Real Estate Contract Breach: What Compensation Can You Expect?

Damages for Breach of Contract

When a real estate contract is breached, it can leave you feeling uncertain and overwhelmed. Whether you're the buyer or the seller, the breach could cause significant financial losses and delays in your property plans. But how much compensation are you entitled to when this happens? In this blog, we'll break down the different types of damages that can be recovered after a breach of a real estate contract and help you understand what you may be able to expect in terms of compensation.

General Rule

When someone breaks a real estate contract, the seller can usually get damages. Damages are the difference between the agreed purchase price and the market value of the property at the time of the breach, minus any amount already paid by the buyer. This rule applies even if the contract includes both real estate and personal property. However, the seller can't include the cost of the real estate broker's commission as part of the damages. If the seller offered a valid deed and kept the offer open, they might be able to sue for the unpaid balance of the purchase price.

If the contract wasn't completed with the delivery of a deed, the seller typically can only recover damages, not the remaining balance. Sometimes, interest can be awarded as damages to the party who is entitled to payment and is not at fault, or interest can be charged to the buyer who is in possession of the property.

When the seller breaches the contract, the buyer can recover the purchase money they paid, with interest. They can also get compensation for the loss of the deal and any other losses they suffered, such as expenses and wasted time. If the buyer doesn't want to cancel the contract and get their money back, the usual damages they can get are the difference between the market value at the time of the breach and the contract price, plus any amount paid. If the contract is canceled because the seller didn't have a clear title, damages are the difference between the market value when the conveyance should have been made and the contract price.

In construction contracts, damages can be calculated in three ways: the cost to repair the defective work, the economic waste rule, or a reasonableness test. For example, if fixing the defect is too expensive, damages might be the difference between the value of the building if it were properly constructed and its current value. The reasonableness test determines whether it's more reasonable to award damages based on the cost of fixing the defect or the decrease in the building's value.

Consequential Damages

Consequential damages are additional damages that the non-breaching party can claim. Courts usually don't favor these because they aren't considered a probable result of the breach. For instance, a seller usually can't recover maintenance and utility expenses incurred after the buyer's breach. The non-breaching party also has a duty to mitigate damages, meaning they should take steps to minimize their losses. However, some courts have awarded these damages if they were specifically pleaded.

Tort Damages as Part of a Contract Action

In some cases, emotional distress damages can be awarded if the breach of contract caused significant emotional harm. For example, in a case where a contractor failed to fix a leaky roof, the court awarded damages for loss of enjoyment and annoyance. However, these types of damages are generally not awarded unless the breach caused bodily harm or serious emotional distress was likely.

Lost Profits

Lost profits can be recovered if they were foreseeable at the time of the contract, the loss is a probable result of the breach, and the profits can be shown with reasonable certainty. For example, if a seller breaches a contract for the sale of property, the buyer might be able to recover lost profits from potential leases.

Counterclaims

If a seller sues a buyer for the purchase money of real estate, the buyer can counterclaim for any breaches of title covenants. The buyer can also involve anyone claiming an adverse interest in the property. The court might order the buyer to surrender possession of the property or direct payment upon the seller providing a bond.

Special Damages

Special damages are damages that the parties must have reasonably anticipated as a probable result of the breach. These can include injury or loss that could reasonably have been foreseen. In cases of actual malice, exemplary damages might be awarded.

Liquidated Damages

Liquidated damages are pre-determined damages stated in the contract. If the amount of damages is uncertain at the time of contracting, the parties can agree on a liquidated damages clause. However, if the amount is found to be unjust, it will be treated as a penalty, and the court will only award actual damages. Courts will look at whether the damages could be easily calculated at the time of contracting and if the amount is reasonable.

Unjust Enrichment and Constructive Trusts

Unjust enrichment is usually not a remedy in real estate transactions because courts do not change contractual agreements. However, courts can impose constructive trusts to prevent unjust enrichment. A constructive trust forces the titleholder to hold or use the property for the benefit of another or to convey the property to avoid unjust enrichment. This can happen if the title was obtained through fraud or other unfair means.

Attorneys’ Fees

Ohio courts follow the American Rule, which generally requires each party to pay their own attorneys' fees. Exceptions include statutory provisions allowing fee recovery, findings of bad faith, or contracts that provide for fee shifting. The prevailing party must show that the requested fees are reasonable. If the contract doesn't define the prevailing party, courts will decide based on the main issue or the relief sought.

In conclusion, if your real estate contract has been breached, you may be entitled to various forms of compensation depending on the circumstances of the breach and the specific terms of your agreement. Whether it's recovering financial losses, reimbursement for expenses, or even seeking punitive damages, understanding your legal rights is crucial.

Consulting with an experienced real estate attorney, like those at N.P. Weiss Law can help you navigate the complexities of your case and ensure you receive the compensation you deserve. Don’t let a breach leave you in the dark—take action to protect your investment.