Commercial real estate transactions often involve complex agreements, sizable investments, and high stakes. When one party breaches a contract, the non-breaching party can pursue specific performance or seek monetary damages to resolve the dispute. These two legal remedies represent different approaches to enforcing an agreement, each with its own advantages and challenges.
What Is Specific Performance?
Specific performance is a remedy that requires the party in breach of the contract to perform their obligations as specified in the agreement. In the context of commercial real estate, specific performance would compel a seller to transfer ownership of a property to the buyer, or a buyer to proceed with the purchase as agreed upon in the contract.
When Is Specific Performance Used?
Specific performance is typically sought when the subject of the contract is unique or when monetary damages would not adequately compensate the injured party. In commercial real estate, this remedy is more likely to be available when the property in question is one-of-a-kind or if there is no suitable substitute available for the party seeking enforcement.
For example, specific performance may be appropriate in a situation where:
- The property being sold has unique features (e.g., a landmark building, land with historical significance, or a location in a prime real estate area).
- A buyer seeks to enforce a contract for a specific location that cannot be replicated or replaced by another property.
In these cases, monetary damages wouldn’t fully compensate the buyer for the loss of the specific property they had contracted to purchase. As a result, courts may order the seller to complete the transaction as agreed initially.
Challenges of Seeking Specific Performance
While specific performance may seem like a desirable remedy in some situations, it’s not always easy to obtain. Courts typically only grant particular performance in situations where the contract is clear, unambiguous, and the subject matter is indeed unique. Moreover, even if a court agrees to enforce a specific performance remedy, it may also impose conditions to ensure fairness.
For example, a court may require the buyer to meet certain financial obligations before enforcing the contract, or it may grant specific performance in combination with other remedies, such as requiring the breaching party to cover any costs incurred due to the delay.
What Are Money Damages?
Money damages, on the other hand, provide a monetary sum to compensate the non-breaching party for the loss suffered as a result of the breach. In commercial real estate transactions, money damages would typically be sought when another property can easily replace the value of the property, or when the breach does not result in unique harm to the party.
When Are Money Damages Used?
Money damages are generally preferred in cases where specific performance is not practical or would not adequately remedy the harm caused by the breach. For example, if the property involved is not unique or the buyer can find a similar property elsewhere, a court may determine that monetary compensation is a more suitable remedy.
The key types of money damages in commercial real estate contracts include:
- Compensatory damages–Intended to compensate the non-breaching party for the actual loss suffered due to the breach. For example, if a seller breaches a contract and the buyer is forced to purchase another similar property at a higher price, compensatory damages would cover the difference in cost.
- Consequential damages–These damages address the broader impact of the breach, such as lost profits or the additional expenses incurred due to the delay in the transaction.
- Punitive damages–In rare cases, courts may award punitive damages if the breach was particularly egregious, such as when a party acts in bad faith or intentionally causes harm.
Challenges of Seeking Money Damages
While money damages are often the more straightforward remedy, they can still present challenges. For instance, proving the amount of damage caused by a breach can be complicated. In some cases, the injured party may need to provide evidence that demonstrates how the breach has impacted their financial standing, business operations, or long-term profitability.
Additionally, if a contract does not include provisions for damages or fails to outline how damages should be calculated clearly, a court may need to determine the appropriate amount based on the specifics of the case. This can lead to unpredictability in the final award.
When To Choose Specific Performance or Money Damages?
The decision to pursue specific performance versus money damages depends mainly on the circumstances surrounding the breach and the nature of the real estate contract. Here are some key considerations:
- Is the property unique? If the property is unique—whether due to its location, historical value, or other one-of-a-kind features—specific performance may be the more suitable remedy.
- Can you replace the property easily? If the property is readily replaceable and similar properties are available, monetary damages may be more appropriate.
- What is the financial impact of the breach? If the breach has caused significant financial harm or forced one party to pay more for an alternative property, money damages may help recover those losses.
- Are you seeking a quick resolution? Specific performance may take longer, especially if the court needs to assess the fairness of the request. Money damages, on the other hand, can provide a faster resolution.
When facing a dispute over a commercial real estate contract, working with an attorney who understands the nuances of real estate law is a wise choice. Trust Levy Goldenberg to guide you, explore your legal options, and choose the best remedy for your case.
Facing a Breach of Real Estate Contract? We Can Help
In commercial real estate, breach of contract disputes are often high-stakes, involving substantial investments and unique properties. Whether to seek specific performance or money damages depends on the specific circumstances of the breach, the property in question, and the financial impact on the parties involved.
If you’re involved in a commercial real estate dispute, turn to Levy Goldenberg. Well-versed in New York real estate law, we will work strategically to protect your interests in and out of the courtroom. Contact us today to get started.