Commercial real estate contracts usually contain information on remedies for this sort of situation in the language of the contract itself. If the sales contract was drafted by a lawyer, then this will almost certainly be the case. For example, many real estate contracts contain provisions for keeping a buyer’s “earnest money” (essentially a deposit, often around 1% of the total purchase price) if the buyer defaults.
Seller Refusing to Close on Commercial Real Estate Contracts
If the real estate contract is silent as to what happens if the seller defaults, then in most states, the buyer can go to court and sue for specific performance. This is different from filing a lawsuit seeking monetary damages for failure for perform. This type of lawsuit does not demand monetary damages – it demands performance on the contract. The order, if it is granted by the court, commands the seller – under penalty of being held in contempt of court – to transfer the property to the buyer upon payment of the agreed purchase price. This is based on the legal assumption that each piece of real estate is unique and that money alone may not adequately compensate the buyer for loss of the desired property.
Alternatively, the buyer can sue for money damages that represent the difference between the contract price and the fair market value of the property. This kind of lawsuit assumes that the fair market value of the property is higher than the contract price. The buyer may also be able to recover consequential damages such as mortgage application fees, appraisal fees paid in reliance on the contract, and other such fees.
Buyer Refusing to Close on Commercial Real Estate Contracts
When the buyer is the one who refuses to close, the seller can try to sue for money damages just like the buyer could. The problem here is that many buyers who back out often did not have a preapproval to start with; instead, they just had a prequalification. As a seller, ensuring that a buyer has preapproval rather than a prequalification can help reduce the chances of this sort of thing happening. Additionally, in the letter of intent and/or the contract itself, ensuring that there are no third-party financing contingencies can help reduce the chance that the buyer can be denied financing and then cancel the contract without penalty. However, in this economy, obtaining such a contingency-free contract may be difficult if not impossible. If such contingencies are allowed into the contract, then sellers will find it difficult to get a court to order a buyer to complete the purchase by paying the entire purchase price.
Legal Recourse Means Getting Legal Help
If you had an attorney write or review your commercial real estate contract and/or letter of intent, then talk to that attorney if the other party is refusing to close. If you have not yet hired an attorney, you should seriously consider hiring a licensed and experienced real estate attorney in your jurisdiction.