Avenue Law Firm

Legal Implications of Executed Real Estate Contracts

The procedure for buying a home in New York is often a lengthy and complicated process. The legal implications of the real estate contracts that are signed during this process may be significant if they are not executed properly or when certain contingencies do not come about as expected. Ensuring an executed contract is properly managed is crucial for the transaction's success.

When a buyer makes an offer to purchase a property, the seller typically will respond either verbally or in writing and then the parties will negotiate and agree upon all of the details of the deal. The buyer and seller will then sign an executed contract of sale, laying out the terms of the agreement. The executed contract will usually contain a number of different items, including the price and closing date of the sale, contingencies, and other important terms of the deal.

In most cases, the executed contract will include an allocation of the risks between the purchaser and seller. Unless the parties specifically agree to something else, most sales contracts for properties in New York will allocate risk to the seller with respect to any damages that could result from destruction or damage to the property.

The risk of loss allocation can be a critical aspect of any executed contract in a real estate sale, particularly when it is a residential property that the buyer is purchasing with a mortgage. The lender is typically concerned that if the property suffers from any type of destruction or damage, there will not be sufficient equity in the property to allow for the full payment of the loan. This is why many lenders require that buyers carry insurance for the property in case there are any financial losses under the executed contract.

When a party fails to perform on their obligations under an executed contract, they may be in breach of the contract and have the option of taking legal action to enforce their rights under the executed contract or seek specific performance of the terms under the executed contract. In some instances, it can be difficult for a party to prove that the other party failed to perform on their obligations, and if this is the case, then the party may wish to take a more diplomatic approach.

A common way to avoid being in breach of an executed contract is to add contingencies to the sale and make the executed contract contingent on meeting these terms. For example, a home seller might make the sale contingent on having another house in mind to move into or having a suitable place to relocate the business they are moving to. If the seller meets these conditions, they can have an out of an executed contract if their life plans change and they no longer want to move forward with the sale.

A party in a real estate dispute may also be able to get out of an executed contract by recording a lis pendens, which is a document that can be recorded to let the world know that someone has an interest in a piece of property and therefore it should not be transferred until the matter is resolved. However, this is a more complicated and expensive alternative than simply taking legal action to enforce the rights under an executed contract. 

How Executed Real Estate Contracts Work in New York

The purchase and sale of real estate involve the negotiation of contract terms between a buyer and seller. In New York, real estate contracts must be in writing and executed by both parties. While New York law is fairly lenient on what must be in a real estate contract, there are some important points that buyers and sellers should keep in mind to ensure a proper executed contract.

When a buyer and seller agree on contract terms, the attorney for the seller will draft up the first draft of the executed contract. There are standardized, pre-printed forms for this purpose. If the parties have particular or unique contract terms that are not reflected in these forms, they can be added as "riders" to the executed contract by both parties' attorneys.

Once the first draft is prepared, the seller's attorney will send it to the buyer for review and approval. The buyer will either accept the executed contract or present a counteroffer. Once the parties have agreed on all of the major terms of the executed contract, it is considered to be enforceable. However, there are many situations in which the parties cannot come to an agreement on certain contract terms.

Residential contracts often list an "on or about" closing date that is intended to be a target, rather than an absolute set of finite dates. Consequently, closings can be delayed beyond these estimated timeframes. When this occurs, either party may be able to terminate the executed contract for the reason that the final closing date has not been complied with.

Most residential and commercial contracts contain contingencies for home inspections, financing, title and engineering issues, as well as termite inspections. These are meant to give the buyer and seller a certain amount of time to be able to satisfy their obligation to close the transaction under the executed contract.

If the parties are unable to agree on these matters, the ability to terminate the executed contract is often lost. In addition, both parties can be exposed to a significant amount of liquidated damages in the event of such a termination.

In most cases, buyers and sellers will hire their own attorneys to draft the actual legal documents that they will sign in connection with their real estate transactions. This will help to ensure that all of the relevant information is included in the executed contract and that important issues are not overlooked. Both parties can also benefit from having their attorneys review the documents that are prepared by the other party's attorney, helping to avoid miscommunication and misunderstandings within the executed contract. 

Important Considerations for Executed Real Estate Contracts in New York

When someone in New York makes an offer on a piece of real estate, it’s not a done deal until attorneys create and execute a written contract. The executed contract will lay out a lot of different things that must be done for the transaction to close, including an anticipated date for closing (called “closing” or “execution”). It’s important to understand that while it may seem like the buyer and seller are obligated to go through with the sale once the executed contract is signed, they actually don’t have any legal obligation until their attorneys have written up the formal document and the parties sign it.

In most residential contracts, the buyer will often include a contingency that gives them the ability to terminate the executed contract for any reason during a time period set forth in the executed contract. Commercial contracts often have similar opportunities for buyers to back out of the purchase if certain events don’t occur. The most common of these is an inspection contingency where the buyer will have an open-ended time period to have the property inspected, and they can terminate the executed contract for any reason during that time. Another common contingency is for the buyer to secure financing for the purchase.

The other basic remedy available under an executed contract in a real estate purchase is an action for specific performance, where the judge orders the breaching party to perform the obligations under the executed contract. For the seller, that is usually giving the deed and doing other things required at closing. For the buyer, it is paying the purchase price and performing their other contractual duties as outlined in the executed contract.

In both cases, in order to terminate the executed contract, either the buyer or seller must give written notice of the termination. The written notice must identify the reasons for terminating the executed contract and must be accompanied by a request to have the earnest money returned. This written notice is then given to the other party, and the other party must either comply with the request or file an action for specific performance.

As the real estate process proceeds, it’s also a good idea for parties to discuss any potential issues that could arise during this time. This can help prevent unnecessary stress, litigation, and misunderstandings about what’s expected from both parties in terms of the process of their executed contract.

Whether you’re buying or selling a property, the right attorney can make all the difference. At Transactly, our real estate team can assist with drafting executed contracts and other documents, provide due diligence support, coordinate onsite visits by buyers for residential properties, and prepare and review a variety of other documents as needed. 

Avenue Law Firm

Avenue Law Firm

360 Madison Ave, 9th Floor, New York, NY 10017

(212) 729-4090