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I have been fielding a lot of questions lately from buyers, sellers, and Realtors that deal with contracting at its most fundamental level, so I thought I’d put together an article on the basics of the real estate contract.

Offer and acceptance

The essence of a real estate contract is offer and acceptance. The requirement of offer and acceptance applies to each of the major elements of the transaction, which typically include identity of the property and price.

There can be more terms, such as the personal property that accompanies the sale, who pays for the title insurance, and financing and inspection contingencies, but an offer from one party and an acceptance by another party of the major provisions is the basis of the formation of a contract.

One consideration on the issue of offer and acceptance is whether the offer or counteroffer was in fact accepted before its expiration.  We have seen contracts accepted out-of-sync with the terms of the offer and acceptance process, which could empower a buyer or seller to avoid their obligations under that instrument.

If at the end of the back and forth between buyer and seller there remain differences in these material terms, there is likely no “acceptance” of the last offer (i.e., no “contract”).  But if they in fact have agreed, the contract should be enforceable, subject to the “outs” noted below.

Either you are pregnant or you are not

Being in contract is kind of like being pregnant: either you are or you aren’t.  There is no such thing as “kind of” being under contract.  Courts should apply a fairly black-line test to this subject.  Either you are or you aren’t.

Execution and delivery

“Offer” and “acceptance” typically are handled by the signature of one party physically or electronically delivered to the other party.  In the “good old days” this was handled by one Realtor physically delivering a signed contract to the other Realtor.  Today, delivery is more common via fax and email, both of which are acceptable methods of delivery absent specific instructions in an offer or counteroffer from one party to the other (i.e., if they specify that physical delivery to the Realtor’s office is the only acceptable method of acceptance), in which case whatever method that party specifies will stand as the only acceptable method of acceptance.

Interestingly, I litigated a case once in which only the buyer had signed the contract, and the seller sued, claiming he (the seller) had orally accepted the buyer’s written and signed offer by an oral conversation with the buyer’s Realtor.  The Court agreed, and allowed the suit to proceed!

Finally, as this blog entry explains, electronic signatures are acceptable to the same extent as inked signatures under the law.

A counteroffer is a rejection and a new offer

You can’t “have your cake and eat it too.”  So, a seller who is in receipt of an offer from a buyer can’t at first counteroffer, and if that fails to work, then accept the original offer.  This is so because, by law, a counteroffer is a rejection of the first offer and the making of a new offer.  The old offer from the buyer is rejected and “gone” as of the making of a counteroffer by the seller.

Being under contract (mostly) means you are now bound

This principle seems so obvious that it does not need stating, but when parties sign a contract, they are bound to its terms, and responsible for performance thereunder.  Contrary to mistaken “water-cooler lawyering” (where laymen around a water cooler discuss supposed legal rights and remedies), there is no three-day period within which a buyer is privileged to terminate a contract.

Under a typical commercial and residential form of contract, there are a precious few escape clauses for a seller under the contract.  Typically, the contract is an unconditional promise by the seller to convey title to the buyer upon the buyer’s tender of performance (usually payment of the purchase price).

The buyer on the other hand has several primary ways to avoid his obligations under a purchase contract:

1. Typically, the buyer’s performance is contingent upon obtaining a satisfactory inspection of the property.  If the buyer desires to terminate the contract during the inspection period, his ability to avoid his obligations under the contract is quite open-ended.
2. In commercial contracts, many times buyers have similarly open-ended contingencies of acceptable zoning, economic analysis, pre-leasing, and environmental inspections.  During such contingency periods, the buyer may have a significant opportunity to avoid his obligations under the purchase contract.
3. In both commercial and residential contracts, financing contingencies are also common.  During the period of time allowed for obtaining financing, again, a buyer may be able to terminate if contractually-adequate financing is not obtained.
4. In the Cincinnati Area Board of Realtors form of residential contract, there is an obligation upon the seller (Section 8) to provide a broad and somewhat open-ended set of documents to the buyer. There is then a period of time (blank in the form contract) for the buyer to terminate the contract based upon his review of those documents.  This right to terminate is discretionary in the buyer.  Further, if the seller never provides the documents, the buyer would arguably then have the right to terminate the contact all the way through the date of closing.
5. The Cincinnati Area Board of Realtors Contract also contains an appraisal contingency in favor of the buyer that is above and beyond the appraisal obtained by the buyer’s bank in conjunction with his financing.  (NOTE: These two last contingencies are briefly addressed in this blog entry.)
6. Finally, Ohio Law (O.R.C. Section 5302.30(K)(4)) provides that, in certain residential contracts, if a seller has not provided a residential property disclosure form to the buyer, the buyer will have the right to terminate the contract all the way through the closing date.

Obligation to fulfill contingencies in good faith

Notwithstanding the seemingly open-ended nature of some contingencies, courts have found that parties have an obligation under a contract to attempt to fulfill contingencies in good faith.  See Johnston v. Cochran, (10th District, 2007) 2007-Ohio-4408.

When one of the parties to a contract has direct influence over the fulfillment of a condition precedent, that party bears the burden to show that it made good faith efforts to satisfy the contractual conditions which allegedly excuse its performance.  In other words, a party cannot take advantage of an unfulfilled condition precedent to excuse its performance without first proving that it exercised good faith and diligence in trying to satisfy the condition.

Therefore, refusing to properly and honestly apply for financing that results in a rejection letter from the lender may not be the basis for contract termination under the contingency that allows for the buyer to terminate if he or she cannot obtain financing.  Telling your home inspector to find problems “to kill the deal” would likewise not be the proper fulfillment of an inspection contingency.

How long do I have to wait after someone’s breach?

If a buyer fails to close on the purchase and sale of real property on the date anointed by the contract, may the other party just walk away?  Well, not exactly.   As this blog entry explains, if the contract does not use the magic words “time is of the essence” (in this instance as to the closing date), then time is not of the essence and we don’t really mean for the dates we say in the contract to be strict deadlines.  A buyer or seller would then have to wait a reasonable period (and perhaps a little longer) before they can be assured that a court would find that one party is in breach and that the other party may pursue his remedies for such breach.

Declaration of breach

If one party believes the other party is in breach of a contract, it is appropriate to send a letter formally declaring the other party in breach, and then to act in accordance therewith (i.e,, do not continue to act as if the breaching party has not breached and proceed to prepare for closing, for example).

Remedies for breach

Typically under real estate purchase contracts there are two basic remedies available to both the buyer and the seller for the other party’s breach: (i) monetary damages and (ii) an action for specific performance.

1.  Monetary damages

The monetary damages available in a breach of contract setting are typically the difference between the contract price and what the house was worth at the time of the breach.  That means that if the house or commercial property sold for “about” what it is worth (which it usually does), then the monetary damages one party sustains may not be all that significant.  Further, regardless of the re-sale price, the proper proof of the “actual value” number is appraisal testimony presented by each party at trial.

2,  Holding costs and consequential damages

Now, sellers also want to obtain damages for holding costs, and potentially the loss of their subsequent purchase.  Buyers want their temporary living expenses and the cost of storing their home’s contents, as well as the interest rate they lost because of the delayed closing.

On a theoretical level, the courts are, at best, inconsistent in their awards of “holding costs” damages and will typically not award the consequential damages associated with the loss of another purchase transaction.  (Roesch v. Bray, 545 N.E.2d 1301, 1304 (Ohio Ct. App. 1988) (“[C]ourts have not considered in great detail what additional losses may be compensated for in the way of damages pursuant to a breach of a real estate contract. Generally, damages on a breach-of-contract action are limited to losses that are reasonably to be expected as a probable result of the breach.”). See also Ottenstein v. Western Reserve Academy, 374 N.E.2d 427, 429 (Ohio Ct. App. 1977) (Mahoney, P.J. dissenting) (“I do not believe that those damages should include any ‘loss’ of ‘interest’ on the money as such ‘loss’ is not consequential.”).)

The buyer’s temporary housing and storage may be recoverable, but would the court offset the mortgage payments that would be insured if the sale had gone forward?  Similar to the refusal to award consequential damages to a seller, the higher interest rate paid by a buyer may be difficult to obtain. (Quinn v. Bupp, 955 A.2d 1014, 1021 (Pa. 2008) (citing Rusiski v. Pribonic, 511 Pa. 383, 515 A.2d 507, 512 (Pa. 1986) (declining to award damages to a buyer in a land sales transaction calculated upon an increased mortgage interest rate).)

3.  Practical problems in damage recovery

Beyond the theoretical problems in damage recovery, we have the practical.  The cost and difficulty in obtaining monetary damages beyond the valuation question will be challenging when compared to the attorney’s fees that will be incurred in the pursuit of the same.  In the commercial setting, breach damages can be significant.  In the residential setting, it is rarely worth it to pursue a damages claim.

4.  Specific performance

The other remedy for breach of a real estate contract, available to both buyers and sellers, is an action for specific performance.  In a specific performance action, we ask the judge to order the breaching party to perform his obligations under the contract.  For the breaching seller, it is to give a deed and do other things required at the closing.  For the buyer, it is to pay the purchase price and perform his other contractual obligations.  Because every parcel of real property is considered unique and irreplaceable under the law, this remedy is — as a matter of law — available under each real estate contract.

However, consider the practical difficulties of a specific performance action:

• For sellers, they need to take their property off the market for the duration of litigation — which can last three years or more in the case of an appeal — in order to force this specific buyer to close on this specific property.  Further, once the seller achieves this victory in court, how does he force the buyer to get a bank loan and acquire the funds to buy the property if he otherwise does not have the cash?
• For buyers, they should be able, through a specific performance action (read here about lis pendens actions), to tie up the title to the seller’s property, but they too will need to be prepared to pursue the matter through its conclusion in the trial court (18 to 36 months) and potentially through the appellate process as well (another 18 to 24 months).  Further, despite some case law that supports a claim for an award of attorney’s fees at the conclusion of such action, typically the cost of pursuing the claim will fall to the plaintiff.

In short, it is the rare buyer or seller plaintiff who has the wherewithal and fortitude to see a specific performance action through to its conclusion.

Obligation to mitigate damages

Whenever a party breaches a contract, the non-breaching party has a duty to mitigate damages. (30 Oh Jur Damages § 102 (2015) (citing Chicago Title Ins. Corp. v. Magnuson, 487 F.3d 985 (6th Cir. 2007)). See also Reitz v. Giltz & Assocs., 2006 Ohio App. LEXIS 4120, at *19 (Ohio Ct. App., Aug. 11, 2006) (“The duty to mitigate damages, otherwise known as the doctrine of avoidable consequences, requires a plaintiff to avoid those damages resulting from a breach of contract that may be avoided “with reasonable effort and without undue risk or expense.”).)  Let’s give an example unrelated to property sales:

A seller brings a truckload of peaches to a buyer in Cincinnati.  When he goes to deliver them, the buyer refuses the product.  The seller cannot simply allow the peaches to spoil on the truck and escalate his damages, he must go to a produce house and sell them for whatever he reasonably can get, holding the buyer responsible for the difference in price between that which was originally promised versus that which was obtained at the produce house sale.  This is called “mitigation of damages.”

Similarly, when a buyer breaches a real estate contract, a seller is obligated to place the property back on the market and obtain the highest possible price and best possible terms to reduce the damages for which the buyer is responsible.

Conclusion

While the idea of a real estate contract might sound intimidating, the law provides guidance as to how the parties should approach these contracts and is fairly lenient as to their execution aside from a few strict requirements (such as offer and acceptance). However, parties should be aware of the consequences should something go wrong in the process due to the potential difficulties of obtaining relief and shift in responsibilities in the event of a breach by the other party.

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Additional resources

We recommend for your reading these additional resources:

How to break a real estate contract by Massachusetts Realtor Bill Gassett >>

How to determine what is a breach of contract by New Hampshire law firm of Fojo, Dell’Orfano >>

Can you cancel a real estate contrat by Realtor.com >>

 

 

 

This article is an in-depth exploration of options to purchase real estate, a powerful tool for real estate developers to “kick the tires” of real estate before committing to buy, and an important right in tenants to purchase their property — rather than continuing to lease.

NOTE: this article exploring the distinction between Options, Obligations and Rights of First Refusal.

An option to purchase real estate typically places the prospective purchaser completely in the driver’s seat of a transaction — giving him the unfettered option to purchase real estate, usually at a fixed price.  So, the operative language for an option to purchase may look like this:

Purchaser [tenant] has the exclusive right and option to purchase the real property described on the attached Exhibit A during the term of this Agreement [Lease] for the price of $__________________.

There are several key considerations to options for both parties and then several components that should be addressed in a written option to purchase agreement.

Variable price

In addition to fixed-price options, the parties could agree upon all sorts of formulas for establishing the price, including:

• If the option to purchase will extend out over a period of years, a CPI or inflation adjustment may be appropriate;
• If the building is a multi-tenant facility, it may make sense to base the purchase price on gross or net income divided by a cap rate, or some other formulation;
• Parties frequently base option prices on an appraisal, or multiple appraisals, to ascertain value at the time of the exercise.  Regardless of how “fair” or “objective” this may seem, appraisals on commercial buildings can vary widely based upon the appraiser and the assignment he has been given.  Appraisals are also very expensive; and
• Finally, please resist the temptation to agree upon “market value” or “an agreed price” at the time the option is exercised, for “an agreement to agree to something later is no agreement at all.”

Get it in writing

As this article explains, the statute of frauds in each state will govern an option to purchase agreement — and as such it must be in writing and signed by the party against whom you want to enforce it, or as far as the law is concerned, the claimed transaction simply did not happen.

Contracts many times act as options

Most commercial contracts to purchase real estate are really options when you think about it.  What I mean by this is that the contingencies to the buyer’s performance typically are so open-ended in commercial purchase agreement, that the buyer can simply “opt” to buy or not buy before the close of a due diligence period.  Thus, following the line of thinking above, does it make sense for the buyer to have some “hard, forfeited money in the game to obtain this valuable right from a seller?  It’s at least something to consider.

An option is a contract when it has been exercised

Conversely, once a buyer exercises his option to purchase real estate, he is then obligated to purchase the real estate and the seller is bound to sell.  Thus, the instrument — upon its exercise — becomes exactly the same as a contract to purchase.  The question is thus, on what terms?

Because it may be too late to negotiate key contract terms after the exercise of the option, all of the components of a purchase contract should be called out in the option.  These should include, at a minimum: (i) quality of title, (ii) closing date, (iii) date of possession, (iv) tax and rent prorations, etc.  In a lease, many times the “option to purchase” is relegated to a single paragraph or section, but even if so, these contract provisions (along with the other components noted below) should be carefully addressed in that one paragraph.

Free-standing option or part of another instrument?

Often, an option to purchase is a component of another instrument — usually a lease — or it can be its own freestanding “option to purchase agreement.”  In leases, options to purchase is most common in situations in which the tenant is occupying the entirety of the real estate.  Further, an option to purchase can be an important component of sale-leaseback agreements and build-to-suit arrangements, both of which can be viewed as, at least in part, financing vehicles.  Regardless of the genesis and context of the option to purchase, the matters set forth in this blog entry are appropriate for consideration.

As to free-standing option agreements, it is common that the buyer of the option pay the seller a sum of money or other consideration for the option.  First, this is required under the contact principle of “consideration.”  Without something paid for the promise to sell, the contract may fail for lack of consideration.  Further, as the option gives the buyer the open-ended right to sell or lease the property to others once he exercises the option and buys the property, it provides substantial value to a buyer — this is something the seller may not want to just give away.

On the other hand, the seller may not be overly anxious to force a significant price for the option, as it is an effective way of marketing a property through a qualified developer that otherwise might sit unused and unsold for years.

The option period

During the option period, the seller is unable to convey clear title to a third party (because it would be subject to the option in the buyer), and the buyer typically performs his due diligence, markets the property for sale or lease to third parties, obtains zoning and other regulatory approvals, and obtains his financing.

Commonly, an option to purchase is for a fixed period of time.  So, for example, if the option is part of a lease with a three-year term, the option would run concurrent with that three year-term, or perhaps need to be exercised no later than 90 days preceding the lease expiration.  In the case of a term that runs concurrent with a lease, consider (i) options to renew and (ii) holdover periods.  How will the option be handled during such periods as well?  Some proposed language:

The term of this option will run from the execution of this Agreement through December 31, 2020.

– or –

Tenant may exercise this option throughout the term of the Lease and any extension or renewal hereof, provided that it must be exercised no later than 90 days prior to the expiration of this Lease.  The option is not effective during any holdover period.

Other times, the period within which the option must be exercised hinges off of the due diligence period.  So, if a buyer has six months to physically inspect the property and to obtain his zoning and other regulatory approvals for a new intended use, then the option period may run 60 days beyond the close of that due diligence period.  A problem, especially for a seller, with this approach is that if it is not clear that the buyer has to proceed with diligence with his inspections and regulatory approvals and there is no closed-end date for that due diligence period, then the option date never arrives, and title to the property is perpetually clouded until the buyer makes up his mind — which he may not be motivated to do.

We address that issue in this blog entry: Advanced commercial real estate: Seller beware, the contract that doesn’t end.  Typically language that bases the option period on due diligence inspections would not be used within a lease.  So, some proposed language for freestanding option to purchase agreements:

This option may be exercised by buyer up to sixty days following the close of the Due Diligence period as the same is defined in Section 3, above.

In any event, to properly draft an option to purchase, the period of time, or formula for determining the period of time, within which buyer has to exercise the option should be clearly stated.

The exercise

Perhaps where many options “fall down” in the drafting is in clearly explaining what the buyer must do to exercise the option, and that the option is then forfeited if not exercised within that period of time.  When, where and how the option should be exercised and when and how the option expires for non-exercise (or otherwise) are important components of the drafting of an option to purchase instrument.  Again, some proposed language:

This option may be exercised on or before the Expiration Date by buyer delivering to seller written notice of the exercise of the option by hand delivery or certified mail.

Non-exercise

What then happens if the option is not exercised within the option period?  The instrument should make clear that the option then expires and the buyer/tenant has no right to purchase the subject property.  Some model language:

If buyer [tenant] fails to exercise the rights granted by this option as and when provided for herein, then this option will be deemed to have expired, and buyer [tenant] will have no right to purchase the property.  Time is of the essence as to the option period, and the exercise of the option as provided herein.

Special lease provisions

When an option to purchase is contained in a lease, some special matters should also be considered.  For example, what if the tenant falls into default in the payment of his rent?  Landlords frequently want to either revoke option rights completely upon one default, or more likely suspend the tenant’s option rights during the period of any default.  Thus, the grant of the right may be preceded by the language: “So long as tenant is not then in default of any of its obligations hereunder.”  Other things to consider with options built in to leases are:

• The due diligence inspections usually are not needed as the tenant is familiar with the property, and indeed may be the cause of conditions present at the property; and
• Tax proration issues can be complicated if the tenant is paying the taxes as a part of his lease payments.

Title and recording

And as is addressed in this article on tenant’s rights in a receivership, the title to the property in which rights are granted by the owner is important.  For, if the property is subject to a pre-existing lease, mortgage, option to purchase or other instrument that precedes the new option to purchase, then the new option to purchase is likely to be subject to the right of the tenant or grantee in that prior instrument.

• In the case of a mortgage, the mortgagee can wipe out that later-granted option with a foreclosure proceeding.
• In the case of a tenant, the option to purchase would be subject to the tenant’s rights, which may well be under a long-term lease.
• In the case of another optionee, the pre-existing option may take priority over the new one, thus defeating the right to purchase in the later instrument.

Now, to be clear, the seller of the option may have liability to the buyer for breaching the agreement, but for a buyer that has paid, say, $100,000 for the “rights” to buy a building, a worthless claim against an insolvent seller will be little consolation.

So, how does a buyer under an option, whether a tenant or a buyer under a free-standing option agreement, proceed with assurance that his option rights will take priority over the claims of others:

• Perform a title exam and visually inspect the property as to tenants or other occupants (say, a neighbor with an encroachment) who may have pre-existing rights;
• Get written subordination agreements from those with superior rights to the option to purchase or clarify that they do not have superior rights, such as through an estoppel certificate; and
• Once priority is established through those first two steps, record the new option to purchase so that the world is placed on notice of the priority of the rights created by that instrument.

Conclusion

An option to purchase can be seen as a casual commitment by both the buyer and the seller, because it may appear preliminary to a transaction actually transpiring.  But, in reality, it usually grants powerful rights to the buyer that, once exercised become a binding contract.   Further, from the buyer’s perspective, before paying significant sums for property optioned or investing monies in due diligence work, it behooves the buyer to carefully consider and then address superior rights of others in the property.

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If you need assistance with properly framing an option to purchase agreement, as buyer or seller, we encourage you to call any member of our real estate transnational team, Chris Finney (513-943-6655), Isaac Heintz (513-943-6655), or Rick Turner ((513-943-5661).  For litigation support regarding a dispute over an option to purchase, contact Brad Gibson (513-943-6661).

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Finally, here are some good articles for additional reading on options to purchase real estate:

Option Contracts for Buying & Selling Real Estate from Lawyers.com >>

Who Really Needs a Real Estate Option Contract? from Realtor.com >>

Consider the Consequences of Your Options from the CCIM Institute >>

In most circumstances, real estate law is a remarkably simple discipline: (a) read and understand the contract (or deed or declaration) and (b) the order of recording is the order of priority.  Now, these rules are not always followed, but they give us a general framework within which to practice.

However, two curveballs in real property rights are what we refer to as “adverse possession” or a “prescriptive easement.”

Adverse possession

An owner of land owns his property as against the claims of all others — it’s a pretty simple concept.  But in most states actual ownership can be “taken” from the owner — without a court proceeding — through “adverse possession.”  In Ohio the timeframe is 21 years and in Kentucky  it is 15 years.

In law school, we learn the acronym: O-C-E-A-N to describe the five claims the claimant must establish by a preponderance of the evidence to establish adverse possession.

• Open
• Continuous
• Exclusive
• Adverse
• Notorious

The idea is that the claimant must in all manners have acted as the owner of the property, and have openly asserted to the world, continuously for the period of time in question, his ownership of the property.  This is a very tough standard, indeed.

A typical fact pattern we see as to adverse possession claims is that a claimant mows the law, trims the bushes, or operates an ATV across the disputed property (in fact owned by the neighbor) for a prolonged period of time.  The actual owner of the land comes to our firm to express concern about these activities.  Now, other than the public liability concerns for such activities (what if someone gets hurt!), there is a risk that the user will someday claim ownership of the land via adverse possession.  How do we prevent this?

It’s actually pretty simple to fix this.  If the user is using your land with permission, then the claim is by its nature not adverse.  So, I advise clients to send to their neighbors using their land a certified letter granting revokable permission for the use in question:

• “Hey, I’ve noticed that for the past 10 years you have been cutting the grass on an acre of my property.  I wanted you to know how much I appreciate this and to give you permission to keep cutting my grass, until I change my mind.”  

It’s magical.  With one simple and polite letter, sent via certified mail and saved in a permanent place, you have eliminated any potential adverse possession claim, as long as it is sent before the 21 years (in Ohio) or 15 years (in Kentucky) lapses..

Now, there are many other issues with establishing an adverse possession claim:

• What if there were multiple owners over that 21-year period of time?  That is OK as far as an adverse possession claim goes, but it presents a proof issue.
• What if others have also used the land?  Then at best it is a prescriptive easement claim (see below).
• Is “who pays the tax bill” dispositive as to an adverse possession claim?  It is persuasive, but not dispositive.
• Can a tenant assert an adverse possession claim?  No, their occupancy is by its nature permissive, not adverse.

Prescriptive easement

A prescriptive easement claim is asserted and analyzed in the same manner as an adverse possession claim except:

• The interest asserted is an easement interest, not a fee simple (ownership) interest;
• The “E” from the acronym OCEAN is eliminated; the use does not need  to have been exclusive to establish a prescriptive easement claim.

The result of a successful prescriptive easement claim is not ownership of the disputed property, but rather establishes a non-exclusive easement to use the land in question for a specific purpose.  So, a shared driveway area or a common utility line would be classic examples of a claimed prescriptive easement.

How claim is asserted

I suppose neighbors could just acquiesce to the adverse possession of another, and lawyers and judges would not need to be involved, but that’s not typically how we see it working.  The way we see adverse possession asserted is that one neighbor sues another neighbor either (a) to stop an offending use or (b) to ask the Court to declare ownership of the subject property via adverse possession.  Because of the very long timeframes involved, the proofs can be difficult on each side.  Cases in which physical improvements have been built long ago are the easiest to establish an adverse possession or prescriptive easement claim.

Conclusion

The moral to this story is that a property owner cannot simply sit on and ignore his property rights; he must vigilantly defend them, lest their ownership just evaporate by his neighbor’s use of his property.  It does happen.

Most of the times this occurs in a commercial setting, it can be expensive and even interrupt operations of the business.  In the residential setting, most of these claims seem to settle as a result of the small value of the land at issue versus the tremendous cost of litigating.

I link below to few articles on adverse possession for further reading.

Adverse Possession Law >>

Adverse Possession: When Trespassers Become Property Owners >>

What Is the Difference Between Adverse Possession and prescriptive easements >>

If you become a party to an issue involving adverse possession or prescriptive easements, let the professionals of the Finney Law Firm “make a difference” for you.

 

Oral settlement agreements are enforceable as a general legal proposition.

We addressed in this blog entry the relatively absolute principle that the statute of frauds requires agreements relating to the purchase and sale of real estate be in writing and signed by the party who one intends to sue.  But when it comes to resolving disputes, especially litigation, that rule is thrown out the window.

This sounds like some legal double-speak, but even though the sale of real estate requires signature, the settlement of a dispute regarding the purchase and sale of real estate does not.  The statute of frauds does not apply to settlement agreements.

So, when parties are involved in litigation, and settlement discussions ensue, all things said and agreed to in oral conversations are enforceable as a matter of contract.  Further, this rule applies when matters are pre-litigation.

Many times when my client is involved in a dispute, the other party asks whether they can have settlement discussions alone, without the attorneys involved.  I like the idea, as it can permit the parties to overcome obstacles to settlement that the attorneys cannot.  But the problems with this approach, as I explain to my clients, are twofold: (i) first what the client may say that hurts his case or agree to that could resolve the case on terms he does not agree and (ii) even if my client does not say anything precipitous, the other party could claim he did.  And then we have an argument about proof of what was or was not said in that private meeting.

As a result, I frequently require a written agreement signed by both parties before such a meeting promising that (i) no agreement will be binding unless and until it is memorialized in writing and signed by both parties, and (ii) anything said in such a meeting with not be used or referenced in any way in the litigation proper.