The Real Estate Contract Law
Real Estate Contract Law
Real estate contracts are the legal agreements that underlie the transfer and financing of real estate, as well as the real estate brokerage business. Sale and lease contracts and option agreements are used to transfer real estate interests from one party to another. Mortgage contracts and promissory agreements are part of financing real estate. Listing and representation contracts establish client relationships and provide for compensation.
A contract is an agreement between two or more parties who, in a “meeting of the minds,” have pledged to perform or refrain from performing some act. A valid contract is one that is legally enforceable by virtue of meeting certain requirements of contract law. If a contract does not meet the requirements, it is not valid and the parties to it cannot resort to a court of law to enforce its provisions.
Note that a contract is not a legal form or a prescribed set of words in a document, but rather the intangible agreement that was made in “the meeting of the minds” of the parties to the contract.
In terms of validity and enforceability, a court may construe the legal status of a contract in one of four ways:
- valid but unenforceable
A valid contract is one which meets the legal requirements for validity. These requirements are explained in the next section.
A valid contract that is in writing is enforceable within a statutory time period. A valid contract that is made orally is also generally enforceable within a statutory period, with the exceptions noted below.
Valid but unenforceable:
State laws declare that some contracts are enforceable only if they are in writing. These laws apply in particular to the transfer of interests in real estate. Thus, while an oral contract may meet the tests for validity, if it falls under the laws requiring a written contract, the parties will not have legal recourse to enforce performance. An oral long-term lease and an oral real estate sales contract are examples of contracts that may be valid but not enforceable.
A void contract is an agreement that does not meet the tests for validity, and therefore is no contract at all. If a contract is void, neither party can enforce it.
For example, a contract that does not include consideration is void. Likewise, a contract to extort money from a business is void. Void contracts and instruments are also described as “null and void.”
A voidable contract is one which initially appears to be valid, but is subject to rescission by a party to the contract who is deemed to have acted under some kind of disability. Only the party who claims the disability may rescind the legal effect of the contract.
For example, a party who was the victim of duress, coercion, or fraud in creation of a contract, and can prove it, may disaffirm the contract. However, the disaffirmation must occur within a legal time frame for the act of rescission to be valid. Similarly, if the party who has cause to disaffirm the contract elects instead to perform it, the contract is no longer voidable but valid.