Real estate contracts occupy a special place in the legal system, as they combine property law and contract law, meaning they must comply with requirements that arise from both fields of law as a result.
If a real estate contract fails to meet all of these requirements, it may be deemed void (or voidable). Whether you are a landlord, tenant, seller, buyer, or lender, a defective contract represents a disaster for your home or business.
Creating a Valid Real Estate Contract
Contract and real estate law are two of the oldest fields of law, and as such, the requirements they impose on transactions use archaic and outdated terms. Still, judges rigorously enforce these requirements because they make real estate and contractual transactions predictable.
With that said, some of the requirements your real estate contract must meet include the following:
Elements of All Contracts
All contracts, regardless of their subject matter, must have mutual assent, which means one party made an offer and the other party accepted it. As a requirement, mutual assent ensures that the parties have a meeting of the minds on the deal.
Suppose a buyer offers $10,000 for a piece of property, and the seller responds, “I accept your offer to buy the property, but give me $20,000.” In that case, there was no mutual assent, as the two did not agree to the same deal.
Contracts must also have consideration, which refers to a promise to do something or refrain from doing something. In a typical real estate contract, one party promises to transfer a property interest in exchange for the other party’s promise to pay for it.
The terms of a contract must be unambiguous. The “four-corners doctrine” requires you to look only at the contract’s language to determine its terms. In some cases, you can introduce evidence from outside the contract to interpret that language.
Special Elements for Real Estate Contracts
Real estate includes land or interests in land. As such, examples of real estate may include things such as:
- Mineral and water rights
- Improvements to land
Under New York law, real estate contracts include any of the following:
- Leases of more than a year
- Creations, such as divided land
Real estate contracts have a few special requirements that do not apply to others. They must be in writing and signed by the person who had the real estate before the transaction. For leases and sales, the person receiving the real estate interest must also sign the contract.
Effect of Omitting Elements From a Real Estate Contract
Suppose that you have already conducted a transaction involving real estate, and a dispute arises over the contract. You need to know what will happen to the property and anything that the parties exchanged for it.
If a property contract lacks mutual assent or consideration, the contract is void. Neither party can enforce the contract against the other, and everything gets reset to the state it was before the contract was drafted, which means that any transfers will have had no effect, and any payments must be returned.
However, these situations rarely happen. Typically, if there has been a failure of mutual assent or consideration, only one party thinks a contract exists while the other party knows that one does not. Thus, in most situations, these transactions are easy to unwind.
A more complicated situation happens when the agreement has ambiguous terms or is made orally rather than in writing. In these cases, both parties might have partially or fully performed, only to find out that their transactions are void. Often, the parties will settle their dispute and adjust their deal rather than voiding it altogether or taking their case to court.
Talk to a Real Estate Contract Attorney
Before you invest time and money into your transaction, you should make sure your real estate contract is valid and enforceable. To review your transaction or any contracts presented to you, contact Merlino & Gonzalez, a real estate law firm in Staten Island, NY.