Parties entering into a contract for the sale of residential or commercial real estate rarely anticipate all of the issues they must resolve before reaching and completing a closing on the sale of the property. Problems may arise regarding financing, the condition of the property or the closing date. Usually a buyer and seller, working in good faith toward the common goal of a sale, eventually resolve any problems and consummate the sale. However, when a stalemate arises and the parties incur costs as a result of their failure to close the transaction, the need for compensation and the prospect of a lawsuit arises.
For a buyer, the unique nature of most real estate also means that monetary compensation alone may be insufficient to compensate for any damages. In other words, whether the buyer is attempting to purchase a dream home or a piece of a commercial property that offers unique business advantages, the only way to fairly compensate the buyer for the seller’s failure to sell the property may be forcing the sale of real estate to the buyer. This type of remedy is known as “specific performance.” In New Jersey, “[t]here is a virtual presumption, because of the uniqueness of land and the consequent inadequacy of monetary damages, that specific performance is the buyer’s remedy for the vendor’s breach of the contract to convey.” Friendship Manor, Inc. v. Greiman, 244 N.J. Super. 104, 113 (App. Div. 1990), certif. den., 126 N.J. 321 (1991). This post will focus on the legal standards pertaining to the granting of this remedy by courts in New Jersey in connection with real estate contracts.
Generally, to establish a right to the remedy of specific performance in New Jersey, whether or not real estate is involved, a party must demonstrate:
1) that the contract in question is valid and enforceable at law,
2) that the terms of the contract are "expressed in such fashion that the court can determine, with reasonable certainty, the duties of each party and the conditions under which performance is due," and
3) that an order compelling performance of the contract will not be "harsh or oppressive…"
Marioni v. 94 Broadway, Inc., 374 N.J. Super. 588 (App. Div. 2005).
Even if a contract or agreement is deemed to be legally enforceable by the court, the court must examine the situation closely before ordering specific performance. The court must consider the impact that forcing the sale of real estate will have and whether denying specific performance will leave the buyer with an adequate remedy. The party seeking to force the sale must have conducted itself in a “fair, just and equitable” manner and stand in “conscientious relation to his adversary.” A court’s determination as to whether or not a buyer has behaved conscientiously, and that compelling a sale will not be “harsh or oppressive”, may involve thorough investigation of a complicated fact pattern. This can require significant document and information exchange in the course of court proceedings, referred to as “discovery”, prior to the court’s rendering of a judgment.
A complaint seeking to force the sale of real estate should be filed in the Chancery Division, General Equity Part of the Superior Court in the county in which the real estate is located.
A written contract is not required to force the sale of real estate, but having one greatly improves the likelihood of success. New Jersey’s Statute of Frauds used to prohibit the enforcement of a contract for the sale of real estate without a written contract. However, the revised Statute of Frauds allows for enforcement of an oral contract if it is proven by “clear and convincing evidence.” N.J.S.A. 25:1-13. The buyer seeking to force the sale must present proof that identifies the real estate to be sold, the nature of the interest to be transferred, the existence of the agreement to sell and the identities of the parties to the transaction. N.J.S.A. 25:1-13.
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