In Michigan, after a purchase agreement for real property is signed by the buyer and the seller, often there is a due diligence period prior to closing. During this interval time period, either the buyer or the seller can develop ‘cold feet’ and may wish to terminate the purchase agreement altogether or otherwise refuse to attend the closing. Thus, a question inevitably arises whether the party seeking to enforce the purchase agreement can compel specific performance of the purchase agreement and force the other side to comply with their contractual obligations.
What is Specific Performance?
Specific performance is a remedy for a failed purchase or sale of real property. In essence, specific performance is a cause of action whereby the party seeking to compel the recalcitrant party to perform their contractual obligation to either buy or sell the property. For some context, below are some examples of situations where a buyer or seller may have ‘cold feet’ and wish to back out of the purchase agreement:
- The seller planned to move to a new home and discovers that they cannot close or move into their new home due to title issues or for some other reason.
- The seller discovers that their new home will be significantly delayed due to construction issues or problems with a Certificate of Occupancy and does not want to find alternative housing in the interim from the move from their existing home to their new home.
- The seller has a change of heart and simply changes their mind about selling altogether.
- The buyer discovers some issue with the property such as the prior owner passed away in the home or a violent crime was committed at the property.
- The buyer discovers a better home and seeks to terminate the current purchase agreement in order to purchase the better home instead.
- The buyer loses their job and can no longer afford the home.
- The buyer changes jobs and now intends to move to another state.
Simply, a purchase agreement is a contract and a court will review the purchase agreement as a contract. The power to grant specific performance is within the sound discretion of the trial court. Zurcher v Herveat, 238 Mich App 267, 300; 605 NW2d 329 (1999), quoting Foshee v Krum, 332 Mich 636, 643; 52 NW2d 358 (1952). Specific performance of a contract for the purchase of real estate should not be arbitrarily refused. Id. Indeed, in the exercise of sound legal discretion, a trial court should order specific performance for the sale of real property unless to do so would be inequitable. Id. Although specific performance is not a matter of right, “the court is not justified in withholding a decree from the one clearly entitled thereto, merely because of the exigencies of the case.” Tiley v Chapman, 320 Mich 173, 175; 30 NW2d 824 (1948); see, also, Zurcher, supra. Specific performance is not precluded because the remedy at law is adequate. Wilhelm v Denton, 82 Mich App 453, 454; 266 NW2d 845 (1978). In Anzaldua v. Band, 457 Mich 530, 578 NW2d 306 (1998), the Court held that specific performance is an equitable remedy and that, absent consent of the parties to a jury trial, a claim for specific performance alone is to be decided by a trial court without a jury. The Court stated:
The parties have a constitutional right in Michigan to have equity claims heard by a judge sitting as a chancellor in equity. ? If a plaintiff seeks only equitable relief, he has no right to a trial by jury. ?However, in this case, the plaintiff sought both equitable relief in the form of specific performance and legal relief in the form of damages. In this situation the plaintiff had a right to have a jury hear his damage claim. ?[Id. at 538, n. 6, 578 N.W.2d 306, quoting Dutka v. Sinai Hosp. of Detroit, 143 MichApp 170, 173, 371 N.W.2d 901 (1985) (citations and emphasis omitted)?].
Conditions/Contingencies in the Purchase Agreement
It may be surprising, but specific performance is rarely utilized in Michigan. Most purchase agreements contain numerous conditions, contingencies or other means to terminate a purchase agreement prior to closing. Examples include, but are not limited to: 1) a due diligence period (commonly known as the inspection period), 2) survey or title insurance requirements, 3) confirmation of available financing, 4) some escrow amount or earnest money deposit, 5) specific timing requirements, etc. Thus, the actual language of the signed purchase agreement will need to be reviewed to determine whether the party seeking to enforce the purchase agreement satisfied their obligations/conditions. Simply, the party seeking to compel specific performance of the real estate purchase agreement will need to demonstrate to the Court that they fulfilled their contractual obligations under the purchase agreement and that the recalcitrant party is in breach of the purchase agreement. Therefore, it is imperative that both the buyer and seller review the terms of the purchase agreement before signing and then immediately review the language again if/when an issue arises.
Given that the language or terms in a purchase agreement can vary significantly depending on who drafted the purchase agreement, we routinely encourage seeking the advice of counsel as soon as possible in the process regardless of whether you are the buyer or seller and whether you are the enforcing party or the party with cold feet.
The team at Hirzel Law, PLC is composed of award-winning real estate attorneys that can offer quality representation for Michigan clients. Regardless of if you are a commercial real estate developer or individual homeowner, our real estate attorneys can help. We fully understand how unique and complex the challenges that our clients may face, and our real estate attorneys are prepared to help in whatever way necessary. Contact Hirzel Law online or call 248-986-2921 (Farmington) or 231-486-5600 (Traverse City) or 616-319-9964 (Grand Rapids) to learn how our Michigan real estate lawyers can help protect your Michigan real estate investment today.