backs out of the agreement. In that case, it may be possible for the non-breaching party to take legal action and file a lawsuit against the other party. Depending on the circumstances, a contract breach may be a partial or complete breach of the terms.
Courts and judges will determine whether the breach was substantial or minor. This assessment will help the courts decide what damages the breaching party should be required to pay the non-breaching party.
Numerous real estate cases involve breaches of contract; however, most relate to real estate purchase agreements. Breaches may also occur in residential or commercial property usage agreements, land usage or boundary agreements, and leases or subleases.
What Are Common Types of Real Estate Contract Breaches in Tennessee?
There are typically four ways in which real estate contracts are breached in Tennessee.
A minor or partial breach occurs when one of the parties fails to meet their specific goals or responsibilities in a real estate contract despite the other party ultimately acquiring what they were contracted to receive. In these cases, damages may be difficult to prove as financial losses may not have been experienced.
An actual breach occurs when one of the parties does not fulfill some or all of its obligations under the terms of the real estate agreement. More serious breaches can potentially cause significant financial damage to the non-breaching party.
Material breaches occur when one or more parties receive something very different from what they expected in the real estate transaction. In these cases, it is typically easy to prove damages because one party almost certainly suffered financial losses.
In real estate transactions, an anticipatory breach is when an actual breach of contract has not yet occurred but is believed to be imminent. This may happen when one party involved in the real estate contract has indicated or otherwise implied that they cannot fulfill their obligations.
What Are Potential Remedies for Real Estate Contract Breaches?
If the non-breaching party is the real estate buyer, the remedies may include the following:
- Requiring the seller to perform within the terms of the contract or complete the real property sale
- Terminating the real estate contract and requesting a return of the deposits made, plus any payments for reasonable expenses
- Filing a lawsuit against the at-fault party for financial damages
Suppose the non-breaching party was the real property seller. In that case, the seller may retain a good faith deposit as well as the following:
- The termination of the real estate contract
- The opportunity to file a lawsuit against the buyer within the terms of the contract and potentially complete the sale
- The legal right to sue for a breach of contract in hopes of recovering money damages
Are You Allowed to Cancel Your Real Estate Contract?
As a real estate buyer, you must usually provide a good faith money deposit when you make an offer on real estate property. If the contract is legitimately canceled, the deposit will be credited as a down payment for the sale or returned to you. You risk losing your deposit if you wish to cancel your real estate contract. However, some real estate contracts include contingencies, and if these contingencies are not met, your deposit may be returned. Some common contingencies contained in real estate deals include the following: home inspections, title surveys, failure to get loan approvals, appraisal issues, and legal issues involving homeowner association documents.
Suppose you are the seller and have decided to sell your property to a particular buyer. You may be allowed to back out in that case, provided the real estate contract terms allow this. Some real estate contracts are written with a kick-out or escape clause that will enable sellers to accept better offers if one comes around during a specified time. If you do not have such a clause and have signed the real estate contract, you risk being sued by the buyers if you decline to sell the property.
What Are the Possible Consequences for Breaking a Real Estate Contract in TN?
Backing out of a real estate deal, failing to meet the agreed-upon terms of the contract, or delivering substandard services could have costly consequences.
In many cases, real estate contracts are written to protect buyers. Sellers who reneged on purchase agreements or failed to meet the terms of those agreements could potentially be sued for breaches of contract. In such cases, a judge may order the seller to sign over a deed and complete the real estate sale regardless. Buyers typically sue for property but have the right to sue for damages.
Sellers may also be ordered to do the following:
- Return the buyer’s good faith deposit, plus interest
- Reimburse the real estate agent for lost commission and marketing costs
- Payback fees that the buyer paid for in terms of inspections or appraisals
- Compensate for lost equity
- Pay any other reasonable expenses that the buyer or other interested parties may have incurred
When a buyer backs out of a contract or fails to meet the terms of that contract, their earnest money deposit will be put at risk. Getting the deposit back usually requires the seller to sign a release of contract. If the seller refuses to do so, the deposit could be tied up in a time-consuming process, resulting in the case being heard in court.
If the other party has either backed out of the contract, failed to meet the terms of the agreement, or delivered something different than what they promised to do according to the terms of the contract, you must retain the legal services of an experienced real estate attorney to protect your interests. Please contact us today.
Schedule a Case Evaluation with Our Experienced Tennessee Legal Team Today
Suppose a buyer or seller backs out of a real estate contract. In that case, the other party should seek the legal counsel of experienced real estate lawyers, as they may have the legal option to file a lawsuit against the breaching party.
Seeking legal action against a breaching party can be time-consuming and frustrating. It is not recommended to proceed without professional legal representation.
Contact our Tennessee law firm to schedule a case consultation with our attorneys today. You can reach us at 865-830-6286.
