Introduction. The term “specific performance” is not, as commonly believed, a form of legal action that may be brought for enforcement of a contract. Rather, it is a remedy for a breach of contract claim because the underlying agreement has not been performed.
In other words, before reaching the issue of the remedy, a court or arbitrator must first conclude that the contract was breached. If monetary damages for the breach can be awarded, there is no need to award specific performance. For example, if a supplier promised to deliver me 25,000 widgets on July 1, but only delivered 20,000, the most appropriate damage would likely be to obtain a judgment against the supplier for my cost obtain another 5,000 widgets elsewhere.
But if a seller of a home decided not to sell it, after signing a Sale Agreement with me to do so, I might conclude that I do not want to find another home – I want that one. The obvious distinction between homes and widgets is that widgets are fungible, i.e. they are interchangeable, but homes are not; homes are unique. Accordingly, the Common Law developed a remedy awarding, as relief for the breach of certain contracts, a right to obtain the asset, rather than money damages.
So once it is determined that the seller breached his or her agreement to sell me a home, I then ask for the remedy of “specific performance”, which would result in an order compelling the seller to convey to me exactly what he or she promised. In exchange, I would agree to pay the orginal agreed-upon sum.
This is why during periods of rapidly appreciating home prices, there is an influx of specific performance claims, since some sellers try to breach their current contracts, in an effort to re-sell their home for a higher price.
Ready, Willing and Able to Perform. If specific performance is an appropriate remedy, the court or arbitrator will look at the ability and willingness of the plaintiff (i.e. the party seeking the remedy) to perform. The plaintiff must demonstrate that:
- They have already performed the contract; or
- They are ready, willing, and able to perform their obligations under the contract.
In most real estate cases, buyers usually figure out early on if their seller is going to honor the contract. For example, either the buyer makes their home available for inspection, appraisal, repairs, etc., or they find reasons for delay – or simply declare they are not going to cooperate.
There are many reasons sellers change their minds. Here are a few I’ve seen over the years:
- Seller was unable to find a replacement property;
- Seller had a change of heart;
- Seller believed he/she sold for too little;
- Seller had a back-up offer at a higher price;
- Sellers going through a divorce and one spouse changed their mind;
- Seller believed he/she was taken advantage of by their broker or buyer (e.g. undue influence, misunderstanding, mistake, fraud, etc.).
The result is that the buyer, as a part of proving their ability to specifically perform, must be careful to undertake all steps necessary to comply with the contract, including going to closing on the scheduled date.
If a buyer does not have a loan commitment by the closing date, or cannot qualify for one, the seller would likely defend arguing that the buyer could not perform, and therefore the remedy of specific performance must fail.
Defenses to Specific Performance. In evaluating a request for specific performance of a contract to sell a home, there are a number of standard equitable defenses sellers may raise.
Certainty of Contract. The contract must be definite as to the duties of the parties, with nothing left to future negotiation except details of performance of nonmaterial terms. If the price or other material terms were left to future negotiation, specific performance could fail.
However, in most residential sales in Oregon, the parties use a standard form contract that addresses all of the essential terms. Accordingly, with the assistance of a good Realtor® to complete the form and get the necessary signatures, there is little room to argue that the Sale Agreement was incomplete or indefinite.
Other Equitable Defenses. Defendants can avail themselves of several equitable defenses, such as unclean hands (e.g. buyer engaged in inequitable conduct in the transaction), laches (unreasonable delay) waiver/estoppel (e.g. buyer’s words or conduct were inconsistent with a request for specific performance); impossibility/impracticability (e.g. some facts prevent seller from being able to perform – e.g. IRS tax lien that far exceeds the sale price). The burden of proof rests with the seller on these defenses.
Lis Pendens. ORS 93.740 provides that if court litigation is filed that deals with an interest in real estate, the plaintiff is permitted to file a document in the public records of the county where the property is located, giving notice of the claim. The Oregon statewide Sale Agreement used by Realtors® throughout Oregon today requires that all disputes must be resolved through binding arbitration.[1] It also provides that if a claim seeking a remedy such as specific performance is filed in arbitration, the lis pendens may also be filed – even though nothing was filed in court.[2]
This effectively means that as long as the lis pendens remains recorded, it “clouds” title to the property. In most cases, this is enough to prevent the seller from conveying title to a third party, or placing a lien on the property, in an effort to avoid the specific performance claim. Thus, the practical effect of filing a specific performance claim under the statewide Sale Agreement is that the arbitration must first be resolved before the seller can do anything else with the property.
Conclusion. In real estate disputes, especially those initiated by a buyer against an uncooperative seller, the specific performance remedy is a powerful tool. Not only can it result in the seller being compelled to transfer title in accordance with the Sale Agreement sought to be enforced, it can also result in an award of damages,[3] costs, and attorney fees. ~Phil
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[1] An offer to mediate the matter must be made first, or immediately after the arbitration is filed.
[2] As legal counsel for the Portland Metropolitan Association of Realtors® I inserted that provision into our Sale Agreement form many years ago. Until then, if a lawyer wanted to obtain specific performance against a seller in arbitration, he or she would have to first file a lawsuit, then file the lis pendens, and then abate the lawsuit for the arbitration. The unnecessary step of filing a lawsuit in court to technically comply with ORS 93.740 has now been eliminated.
[3] For example, often the buyer has a loan lock that will expire shortly. If so, it is prudent to ask for an award of damages against seller for the cost to “buy down” the interest rate, in the event it increases beyond the amount of the locked rate the buyer originally had in place.
