Forcing a Real Estate Sale to Close: Specific Performance in Texas

Why land gets this remedy

In most contract cases a court awards money, not performance, because money is an adequate substitute for what was promised. Real estate is the historic exception. Each parcel is treated as unique, so a buyer whose seller refuses to convey may ask the court for a judgment ordering the seller to sign the deed on payment of the price. The remedy is called specific performance, and in Texas it is available for commercial as well as residential property. It remains an equitable remedy, which means the court weighs fairness and has discretion, and the buyer carries the burden on every element.

What the buyer must prove

A buyer seeking specific performance of a Texas real estate contract generally must establish:

1. An enforceable contract. A contract for the sale of real estate must be in writing and signed by the party to be charged under Business and Commerce Code § 26.01(b)(4), and must describe the property and state the essential terms with reasonable certainty. A court cannot order performance of terms the parties never fixed.
2. The buyer's own performance or tender. The buyer must show it did what the contract required of it, or tendered performance, meaning it offered to pay and close in accordance with the contract. When the seller has clearly repudiated, a formal tender is excused, because the law does not require a useless act.
3. Readiness, willingness and ability to perform. This is the element most buyers underestimate. The buyer must prove that, at the time performance was due, it was ready, willing and able to close, which in a purchase means it had the funds or committed financing and was prepared to pay the price.
4. The seller's breach. A refusal to convey, a failure to appear at closing, or a sale to a third party.
5. No bar to equitable relief. The buyer must come to court with clean hands, without unreasonable delay, and with a contract whose enforcement would not be unjust.

DiGiuseppe v. Lawler: readiness is not optional

In DiGiuseppe v. Lawler (2008) the Texas Supreme Court resolved whether a buyer excused from tendering the price still has to prove it could have paid. The buyer there won a jury finding that the seller breached and obtained a judgment for specific performance, but had not obtained a finding that he was ready, willing and able to perform. The Court held that readiness, willingness and ability is an essential element of the specific performance remedy, that the buyer bears the burden to prove it, and that the seller's breach excusing tender does not excuse that proof. Without the finding, the judgment for specific performance could not stand.

The practical lesson is about evidence. A buyer who wants the property must be able to show, as of the closing date, bank statements, a loan commitment, an equity partner's binding commitment, or escrowed funds. A buyer whose financing depended on a lender that had not yet approved the loan, or on a resale that had not happened, will have difficulty. Readiness at the time of suit does not substitute for readiness when the contract required performance.

Defenses a seller raises

• No enforceable contract. The writing is missing an essential term, is unsigned, or is a non-binding letter of intent.
• The buyer defaulted first. A missed deposit, a late notice, or a failure to satisfy a condition the contract placed on the buyer.
• The buyer was not ready, willing and able. The financing was contingent, the funds were not in hand, or the buyer's own conduct shows it could not have closed.
• The contract excludes the remedy. Many commercial forms limit the buyer to a refund of earnest money and reimbursement of costs. Courts enforce a clear exclusion.
• Laches and unclean hands. Unreasonable delay that prejudiced the seller, or inequitable conduct by the buyer.
• Impossibility. The seller has already conveyed to a good-faith purchaser for value without notice of the buyer's claim, or no longer owns the property. In that case the buyer's remedy is damages, and possibly a claim against the third party if it took with notice.

Can a seller force a buyer to buy?

Rarely in practice. A seller's loss from a buyer's default is money, and courts regard damages as adequate, so sellers almost always pursue the earnest money or actual damages instead. The earnest money side of a failed closing is covered in earnest money disputes when the buyer walks away. Specific performance against a buyer is sometimes pleaded where the property is unusual and unmarketable, but it is uncommon and courts are reluctant to order a party to pay a price for land it does not want.

Damages alongside specific performance

A buyer may plead specific performance and damages in the alternative and let the court decide. A buyer who obtains specific performance can also recover incidental damages caused by the delay, such as lost rents the buyer would have collected from the closing date to the date of the court-ordered conveyance, offset by the interest the buyer saved on the unpaid price and the carrying costs the seller bore. The goal is to place the buyer where it would have been had the sale closed on time, not to give it both the property and a windfall. A buyer who elects damages instead recovers the difference between the contract price and the property's value at the time of breach, plus reliance costs. The choice is covered in what a buyer can do when the seller backs out.

Timing, lis pendens and the court

Civil Practice and Remedies Code § 16.004(a)(1) requires a suit for specific performance of a contract for the conveyance of real property to be filed within four years after the cause of action accrues. Equity rewards speed, however, and a buyer who waits months with no explanation gives the seller a laches argument. A suit seeking title to the property supports a notice of lis pendens in the county records, which warns later purchasers and lenders that the title is in litigation and in practice prevents a competing sale from closing cleanly. The notice must be tied to a pending suit that actually claims an interest in the property; a suit for money alone does not qualify, and a notice filed without a proper basis can be expunged. The procedure and the removal motion are explained in lis pendens in Texas: what it does and how to remove one.

Specific performance cases are filed in the district court for the county where the property is located; in Dallas-Fort Worth that means the civil district courts of Dallas, Collin, Denton or Tarrant County. Whether a jury or the judge decides depends on the issues: a jury can resolve disputed facts such as breach and readiness, while the court decides whether to grant the equitable remedy.

Example

Suppose a Dallas medical group contracts to buy the building it has leased for a decade for $3.1 million, closing in 60 days, with a contract that preserves specific performance. The group obtains a loan commitment for $2.3 million and holds the balance in its operating account. A week before closing the seller announces it has a $3.6 million offer and will not close. The group's counsel sends a written tender with the commitment letter and a bank statement attached, and the group's officers appear at the title company on the closing date with signed documents while the seller does not. The group sues for specific performance and records a lis pendens. At trial the jury finds the seller breached and finds, on a separate question, that the group was ready, willing and able to close on the contract date. The court orders the seller to convey at $3.1 million, awards the group the net rent it would have received from the building's other tenant during the 14-month delay, less the interest saved on the unpaid price, and awards attorney's fees under the contract. The seller's higher offer never closed because the lis pendens made the title unmarketable.

Deciding whether to pursue it

Specific performance is the right remedy when the property itself is the point and the buyer can prove it could have closed. It is the wrong remedy when the buyer has found a substitute, cannot document its funds as of the closing date, or signed a contract that limits it to a refund. A litigator's first job is to read the remedies clause and the readiness evidence and tell the buyer which case it has. Tina Wysk represents buyers and sellers in specific performance and failed-closing litigation in Dallas-Fort Worth district courts; the firm's real estate litigation practice handles the suit, the lis pendens and the damages claim together.