In a frenetic property market, as a lot of the world is experiencing, the volume of contracts for the sale and purchase of land and property has increased and so too, has the volume of contracts that fall over.

When it’s the buyer that defaults in the case of an off-plan purchase or the seller, in the case of a land or section sale, usually, the deposit is forfeit and the parties go on their way. The loss of deposit could be viewed as the damages that are payable for that breach of contract which in this instance are a form of liquidated damages.

Whilst the option of taking a vendor’s deposit and starting again, confers a benefit upon a developer, more are seeking to avoid the time delay that this entails and looking to the courts to enforce the contract as written.

That means pursuing a remedy that is often overlooked.

The proposition that the failure to meet one’s contractual obligations should result in a sanction of some sort, is well enshrined in law and being able to efficiently do business, relies upon a judiciary that enforces those obligations fairly.  That in essence means giving effect to the contract as it should have been performed, rather than penalising the defaulting party and/or unjustly enriching the other.

Typically, the remedy for a breach of a contractual obligation is the award of damages, which is an established process that relies on a number of common law precedents. The most well known is probably the case of ‘Hadley vs Baxendale’ which laid down the two limbs of damages that can be pursued for a breach. I’ve yet to see an award that doesn’t fall within the broader ambit of this case.

In the case of particularly land purchases, which are for unique assets, often damages will not suffice and the courts have at their disposal (in most western jurisdictions) what is called an equitable remedy, a discretionary right to enforce the contract in lieu of damages through an action for Specific Performance.

It is pretty much what is says it is. The party in default will be ordered by the court to perform the contract, i.e. sell the land at the agreed price, in the agreed timescale in accordance with whatever original bargain was struck.

As an equitable remedy, it is also subject to some restrictions for a number of compelling reasons.

The first is that it is unlikely to be awarded if the task to be performed is of a personal nature or will force a personal relationship.  I doubt too many of us would wish to be operated on by a surgeon compelled to do so by order of the court, nor would it be sensible to force two parties to collaborate in an endeavour where neither of them likes, or is comfortable with the other.

In such instances, the court would consider that monetary damages would be an acceptable remedy.

The other circumstance is where the execution of the work, for example the construction of building to a specified degree, would require significant monitoring, supervision and control. It presents a whole host of problems for a court to try to enforce such an obligation, takes time and incurs cost, without any certainty of outcome. It can trigger a chain of litigation where the outcome is considered adequate by one party but not by the other.

The difficulty such a direction imposes on the defaulting party is also a consideration and it can be the case where significant loss, beyond that envisaged by the original contract, can be incurred and the court must be mindful of that consequence.

There is though a school of thought which says that Specific Performance is the most applicable remedy for any breach, notwithstanding the consequences, because it enforces the bargain made, gives a greater rigour to the judicial process and that must, on principle, be a better outcome than the award of damages.

Land sales though, are a readily recognisable exception and the award of Specific Performance gives efficient effect to the original contract and puts the parties in the exact position they would have been in had the contract not been breached.

But the mere seeking of such an award is not sufficient; as with most legal cases, ‘he who asserts must prove’ and the party seeking such enforcement must be able to prove that he/she is in a position to effect their side of the bargain. Typically contracts for the sale and purchase of land are subject to a number of conditions; some type of planning consent is often one of them, subject to finance is often another and if, for example the funding isn’t in place, Specific Performance become impossible. The seller may be obligated to sell but without funds, the buyer can’t buy.

Claimants must come armed with the ability to prove they can see their own obligations through.

Interestingly, in construction there is a dichotomy where retentions are deducted from monthly progress payments for construction projects, (well certainly those of any scale albeit there is some enlightened thinking around the efficacy of this).

These retentions are typically used as  threat to ensure defects (usually minor but often great in number) are corrected. They secure the obligations on a ‘back to back’ basis down the contractual chain.  The money is often kept and not returned and utilised to get the defects corrected, frequently by another party.

In this instance, the monies are used almost as damages to obtain the result least desired because work done on particularly systems, wiring, cabling, plant, equipment, by others, will often invalidate warranties.

What is required in these circumstances is what is delivered by Specific Performance, i.e. the outstanding work completed by the party that contracted to do it. The problem is, as a discretionary remedy, only the courts can award it and that does means it’s either ‘retentions’ or nothing.

I can see this becoming a more sought-after remedy, particularly if the housing market continues to boom and developers seek the opportunity to garner the profit from the completed development.

It is right in principle and delivers the certain outcome that was contracted for.