The availability of specific performance in real estate transactions has been the subject of significant consideration in both the academic texts and jurisprudence. While such considerations have generally focused on the availability of specific performance to a purchaser and the resulting discussions of "uniqueness", the availability of specific performance to a vendor is becoming more relevant in the current economic climate. This article will deal with the availability of specific performance to a vendor, the basic requirements that must be met in order to entitle a vendor to such relief, and the general characteristics of the relief if granted.
General Availability of Specific Performance
Specific performance is not simply a legal right afforded under a contract for the purchase and sale of land. It is also an equitable consequence of the principle that parties to a contract are bound in conscience to execute the contracts to which they agree to be bound. Since specific performance contemplates the execution of a contract, the following elements of the contract become relevant: mutuality of obligations, certainty, completeness, conscionability, and the ability of a court to enforce a decree. In the hands of a vendor, specific performance equates to an action for the payment of the purchase price.
Typically, specific performance applies only to executory contracts - contracts which contemplate further acts by the parties before the contract is concluded. This makes contracts for the sale of land particularly suitable for such a remedy. However, specific performance has also applied as a general rule to these contracts because land was considered to have a peculiar value to purchasers and damages alone would not provide an adequate remedy. In 1996, the Supreme Court of Canada reversed this general rule when it ruled in Semelhago v. Paramadevan that specific performance should not be granted as a matter of course unless there is evidence to establish that the property is unique to the extent that a substitute would not be readily available. The fact that Semelago dealt with an action for specific performance by a purchaser may limit its application to specific performance sought by purchasers. However, if an action for the recovery of the purchase price is an equitable proceeding for specific performance governed by the same equitable principles, one could argue that the requirement of uniqueness of consideration should apply equally to both vendors and purchasers. It would seem that for now at least, this argument has not been considered to any great extent.
Requirements for a Vendor’s Action for Specific Performance
Unless the parties have an express agreement to the contrary, a vendor cannot hold both the land and the purchase monies. Therefore, the vendor must have conveyed the property to the purchaser. However, simply providing possession of the property to the purchaser is insufficient.
There has been some uncertainty in the case law as how this requirement is applied to an executory contract for the purchase and sale of land where the covenants to pay and convey are dependent though separate. One line of cases states that even if the vendor has tendered a conveyance, it cannot maintain an action for specific performance because success in such an action would leave the vendor with both title and the purchase monies. However, there is also substantial authority that states that action for specific performance can be maintained if the vendor keeps the tender open by placing the conveyance in court to ensure that the conveyance is delivered contemporaneously with the purchase monies.
A vendor seeking specific performance must also show that, as of the date specified for closing under the agreement, it has performed, or was ready, willing and able to perform, all the essential acts required by the agreement. It has been stated that all this requires is for the vendor to show that it has good title to the lands or is at least in a position to deliver title as required under the agreement. However, it is very important to ensure that there are no defects in the title to be delivered as a defendant purchaser can use such defects to its advantage. Significant defects can be raised as a defense against an action for specific performance while minor defects can entitle a defendant purchaser to a reduction in the purchase price.
Establishing that one is ready, willing and able to perform the contract is usually accomplished by a properly drafted statement of claim with full and clear detail supported by a copy of title in jurisdictions where land is registered under a title registration system. The Rules of Court in some jurisdictions require that a plaintiff file with the court a duplicate certificate of title or other such documents establishing his ability to convey title in accordance with the agreement.
While this seems contrary to the usual rule that a general allegation of all conditions precedent is implied in every pleading, the duty of a vendor to be ready willing and able to complete goes to the root of an action for specific performance. Therefore, such ability must be expressly pleaded. The only time the failure of vendor to plead such ability is excused is if the vendor has lost such ability through the fault of the purchaser.
Specific Performance With Consequential Relief
All too often, defaulting purchasers are insolvent and a successful action for specific performance can be a hollow victory where the purchaser is unable to procure the purchase monies. As such, an action for specific performance often includes a request that if the purchaser fails to comply with the order directing him to complete the purchase, the contract is then cancelled and the vendor is then free to pursue the defaulting purchaser for costs incurred in enforcing the agreement.
However, it should be noted that such relief is not available where by statute or under the contract, the vendor’s remedy is restricted to the land. In these cases, the court will, notwithstanding objections from the vendor, order that the land be sold under a judicial sale with the proceeds going to the vendor. Where a purchaser cannot be found under a judicial sale, a court will often allow the vendor to bid on the property and recover any deficiency from the defaulting purchaser.
When an order for specific performance is granted, the purchaser will be given a period of time in which to complete the contract. This length of this period – known as the redemption period – will vary from case to case. While the primary determining factor is what is reasonable under the circumstances, a court may also take into account factors such as the prospect or ability of the purchaser to pay.
Specific performance has typically been viewed as a purchaser’s remedy. However, there is no fundamental legal principle prevent vendors from using it as well. While vendors have usually opted to retain deposits and seek additional damages from defaulting purchasers, specific performance may become a more relevant remedy in the current economic climate where willing purchasers are in short supply.