Residential Real EstateDon"t Do Work On Someone Else"s House
Q: On inspection of a small apartment house property prior to signing a sales contract, I found a crack in one of the rooms. The seller agreed to reimburse me for repairing this crack, and in reliance on this promise, I signed a contract to purchase the property. The work was done, and I paid the contractor over $5000 for the job. However, my lender has been dragging its feet, and now the seller is threatening to cancel the contract because I should have gone to closing several months ago.
If the contract is cancelled, do I have the right to get reimbursed for the money I spent on the repairs to the property?
A: It never fails to amaze me that potential purchasers will do work and spend money on a house, when they have not yet taken title to the property. My general rule of thumb: unless you have a firm contract, spelling out in writing that if you do not go to closing through no fault of yours, you will be reimbursed for any work you do on a house you do not yet own, do not do any work.
You have spent over $5000 to repair a crack in the house. Presumably your seller has given you verbal authorization, but he may deny this. Then, you will be in a “he said, she said” position, should you have to take your potential seller to Court. And while verbal contracts are valid (except for contracts involving the purchase and sale of real estate), proving that there is a contract may be very difficult.
I understand that often, a potential purchaser is anxious to start work on a house, even though settlement has not yet taken place. However, from my experience, not every real estate sales contract actually ends up going to closing. There are many situations where either a buyer – or a seller – changes his/her mind, for whatever reason, and decides not to go forward with the deal. If this happens, the other party has a major decision to make: should I sue for damages (or for specific performance and ask the Court to force the sale to go forward), or should I just try to recoup any actual losses and move on to some other project?
Let’s look more closely at your case. You have signed a real estate contract, and by the terms of the contract you were supposed to have gone to settlement a couple of months ago? In order to determine your rights, you have to carefully examine the sales contract. Is there a provision in that contract that “time is of the essence”. Basically, if a party to a contract wants to make sure that certain time frames spelled out in a contract will be strictly followed, it is advisable to include the following language: The parties agree that time is of the essence for all times and dates spelled out in this contract.
Some lawyers take the position that if the contract requires a specific date by which settlement must take place, this constitutes a “time of the essence” clause. I do not necessarily buy this argument. Indeed, there are Court cases which have rejected this legal position. If the parties really intend that time frames spelled out in a Real Estate Contract are to be strictly enforced, the language referenced above should be specifically placed in a prominent place in the
real estate sales contract.
Are there any other grounds to argue that you are currently not in default of the contract? Are there title issues which would delay completing the settlement? Is there a contingency for financing in the contract, and if so, does it give you the right to extend the settlement date?
In order to obtain a clear understanding of your rights and responsibilities, you must review your sales contract carefully, and consult your real estate attorney for advise.
There is another legal concept which might help you, and that is known as the “doctrine of unjust enrichment”. Oversimplified, this means that one should not be unjustly enriched at the expense of another.
One Judge wrote about this as follows:
The modern law of unjust enrichment and restitution has its roots
in the common law concept of quasi-contract. At common law, there
were cases in which the courts, in the absence of an actual contract,
nevertheless imposed a ‘duty... under certain conditions upon one
party to requite another in order to avoid the former’s unjust
enrichment...
Unjust enrichment occurs when a person retains a benefit (usually
money) which in justice and equity belongs to another....In such a
case, the recipient of the benefit has a duty to make restitution to the
other person ‘if the circumstances of its receipt or retention are
such that, as between the two persons, it is unjust for the recipient
to retain it.
Thus, the concept of “unjust enrichment” might help you. However, if you have to go to Court, the burden will be on you to prove whether it is “fair and just” for your seller to keep the benefit you have given him – i.e. you repaired the seller’s property.
If you are not in default on the terms of the contract, there is a good possibility that you will be reimbursed your $5000. On the other hand, if you are in default – since you should have gone to settlement a long time ago – I seriously question whether a Judge would look favorably on you.
I recommend that the smartest – and perhaps safest – thing you should do is to make every effort to go to closing. Perhaps you can offer your seller some additional money; after all, your seller has had to pay taxes, insurance and possible a mortgage payment for two months after settlement was to have taken place.
The moral of this story is quite simple: anyone who does work on someone else’s property runs a serious risk that you may not be reimbursed for this work should you ultimately not be able to take title to the property. Thus, do not do any work – and do not spend any money – on the house, until it is yours.
If your lender requires that the work be completed before settlement takes place, demand that the seller pay for these repairs. Alternatively, I am sure that you will be able to find a competent, licensed home improvement contractor who will do the work, with the written promise that payment will be made from the sales proceeds – or at least from the settlement table.