Real Estate Contracts

land sale contract

A ________________ is a contractual agreement in which the buyer purchases property from a seller on an installment basis. - purchase contract - straight transfer - listing agreement - land sale contract

Breach of Contract

A breach is an unexcused failure by a party to a contract to do what the contract requires. A party is in breach of a contract when, without a legally sufficient excuse, there is a failure to fully and properly perform a duty.

Contract

A contract is a mutually understood agreement that has a legal purpose and is made by two or more parties, each party having legal capacity.

Valid Legal Purpose

A contract must have a legal purpose in order to be enforceable. The courts will not enforce a contract that does not have a legal purpose. A legal purpose means: - that the performance of the contract is not in and of itself unlawful and - that performance of the contract will not result in a violation of law. Example 1: A seller cannot enforce a contract to extort money from a buyer, i.e., "Pay me $1,000.00 extra for the property, or I will steal your car." Example 2: A buyer cannot force a seller to perform a contract that requires the seller to commit fraud. Example 3: An individual occupying a property owned by someone else cannot legally sell that property to a third party.

Counteroffers

A counteroffer is a response to an initial contract offer which revises that offer with terms that are more acceptable to one of the parties involved in negotiating that contract. As we have already noted, a counteroffer is a rejection of the original offer. There is technically no limit to the number of times a contract can be revised with counteroffers. The negotiation process of establishing a contract can involve a lengthy back and forth process of counteroffers and counteroffers to counteroffers. Counteroffers are passed between the negotiating parties until all the parties agree on the terms of the contract or the negotiations are ended without the creation of any contract.

Ground Lease

A ground lease is a long term lease (usually more than 10 years) of undeveloped land during which the tenant constructs improvements on the land. When the lease expires, often, the improvements are turned over to the owner of the land. The exact fate of the improvements is spelled out in the contract establishing the lease. Ground leases allow landowners to develop their property without having to deal with the expenses of development. The landowner also gains a tenant for a lengthy period of time. As for tenants, a ground lease can allow a company to construct a building to house their business without having to pay for the land.

Leases

A lease is a type of property ownership called a leasehold. A leasehold is defined by the concept that a party can possess and control a property, but true ownership and the rights that go with it are held by another party. There are two broad categories of leaseholds: rentals and leases. Rentals tend to have terms of either a week or a month. When the term expires, rental agreements usually are renewed automatically, as long as the rental fee is paid on time. Leases are usually set up with terms of a year or more, although they may be shorter term if desired. A lease usually does not renew at the end of the term. The only way to maintain a lease past the end of the term is to establish a new lease of the same property. Leases commonly confer more rights and control to the tenant than rentals. Leases do two things. First, as a conveyance, a lease is an agreement that transfers the right of possession and use of real property from the property owner to the tenant. As a contract, the lease sets forth the terms of property occupancy, such as the amount of rent, when it is due, and for how long. There are three general type of leases: the gross lease, the net lease, and the modified lease.

Material Breach

A material breach is one that will cause great harm or substantially lessen the value of the contract for the non-breaching party. A material breach can have several consequences, among them: - canceling the non-breaching party's duty to perform contract obligations and - giving the non-breaching party an immediate right to pursue enforcement remedies.

Merger and Integration

A merger and integration clause states that the written form of the contract is the final version of the contract which overrules any previous agreements or negotiations. The point of the clause is to prevent parties under the contract from claiming the contract is not valid because it does not conform to earlier versions or agreements.

Mitigation of Damages

A mitigation of damages is an action taken by a non-breaching party to lessen or reduce the harm caused by a breach of contract.

Mutual Mistake

A mutual mistake of a material fact is a defense to an alleged breach of contract. If it can be established that both parties were in error regarding a major fact leading to the contract formation, the contract may be determined to be null and void, or the contract may be reformed (this means that the court rewrites the contract to agree with the actual intent of the parties at the time of formation). Use of this defense is extremely limited, and a mistake by one party will not usually void the contract unless the other party knew or should have known about the mistake and tried to take advantage of the situation.

Non-Exclusive Listings

A non-exclusive listing (or open listing) allows an owner to sell their home by themselves. Because it is a non-exclusive agreement, the owner can have open listings with more than one real estate broker and only pay the broker who actually brings a buyer to the table. However, if the owner finds the buyer on their own, the owner will not owe a commission. Open listings are not popular with many full-service real estate brokers because the broker has no assurance that the time and money they put into advertising and trying to sell the property will be rewarded when the property sells.

Non-Exclusive Right to Represent

A non-exclusive right to represent buyer-broker agreement is similar to a non-exclusive/not for compensation buyer-broker agreement because both types of agreement do not bind the buyer to only use the services of the broker who is under the agreement. The difference is that a non-exclusive right to represent buyer-broker agreement establishes commission payment for services provided by the broker attached to the agreement even if the buyer does not use that broker for the final sale. The commission is negotiable and the buyer does not have to pay the commission if it is covered by the seller. Additionally, this kind of agreement is not revocable. A non-exclusive right to represent buyer-broker agreement still provides the buyer some measure of flexibility. However, the broker is assured some payment for the work they do which makes this more attractive to a broker than a non-exclusive/not for compensation buyer-broker agreement.

Non-Exclusive / Not for Compensation

A non-exclusive/not for compensation buyer-broker agreement has two main features. First, the broker under this kind of buyer-broker agreement is not the only broker whose services the buyer can utilize. Second, the buyer is not obligated to pay compensation. If the buyer uses a different broker for the final sale or finds a property and a willing seller on their own, the buyer is not required to pay compensation to the broker that was employed through this kind of agreement. This kind of agreement is very similar to a non-exclusive listing agreement. The buyer is given the greatest amount of freedom. Consequently, the broker is left without much motivation because there is no guarantee of payment for services rendered. A non-exclusive/not for compensation buyer-broker agreement can be revoked at any time by either the buyer or broker.

Non-Waiver

A non-waiver clause states that a party under a contract does not lose the right to enforce contractual obligations even if that party forgives another party's non-compliance with the contract. For example, a contract between landlord and a tenant states that the tenant owes $1,100 in rent each month. At some point, the tenant misses a payment. The landlord gives the tenant the benefit of the doubt and forgives the missed payment. A non-waiver clause allows the landlord to do this and still be able to enforce the contract if the tenant misses a payment in the future. Without this clause, the landlord would lose the right to enforcement since the forgiveness could be legally interpreted as a change in the contract.

Performance Excused - Failure of Condition Precedent

A party can defend against a breach of contract claim by showing that a condition precedent did not occur.

Rescission and Restitution

A real property contract, like other types of contracts, may be rescinded under specific circumstances. Rescission ends the contract, terminates further liability on the agreement, and restores the parties to their former positions. This generally requires each party to return any consideration received prior to the rescission.

Severability

A severability clause states that a contract is still valid even if one of the provisions of the contract is rendered invalid. The intention of a severability clause is to protect the integrity of the whole contract. A contract with a severability clause can still be legally valid even if one of its component parts is not.

A thorough description of what the prospective tenant is looking for and the geographic region where the broker should be looking

A tenant representation will normally contain which of the following? - An assumption clause - A thorough description of what the prospective tenant is looking for and the geographic region where the broker should be looking - A termite clause - A release clause

Unilateral Mistake

A unilateral mistake is defined as a mistake or misunderstanding as to the terms or effect of a contract by one of the parties but not by the other. A unilateral mistake is usually not a defense to breach of contract claims.

Void Contracts

A void contract has no legal force or binding effect generally because the purpose of the contract is illegal or against public policy. Example: A contract that requires performance of a crime.

Written Contracts

A written contract is a negotiated document, signed by and identifying all parties, explaining the consideration given by each party, and stating the rights and duties of each party. When the contract is put in writing, it describes the agreement of the parties, with terms and conditions, and serves as proof of the parties' obligations.

Acceptance

Acceptance occurs when a party agrees to the exact terms of another party's offer. Offer and acceptance are the two basic elements in formation of a contract.

Oral Contracts

Also referred to as "spoken" contracts, this contract category refers to contracts that are not in writing. Unless prohibited by law, oral contracts are valid. However, even in those instances where an oral contract is valid, enforcing the contract terms may be difficult or impossible. Although not entirely accurate, it is always wise to remember the old cliché, "An oral contract is only worth the paper it's printed on..."

Illegality

An act or obligation that is illegal and contrary to legal principles may not be the subject of a contract. A contract is not enforceable when it is formed around an illegal purpose, such as performance that is criminal or against public policy.

Contract Clauses: Attorney's Fees

An attorney's fees clause is a provision in a contract. This clause states that, in the event of a contract related lawsuit, the losing party will reimburse the party that won the lawsuit for attorney's fees. Depending on the contract, this kind of clause may also require the losing party provide reimbursement for other court costs and fees.

Contract Clauses: Escape

An escape clause sets down conditions under which a party can back out of a contract without breaching the contract. A 72-hour clause is a particular kind of escape clause that is common to real estate sale contracts. This clause allows the seller of a property to accept a conditional offer from the buyer associated with the contract while also keeping the property on the market. If the seller receives a competing offer from another buyer, he or she can invoke the 72-hour clause. The clause requires the buyer associated with the real estate contract to purchase the property within a specified amount of time (not necessarily 72 hours). If the initial buyer does not complete the purchase in the specified time limit, the offer is rejected and the competing offer becomes the only offer. The 72-hour clause allows the seller to back out of the contract with the initial buyer, if the initial buyer fails to complete the purchase.

Exclusive Agency Listings

An exclusive agency listing is similar to a non-exclusive listing (see below) except for the major difference that a broker will represent the owner. The owner reserves the right to sell the property on their own and not pay a commission if they bring the buyer themselves. The broker is free to cooperate with another brokerage, meaning the second brokerage could bring an able buyer whose offer the owner accepts. Typically, the broker is paid a listing commission that is shared with the selling broker, and the owner pays both fees.

Exclusive Right to Represent

An exclusive right to represent buyer-broker agreement establishes that the broker, under this agreement, is the only broker the buyer will employ while going through the property purchasing process. This kind of agreement also requires that a commission be paid to the broker. As with non-exclusive right to represent buyer-broker agreements, the commission can be negotiated and it can be paid by either buyer or seller. An exclusive right to represent buyer-broker agreement is the most advantageous for the broker because they not only are guaranteed commission (if the buyer buys) but is also guaranteed to be involved in the entire property purchasing process.

Exclusive Right-to-Sell Listing

An exclusive right-to-sell listing is the most commonly utilized form of listing agreement. It gives the broker the exclusive right to earn a commission by representing the owner and bringing a buyer, either through another brokerage or directly. The owner pays both the seller's and buyer's broker fees. The owner cannot sell the property on their own without paying a commission, unless an exception is noted in the contract.

Immaterial Breach

An immaterial breach is one that does not significantly lessen the value of the contract for the other party or does not result in significant harm to that party. Depending on the type of breach and the amount of harm suffered by the non-breaching party, damages may be awarded, but an immaterial breach will not allow the non-breaching party to terminate the contract.

Contract Clauses: Indemnity

An indemnification clause states that a party, or parties, associated with a contract will cover certain losses or expenses incurred by another party under the contract. Indemnity clauses are often designed to protect parties under contract from liability and losses owed to third parties.

Assignment

Assignment involves a transfer of rights or obligations established by a contract without canceling or replacing the contract. Rights or obligations are moved from one of the original parties to the contract to a third party. For example, a company establishes a contract to clean an office building with the owners of that building. The company does not want to utilize its own personnel to clean the building, so they assign that obligation to a subcontractor. The contract remains in force but the party obligated to clean the building has changed. Assignment can come up in real estate in several ways. Assignment is one way for real estate investors to "flip" properties. The investor signs a purchase contract with a seller and then assigns his or her end of the contract to the actual buyer. If the deal goes through the property is sold and the investor pockets money for "selling" the contract to the buyer. Assignments are normally valid as long as the contract does not specifically forbid assignments. However, the language of the contract can have a significant effect on the scope and nature of any assignments. This is why an assignment does not always relieve the assigning party of liabilities.

Standard Contract Forms

Because they contain legally tested wording and provide for all required information, many real estate agents/brokers, buyers, sellers, and even attorneys prefer standard contract forms. Because all parties are familiar with standard contract forms, fewer disagreements arise and fewer required elements are likely to be overlooked. A standard contract is convenient, but may not contain all of the provisions required by the state. The contract must be reviewed and amended if necessary, by a person competent in the state's requirements. The most commonly used contract forms, which include language specific to each state, are widely available from many sources and easily purchased via the Internet.

Bilateral Contracts vs. Unilateral Contracts

Bilateral contracts are the most common form of real estate contract in that they obligate both parties to the agreement to some type of performance. The seller agrees to sell and the buyer agrees to buy. In this type of contract, all of the parties that are involved have to make promises to each other and honor those promises. In other words, it is a give-and-take kind of agreement from both ends. Unilateral contracts allow only one person to make a promise or agreement. An option is a unilateral (one-way) contract where the buyer pays an agreed amount for an option to purchase generally within a predetermined timeframe, such as 60 days, that they may exercise their option to buy at an agreed price if they choose, or they may take no action and let it expire.

Consequential Damages

Consequential damages are indirect losses to the injured party. These damages are recoverable if the injured party can prove that the damages were foreseeable at the time the contract was made.

Consideration

Consideration is what one party to a contract offers to do if the other party performs the obligations of the contract. Generally, consideration is offered by one party in the form of money and by the other party in the form of an action. However, under the law, consideration can be anything. The actual performance of an act (a transfer of title to a property; a contractor building a house) A promise to perform or not perform some act ("I promise to pay you;" "I promise to mow your lawn") The terms of the offer determine what kind of consideration is needed to form a contract. In real estate transactions, the seller offers consideration in the form of the property being sold and the buyer offers consideration in the form of money or an exchange of property or other valuable consideration.

Contingencies

Contingencies are specific events that must occur for the offer/purchase agreement to be valid. When a contingency is placed into this kind of contract, the buyer is saying that the purchase will not be completed unless certain conditions are met. Example: The offer will only be valid if a home inspection is performed within a specified amount of time and that inspection finds the house to be in an suitable condition.

Legal and Equitable Remedies

Courts have the power to grant two types of remedies: legal and equitable. Legal remedies for breach of contract include actions for damages, which is the remedy most often applied in contract disputes. Equitable remedies include rescission and restitution, reformation, cancellation, "specific performance," and injunctions and are only granted if there is no adequate legal remedy available.

Damages

Damages are financial losses that occur when there is a breach of contract. Awarding monetary damages is a remedy that a court may provide when there has been a breach of contract.

Foreseeability

Damages will be limited to those damages that are suffered as a predictable result of the breach. Courts and attorneys refer to such predictable damages as being "foreseeable." Whether or not certain damages claimed are "foreseeable" is a factual determination made by the courts on a case-by-case basis.

Voidable Contracts

Even if a contract is made for a legal purpose, some contracts may be subject to cancellation: Mutual Mistake: Both parties are mutually mistaken with regard to a material fact. Lack of Legal Capacity of One or Both Parties: Example: A contract made by a 15-year-old child will be subject to cancellation if it is not for a necessity of life such as food, clothing, shelter, or medical treatment.

Oral vs. Written Contracts in Real Estate

Even though oral contracts are legally binding in most situations, it is important to note that both U.S. Federal law and Oregon law require that all contracts for real estate be in writing in order to be enforceable. Oral contracts are NOT allowed. In regards to Oregon law, this requirement is found in section 41.580 of the Oregon Revised Statutes (the statute of frauds).

Fraud

Fraud is deliberately giving false information, or deliberately withholding information known to be important. If a party enters into a contract as a result of fraud by the other party regarding a material matter, the contract may be void. However, it is a principle of the law that contracts should be maintained as valid, if at all possible. If the fraud is only with regard to an immaterial matter (refer to material vs. immaterial breaches above), a court might decide not to invalidate the entire contract. This defense is difficult to use, as it requires proof of the falsity of the information, as well as proof that the party making the false statement knew it was false and had the intent to deceive.

Impracticability/Impossibility

If performance is physically impossible because of circumstances beyond the control of the obligated party, then "Impossibility or Impracticability" becomes a defense against Breach. Of course, a party must exercise all reasonable measures to attempt to complete performance, but if it is truly impossible, then the party is relieved of the duty.

Earnest Money

In a real estate transaction, earnest money is money given by a prospective buyer to show sincerity and to demonstrate his/her financial capability to raise the money called for in the agreement and to serve as possible liquidated damages to the seller in the event the buyer defaults on the agreement.

Express Contracts vs. Implied Contracts

In an express contract, all the involved parties to the contract normally state the conditions and terms of the contract in either a very formal or informal way, and it may be either in writing or verbal. An "express" contract is the type of contract most commonly thought of when people hear the term "contract." An implied contract is not a formal agreement of any type. This type of contract is brought about by the intentions, relationships, and the actions of all the parties that are involved in the "agreement." These types of contracts are extremely rare in the real estate market due to the fact that real estate transfer contracts are required to be in writing (that is express contracts).

Basic Definitions in Contract Law

In order to understand the law of contracts, it is necessary to become familiar with some of the terms that sound like "legal jargon" but which have special meanings used in written laws and by the courts. The following definitions are general summaries. More detailed definitions may be found at http://dictionary.law.com/. This is a free internet resource for legal information and assistance. No endorsement of any products or material from this website is either made or implied.

Liquidated Damages

Liquidated damages provisions set a dollar amount that will be forfeited, or paid, if a certain type of breach of contract occurs. Each state has very specific guidelines on the language that must be used for liquidated damages clauses to be considered valid, and a contracts lawyer should be consulted before including such a clause. Standard real estate forms will usually contain the appropriate wording for the state in which you are operating.

Remedies for Breach

Remedies are what the Courts provide in terms of compensation or as settlement of the dispute when a breach of contract occurs. A prime example is the buyer who makes an offer on a home, deposits "earnest money" with the offer, and then terminates the transaction later in the process after all contingencies are met. The remedy, in this case, is the buyer's earnest money which is forfeited to the seller as compensation for the breach of contract. This particular example is greatly over-simplified and will be discussed in greater detail later in the module when we cover specific real estate contracts. The following discussion of "Remedies" is intended to be a general discussion of the topic only.

Covenants on Land

Restrictive covenants and easements on land are transferable from one party to a contract to another and they "run with," or remain with, the land. For example, an individual purchases a home in subdivision which is governed by the covenants and restrictions of a homeowners' association. This individual enters into a contract with the HOA to comply with and be bound by these covenants and restrictions. At a later date, the individual sells this home to a new buyer. The original promise to comply will likewise bind the new buyer and any future buyers of the property to comply with all covenants and restrictions. Even though the new buyer is not in "privity" of contract with the HOA, the HOA retains all rights to remedies as set forth in the original contract against the new owner and all future owners.

Contracts Unenforceable as a Practical Matter

Sometimes, contracts are unenforceable even if they appear to be legally valid. This can occur when: - contract terms are too vague and uncertain to interpret or - the defaulting party is "judgment proof" (in other words, available assets are insufficient to pay damages awarded in litigation).

Specific Performance

Specific performance occurs when one party has made a good faith effort to perform his/her obligations under a contract and the other party has NOT performed his/her obligations. Suit for specific performance is a request for the courts to compel the other party to do as the contract dictates.

Puffery

Statements of fact in the contract must be accurate. Exaggeration of the benefits of a contract is called "puffing." While puffing is legal, parties to a contract must take extreme care to ensure that none of their statements can be interpreted as fraudulent. In real estate, for example, one might claim that a home has a "fantastic view." This is "puffing" because prospective buyers will decide for themselves if the view is fantastic or not. On the other hand, claiming a property has an "ocean-front view" when the coast can only be seen by standing on a deck and leaning outwards at an extreme angle might be considered fraud.

Substantial Performance

Substantial performance occurs when a party has made a good faith effort to perform his or her obligations under a contract and has completely performed all essential obligations. A contract may be substantially performed even if minor, nonessential obligations have not been fully performed. Generally, this is not a principle which the courts would apply to Real Estate contracts. Because they deal with transfer of ownership, that transfer will either occur or not; there is seldom, if ever, a middle ground.

An Offer

The details of what is going to be performed as a result of this contract must be described, including the manner in which it will be performed, the time frame, and the price. This means: price, manner of payment (terms), time frames for specific deadlines to be met (such as earnest money payment, due diligence), and escrow closing. An offer is a promise made by one party to do, or not to do, a specific act or acts. A valid offer requires a couple of elements:

Mitigation

The non-breaching party has a duty to minimize the damage it suffers as a result of the breach. Both expectation and reliance damages will be reduced by the amount that could have been avoided if the non-breaching party had taken reasonable measures to reduce the harm.

Reliance Damages

The purpose of reliance damages is to return the non-breaching party to the position he or she would have been in if the contract had not been made. Reliance damages are usually an alternative to expectation damages. They are used when it is not possible to show with any reasonable certainty the amount of the expectation damages, and in cases where a breach occurs very early in the course of a contract. Reliance damages will ordinarily be measured by the costs expended by the non-breaching party in performing (or getting ready to perform) the contract up to the breach date.

Net Lease

Under a net lease, the tenant pays for some, or all, of the major expenses of a property in addition to the rent. Normally, the property costs are divided among all the tenants, with each tenant paying a portion of the total cost. Tenants with this kind of lease generally are responsible for the costs of utilities and janitorial services as well. - With a single net lease, the tenant, or tenants, pay(s) for one of property taxes, property insurance, or maintenance costs and the landlord pays the other two. - With a double net lease, the tenant, or tenants, pay(s) for two of property taxes, property insurance, or maintenance costs and the landlord pays the other one. - The most common form of net lease is the triple net lease. This is where the property taxes, the cost of insurance, and the cost of property maintenance are handled by tenants.

Acceptance or Rejection

When an offer is made and accepted on its exact terms, both the party making the offer and the party accepting the offer have agreed to be bound by the stated terms, and a contract is formed. Any "acceptance" that attempts to change or alter the terms of the original offer is not a true acceptance and does not lead to formation of a contract. Instead, it is a new offer, and a contract can only be formed if the other party accepts the new offer on its exact terms. Both parties to the contract must mutually agree to the obligations outlined in the terms of the contract. Acceptance of an offer occurs when a person to whom the offer has been directed makes an appropriate statement of agreement with the terms of the offer. Additionally, for an acceptance to be valid, it must be voluntary (not the result of threats or made under duress) and the party accepting must have legal capacity to accept the definite and explicit terms of the offer. An offer can be rejected in multiple ways. - One party can indicate in writing that an offer is rejected. - Since many offers have time limits, a party can reject an offer by allowing the time limit to expire. - Any attempt to change the terms of the offer is legally a rejection of the offer. The changed terms become a counteroffer which can then be accepted or rejected by the other party.

Priority of Multiple Counteroffers

When multiple parties are involved in the same contract negotiation, it is possible for multiple offers, or multiple counteroffers, to be presented at the same time. All counteroffers have the same priority. The party to which the counteroffers are being presented chooses which counteroffers to accept, which to reject, and which to counteroffer.

Repudiation

When one party to a contract lets the other party to the contract know, by word or action, that he/she no longer intends to be bound by the contract, this is called "repudiation." When the second party receives notice of this intent, that second party's duty of performance is terminated. If the party who repudiated the contract later sues for breach, the other party can use the repudiation as a defense. Use of this defense is always tricky, and the party relying on the defense must present evidence that will convince the court that repudiation occurred.

None of these are correct

Which of the following is a responsibility of the seller under a purchase agreement? - None of these are correct - Discriminate in the sale, rental and financing of property on the basis of race, color, religion, sex, disability, familial status, national origin - Misrepresent facts related to a "stigma" on a property - Withhold information about the presence of lead based paint in a property

Percentage Lease

With a percentage lease the cost of (commercial) tenancy is a base rent amount and/or a percentage of the commercial sales made by the tenant. The tenant does not normally begin paying a percentage of the sales until the sales reach a certain amount which is specified in the contract establishing the lease. - Say an electronics store rents a space in a strip mall. The base rent is $4,500 a month. If the store's monthly sales exceed a specified amount, they will pay 5% of their sales instead of the base monthly rent. The specified amount of sales above which the store pays the percentage (the breakpoint) is usually found by dividing the base rent by the percentage of sales. ~~ In this case, it would be $4,500 ÷ .05 = Breakpoint ~~This becomes $90,000 = Breakpoint - If the store's monthly sales ever exceed $90,000, the rent for the space will be 5% of their monthly sales. A percentage lease can also require the tenant to pay the base rent and a percentage of sales. A percentage lease can provide a tenant with a lower base rent amount while providing the landlord with the potential to reap significant profit if the tenant is successful.

Modified Lease

"Modified gross lease" or "modified net lease" are both names for a lease that is a compromise between the standard gross lease and standard net lease. In this case, payment of the property costs (taxes, insurance, maintenance, utilities, janitorial) are negotiated between the landlord and any tenants. The amount each party pays varies based on the agreement that is ultimately reached between the landlord and any tenants.

Specific Performance

"Specific performance" relief is given by compelling a party to do that which ought to be done. In the case of a real property transaction the buyer may file an action for specific performance to compel a seller to convey the real property which is the subject of the transaction or the seller may file an action to require the buyer to purchase the property.

Novation...

...involves changing fundamental aspects of a contract in such a way that the contract is replaced with a new version that reflects the changes. - Assignment... - Novation... - Reconfiguration... - Abjurement...

Covenant

A covenant is a term of a contract either expressly stated by the parties or implied by law.

Contract Clauses: Arbitration

An arbitration clause states that any disputes related to the contract must be resolved through arbitration rather than through a lawsuit.

Offer

An offer is the action that starts the process of forming a contract.

Breach of Contract

Breach of contract occurs when a party does not do what the contract requires.

Cancellation

Cancellation, like rescission, seeks to terminate an agreement or instrument. These remedies differ in that cancellation is used to void a particular document, or subsection of a contract, while rescission extinguishes the entire contract. Cancellation does not place the parties exactly in their former positions; it merely makes the instrument cancelled a non-issue from that point forward ~~ i.e., responsibilities of the parties are discharged as of the date of cancellation, but the parties are not required to "unwind" the contract as to any prior performance. In contrast, rescission extinguishes the contract and treats it as null and void from the inception, and requires the restoration of consideration through restitution.

Changes

Changes are any new or different items that are not covered in the original contract. If a change is desired or required, the parties should sign an amendment to the contract. In real estate transactions this amendment will commonly take the form of an addendum to the purchase agreement or a "counteroffer."

Condition Precedent

Condition Precedent is a legal term that describes an act or event that must occur before performance under a contract is required. If the act or event does not occur, the performance is excused. Example: The sales agreement stipulates that the owner will make repairs to the roof prior to execution of the sale. If the owner does not make those repairs, the courts have held that the "condition precedent" has not been met, and therefore the owner is in breach and the buyer is not compelled to complete the purchase.

Estoppel

Estoppel is a legal prohibition which precludes a person from asserting or denying a fact or which precludes a person from exercising a specific right, such as the right to additional lawsuits.

Fraud

Fraud is an intentional misrepresentation, deceit, or the concealment of a material fact known to the defendant with the intention of depriving a person of property or legal rights or otherwise causing injury

Interference With an Existing Contract

Intentional interference with contractual relations or tortious interference is situation where a party knowingly causes damage to a contractual relationship that that party is not involved with. If a party voluntarily breaches a contract they are involved in, or performance of a contract is prevented by a non-human cause, then there is no intentional interference. A party has to know that there is a contractual relationship to interfere with and must be the cause of the contract breach or failure of performance. Under Oregon law (ORS 696.301) a real estate licensee can have his or her license suspended or revoked if he or she intentionally interferes with an existing real estate contract. A real estate licensee who commits tortious interference can also be denied license renewal.

Liquidated Damages

Liquidated damages consist of an amount of money agreed upon by the parties as being fair compensation to the innocent party if a breach of contract occurs. The amount is included in a special provision of the contract that must be carefully worded to be enforceable by the courts. The amount of liquidated damages must reasonably estimate the actual damages that would be suffered in the event of a breach. If the amount stated in the contract is so large it is out of proportion to the harm that may be suffered, a court may refuse to award the amount stated in the contract. At a minimum, most real estate contracts contain standard clauses which specify the buyer's "earnest money" as liquidated damages payable to the seller if the buyer should choose not to complete the transaction.

Mistake

Mistake as to a material fact can be a defense to breach of contract claims, but a mistake made by only one party is not a defense. Only mistakes made by both parties as to the same material fact will serve as a defense.

Novation

Novation involves changing fundamental aspects of a contract in such a way that the contract is replaced with a new version that reflects the changes. In other words, novation is the *renewal or replacement of a contract*. There are a couple of things that can be altered through a novation. - New debts or obligations can be established in the place of existing debts or obligations. - A party to the contract can be exchanged for a new party. When a novation is carried out, the original contract and any obligations associated with it are canceled. A new contract, which is nearly identical to the old contract (with the obvious exception of the changes instituted by the novation), is established in place of the old contract. For example, a seller establishes an exclusive listing agreement with a real estate agent. The real estate agent later realizes that she is overburdened and cannot effectively aid her customer. The real estate agent gets permission from her client to perform a novation of the listing agreement to another real estate agent she knows. The old listing agreement is canceled and an identical listing agreement is set up with the other real estate agent.

Competent Parties with a Legal Capacity

One party must offer to enter into a legal agreement and another party must accept the terms of the offer. To do so, both parties entering into the contract must have legal capacity. Legal Capacity: - Individuals must be 18 years of age or older. - Individuals must not be operating under a legal disability, such as a court order depriving the individual of the ability to make contracts and appointing a legal representative to manage his or her financial affairs. - Business entities (such as corporations, limited liability companies, and limited liability partnerships) must be in compliance with state requirements by filing annual documents and complying with assumed business name requirements.

Unenforceable Contracts

Oral or written contracts may be unenforceable because of a failure to comply with all the elements of contract formation. Sometimes even a contract that is "validly formed" will be unenforceable because of practical considerations (discussed below).

Performance

Performance is doing what is required of a party by a contract

Privity of Contract

Privity of Contract is a requirement (with some exceptions) for an individual to be able to bring suit against another for breach of contract. Privity of contract refers to the relationship between the parties to a contract. Only parties to a contract are in "privity" with one another, and therefore only a party to the contract may bring suit in Court against another party to the contract for failure to "perform" the obligations of the contract. For example, a buyer's tenant of a property may not sue the former owner (seller) of the property for failing to make repairs guaranteed by the land sales contract. Only the buyer and the seller are in "privity of contract" one with the other, so these are the only parties which have legal standing to file a lawsuit.

Privity of Contract

Privity of contract is the direct relationship that exists between parties to the same contract.

"Time is of the Essence"

Real Estate contracts frequently contain conditions relating to time, in particular specific dates by which specific tasks (such as an inspection, repairs, etc.) be completed. If a contract is silent on the time for performance of work, the courts will infer a reasonable time for performance. When the contract states that "time is of the essence," the completion date or time is critical and time itself has a high value. When a contract provides that "time is of the essence," failure to meet a performance deadline can be a breach of contract. In addition to being grounds for a breach of contract, "time is of the essence" provisions can affect payments under a contract. Contracts may stipulate rewards for early closing or impose penalties for delays. When "time is of the essence," the dates for performance, bonuses, and penalties are strictly enforced.

Reformation

Reformation is an equitable remedy that can be used to correct a real estate purchase and sale agreement or other instrument, such as a deed, mortgage, or lease, in order to state the true agreement of the parties. The remedy presumes the existence and validity of the contract and serves as a vehicle to correct the terms to reflect the actual intent of the parties at the time the contract was made.

Remedies

Remedies are the lawful actions that can be taken by a party who has been damaged by a breach of contract to enforce a right or recover damages.

Definite Statement of Required Terms

The offer must clearly outline the terms of what is being offered, including any contingency clauses or covenants that may apply and the respective obligations of the parties to the contract.

Offeree

The offeree is the person or business entity receiving an offer. In real estate terms the "offeree" is commonly the "seller."

Offeror

The offeror is the person or business entity making an offer. In real estate terms the "offeror" is commonly the "buyer."

Intent

The parties must each intend to enter into a contract, and their spoken or written words must communicate that intention. Joking or offhand comments or discussion that may incidentally contain both an offer and acceptance are not sufficient to form a contract. The intent of the parties to be legally bound must be clear from both their words and conduct.

Requirements for Validity

To form a legally enforceable contract, the following basic elements are necessary: - Parties with legal capacity - An offer - A valid (legal) purpose - Consideration - An acceptance of the exact terms of the offer In addition to the foregoing elements, a contract's terms must be sufficiently clear and definite so that the parties understand them at the time of entry into the contract. The more clear, precise, and well defined the terms of the contract, the more likely it will be enforceable.

All of these are correct

To form a legally enforceable contract, which of the following basic elements are necessary? - All of these are correct - An offer - Consideration - Parties with legal capacity

Indemnify

To indemnify is to guarantee against any loss which another might suffer, and to compensate for damage or loss sustained, expense incurred, etc.

True

True or False: a merger and integration clause states that the written form of the contract is the final version of the contract which overrules any previous agreements or negotiations. - False - True

True

True or false: a non-exclusive right to represent buyer-broker agreement requires the buyer to pay commission to the broker for services rendered. - True - False

Gross Lease

Under a gross lease, a landlord pays for the property taxes, the property insurance, and the maintenance of the property. In addition, landlords of a gross lease often cover utilities and janitorial services. These costs are paid out of the rents collected from tenants.

Illegality

Which of the following is a defense for a claim of breach of contract? - Conditional mistake - Breach was immaterial - Illegality - Rescission

Coercion or Duress

means forcing a person to do something against his will, including using threats to force a person to do something A contract is not enforceable when an individual is threatened or forced to agree or perform against his or her free will.