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Specific performance – property contracts

There are some contractual situations where a claim based on a breach of the contract for damages is, in practical terms, insufficient as a remedy notwithstanding the general rule of damages to place the innocent party in the position they would have been in, in financial terms, had the breach not occurred. A typical example of where damages are an inadequate remedy is when buying a property.

As a consequence of the above, the law developed historically an equitable i.e discretionary,  remedy known as specific performance for contracts.

In essence, if you are an innocent party and the other party has fundamentally breached the contract, you may apply to court for an order forcing the other party to complete the contract.

The remedy of specific performance, whilst still relatively uncommon, is not that unusual in property transactions.

By way of practical example, a colleague of mine dealt with a case several years ago which illustrates the use of specific performance but also that it can be complicated and action needs to be taken quickly. Here’s what happened :-

  • client exchanged contracts to buy a property
  • seller turned out to be a fraudster
  • somewhat unusually, the sellers solicitors requested that, on exchange of contracts the deposit paid be released to the seller. This is never advisable, but does happen in some situations
  • the seller owed huge amounts of money to creditors
  • after exchange of contracts he disappeared with the deposit
  • the client applied to court for specific performance
  • at the same time as the client applied for specific performance, many of the creditors also issue claims against the seller in absentia and sought to block the specific performance order as the sale proceeds would not be sufficient to pay them any of their debts after the mortgage over the property was paid
  • the client needed to act fast and needed to convince the court that her claim to the property was more compelling than the interests of the numerous creditors of the seller
  • with specific performance and property, the court rules provide that the court has the power to not only make an order for specific performance, but to also sign the formal transfer deed for the property, on behalf of the seller, if necessary, if he or she can’t or won’t
  • In this case, the clients case was particularly strong as she was an elderly lady who had agreed to buy the property so that she could literally live next door to one of her sons

The court made the order for specific performance, the money was paid into court, the sellers’ mortgage was paid off and the other creditors had to fight over the balance remaining.

James Swede – Senior Partner & head of property law

If you have a situation where a contract had been fundamentally breached and you are desperate for the contract to be completed, get in touch and we can advise on the best course of action. To obtain the help of equity, you need to act fast and to have acted at all times with propriety.

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