Legal Actions the Buyer of Real Property can Bring When a Seller Breaches a Real Estate Sales Contract
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In a prior post, this blog discussed the legal claims a seller of real estate can bring against a buyer when that buyer breaches the real estate sales contract. A buyer, on the other hand, also has various legal and equitable claims against the seller of real estate when the seller is unable to convey marketable title or if the seller has a duty to disclose certain defects but fails to make those disclosures. When the seller breaches, the buyer’s claims will largely depend upon the terms of the sales contract, along with the buyer’s underlying goals. This blog post will describe the various legal actions that buyers of real estate can bring against a seller when that seller breaches the real estate sales contract.
Many real estate sales contracts will include a liquidated damages clause. If the contract contains a valid and enforceable liquidated damages clause then it will control and that will be the amount of damages available to the buyer. If there is no controlling liquidated damages clause then the buyer will have differing legal and equitable remedies that he or she can choose from, depending upon the situation. For example, if the seller is able to convey title to the property as originally contracted for, the buyer may seek specific performance as a remedy. Specific performance is where the buyer seeks the judicial enforcement of transferring ownership of the subject property to the buyer as the seller originally promised to do. See Miller v. Rolfe, 97 So.2d 132 (Fla. 1st DCA 1957). However, sometimes the seller’s breach is due to the fact that the seller never possessed clear title to the property in the first place. In that situation, the remedy of specific performance is unavailable, and the buyer must then bring an action at law for monetary damages. Id.
When a buyer sues a seller for monetary damages the buyer’s measure of those damages becomes the focus of the legal claim. Under Florida law, the buyer’s measure of damages will depend upon whether the breaching seller acted in good faith and whether the seller sold the property to another buyer. It may seem strange to think a seller’s breach could ever be in good faith; however, if, for example, the seller entered into a real estate sales contract because he thought he was being relocated for work, but the company’s business needs changed, causing the seller to breach the contract to sell his property, the seller’s breach would not have been in bad faith. Regardless, in that example, the seller still breached the contract and the buyer is due just compensation.
If the seller’s breach is in good faith and the property was not resold to another person, the buyer’s measure of damages is the amount of money paid (deposit), together with interest, and any other compensatory damages (such as a title search fee). See Avellone v. Mehta, 544 So.2d 1122 (Fla. 3d DCA 1989). If the buyer was already in possession of the property when the seller breached then the seller would be entitled to a setoff for damages. That setoff amount would be the reasonable rental value for the period of time the buyer occupied the property. Donaldson Engineering, Inc. v. Batchelder, 272 So.2d 871 (Fla. 4th DCA 1973). If the seller’s breach was in bad faith, but the property has not yet been sold to a subsequent buyer, the buyer may obtain the difference between the contract price and the value of the property on the closing date. Port Largo Club, Inc. v. Warren, 476 So.2d 1330 (Fla. 3d DCA 1985). Theoretically, this figure could be zero depending upon the direction of the housing market.
As previously described, the seller’s good faith is a question of intent. Wolofsky v. Waldron, 526 So.2d 945 (Fla. 4th DCA 1988). Florida courts have held that a seller acts in bad faith if:
- The seller knew or should have known he or she would not be able to comply with the contractual obligation;
- The seller simply refuses to convey title when he or she possesses marketable title; or
- The seller enters into the contract without owning the title in expectation that the title will be acquired but then fails to acquire the title.
Wolofsky v. Behrman, 454 So.2d 614 (Fla. 4th DCA 1984).
There is one situation where the seller’s intentions are immaterial. If the seller’s breach is followed by the sale of the property to a subsequent buyer, then the original buyer will have available a certain measure of damages regardless of the seller’s good or bad faith. Here, the proper measure of the buyer’s damages will be the return of any purchase money paid plus interest, special damages, and any profit (the amount above the prior contract price) made by the seller on the subsequent sale. Coppola Enterprises, Inc. v. Alfone, 531 So.2d 334 (Fla. 1988).