Specific Performance
The property boom is now a distant memory. The daily news bulletins bombard us with depressing tales of how our property market has collapsed and that worse is yet to come. This is in stark contrast to the frantic pace at which properties were bought and sold during the lifetime of the now deceased Celtic Tiger.
In light of the down turn, the equitable remedy of specific performance will be more readily relied on by Vendors seeking relief from impecunious Purchasers.
• What is Specific Performance?
• The Vendor’s remedy
• Buyer beware
• Damages
• Interest
To speak to someone about specific performance, please contact Gavan Carty on 01 8658800 or gavancarty@kentcarty.com. Read on for more information on Specific Performance.
Specific performance is an equitable relief awarded at the Court’s discretion in circumstances where the normal remedy of damages is inappropriate or inadequate. It is based on the premise that the Seller (Vendor) should be entitled to have what he contracted for rather than merely an award of damages.
For example, where a Vendor enters into a contract for the sale of land and it transpires that on the closing date the Purchaser is unable to comply with the terms of the contract signed, the Vendor may seek an Order from the Court to compel the Purchaser to specifically perform the terms of the contract.
The main focus of the remedy of specific performance is to enforce a binding unconditional contract as freely entered into by a Vendor and a Purchaser. Therefore, it is incumbent on a Purchaser who enters into an unconditional contract to purchase property to ensure that they will be in a position to complete the sale in accordance with the terms of the contract. A Purchaser must ensure that they will be in funds on or before the date of completion. Given the current economic climate, it is crucial that a Purchaser who seeks funds via a mortgage liaises with his or her lending institution to ensure funds will be available. In a recent High Court decision(1), Judge Kelly found that the Defendant Purchasers had entered into a contract in circumstances where they did not have the finances to complete the transaction. The Judge alluded to the foolishness of the Defendant Purchasers to enter into such a transaction where they did not have the funds to complete.
In some circumstances, specific performance is not an appropriate remedy, and the Court may decide to grant damages in lieu of specific performance. However, the Vendor must satisfy the Court that they would have been entitled to an Order for Specific Performance but that damages are more appropriate. This is a valuable weapon in the Vendor’s arsenal, especially given the vast devaluation of property recently. Ultimately, if a Vendor seeks damages in lieu of specific performance, they retain the property, but the property will be greatly devalued by comparison to the sale price in the contract with the defaulting Purchaser. In this instance, the Vendor may be entitled to the difference between the contract price and the current value of the property. The difference could be significant, especially given the recent rapid fall in house prices in Ireland. Recently, the High Court made an Order for damages to the tune of €3 million, where the property to be sold depreciated in value from €6.3 million to €2.6 million in the space of eighteen months.
The final sting in the tail for a defaulting Purchaser is the current trend of the Courts to award interest on the damages awarded to a Vendor who brings a successful claim for damages in lieu of specific performance. In two recent High Court decisions interest was calculated on the difference between the contract price and the current value and in one case the interest alone accrued was in excess of €175,000.
As the property market crumbles and Purchasers seek to extricate themselves from transactions entered into when times were good, Vendors can assert and protect their rights under the contract by seeking specific performance of same.
(1 Murphy & Mackin V Ryan & McGreevy & McGreevy Enterprises Limited [2009] IEHC 305.)