What Is a Breach of Contract in Real Estate?

Written and Reviewed by Daniel H Stoner

Founder of Stoner Law Over 10 years of experience in real estate law and civil litigation Graduated from Duquesne University School of Law, JD

By Daniel Stoner on January 3, 2024

Real estate contracts are a necessity for any type of real estate transaction. A real estate contract binds both parties once they have signed. When there is a breach of a real estate contract, it can be costly and stressful.

Real estate contracts are available to cover many real estate transactions, such as buying or selling a property or renting or leasing. A breach of contract occurs when one party fails to uphold their contractual obligations.

Whether you are involved in an agreement as a buyer, seller, landlord, or tenant, you should understand what is considered a real estate contract breach. This will prevent you from making serious errors and help you understand when the other party has committed a breach.

Types of Real Estate Contract Breaches

A real estate breach of contract is when one party does not fulfill the obligations under the contract’s terms. There are many ways a breach occurs, and the non-breaching party should understand what constitutes a breach to take legal action.

Here is a look at how a breach of contract in real estate can occur. If you have experienced a breach of contract, it is important to discuss your situation with an experienced real estate attorney.

Property Rental Agreement Breach

In residential and commercial rental property agreements, breaches are common. They can involve breaches of property usage, responsibility for making repairs, or termination of the lease agreement.

Property Purchase Agreement Breach

In a property transaction when buying a property, breaches may arise from disagreements over closing costs, buyers’ remorse, or failure of the property to pass an inspection. When a buyer doesn’t meet the obligation required in a sales contract, you should consult a real estate attorney to discuss your case.

How Do You Prove a Real Estate Contract Has Been Breached?

In real estate transactions, you will need to prove several elements for a breach of contract lawsuit. The first is that you must show a valid contract exists between you and the breaching party.

Next, you must prove that you fulfilled your obligations of the contract terms, or that you were justified in not fulfilling them. You will also need to show that the defendant failed to fulfill the obligations they were responsible for under the terms of the real estate contract. The final element you must prove is that you suffered damages as a result of the defendant’s breach.

Ways That Pennsylvania Real Estate Contracts Are Breached

Most real estate contracts are signed and implemented without incident. However, when a real estate breach happens on a sales contract, it can quickly turn into a nightmare. These are the ways that an agreement can be breached:

Minor Breach

A minor breach is when one of the parties involved fails to follow through with a certain component of the real estate contract even though the other party got what the parties signed for on the contract. It is more difficult to prove a minor breach because financial losses are unusual in this type of breach.

Actual Breach

By contrast, an actual breach of a real estate contract occurs when the parties sign and one of them does not fulfill some or all of their obligations stated in the agreement. A common example of an actual breach is when the seller of a home decides they don’t want to sell it anymore after both parties have signed the real estate contract. This breach can cause serious monetary damages.

Material Breach

With a material breach, one party in the real estate contract gets something completely different than what they signed for in the real estate agreement. The monetary damages are easy to prove because it is clear that one party has suffered a loss in the breach of contract.

Often, a seller may agree to take care of something before the closing date, such as having the roof replaced because it had serious damage. In this instance, a material breach would occur if the seller did not meet this obligation.

Anticipatory Breach

An anticipatory breach is what happens when an actual breach is imminent but has not yet occurred. The breaching party will have implied that they are not fulfilling the obligations they have agreed to in the contract. This tends to occur with builders when they agree to have a new home completed by a certain date, but the builder hasn’t even begun to prepare the land for the building of the home. These significant time delays can create significant monetary damages for the buyers involved.

How to Handle a Breach of Contract in Real Estate

Your next move after a breach of contract in real estate negotiations will depend on the damages you’ve incurred and how this can be rectified. In Pennsylvania, you have several options for remedying this situation:

Money Damages

Money damages are among the most common damages that non-breaching parties seek after a breach of contract.

Specific Performance

When monetary damages aren’t enough to compensate for the breach, specific performance is usually awarded. If the property you had on contract is located in a specific spot and there is nothing that is comparable, as the purchaser, you may seek this form of damages.

Liquidated Damages

With the help of an attorney, you may see that your contract contains liquidated damages. This amount indicates what the non-breaching party will accept as damages from the breaching party if a breach occurs. Liquidated damages only come into play if calculating actual damages is too difficult and the liquidated damages are considered reasonable for the situation.

Termination

Finally, in certain situations, the best way to deal with a breach of contract in real estate is termination of the contract. The buyer would be refunded the deposit and the expenses incurred from this failed transaction, such as attorney fees, title inspection, and survey fees.

What Should You Do If You Have Experienced a Breach of Contract?

If you have discovered that the other party has breached the contract, you will need legal representation to help safeguard your legal rights and recover your losses. Real estate cases are very complex, and it helps to have someone on your side who understands the real estate laws in your state.

When you buy or sell real estate, rent, or have some type of financial involvement with a residential real estate property, it is imperative you protect your best interests. One minor mistake on the paperwork or bad faith actions by the breaching party may leave you in a desperate financial situation.
Contact a real estate attorney at Stoner Law Offices, LLC, to help guide you through these types of complex breaches.