One of my pet peeves as a Massachusetts real estate attorney is the printed language in most standard purchase and sale agreements regarding liquidated damages. To paraphrase the legalese contained in the printed form “if the Buyer defaults, the Seller may keep Buyer’s deposit as liquidated damages unless the Seller within thirty days of such default decides to avail himself,or herself, of other options”<\/p>\n
These “other options” would definitely include suit for specific performance of the contract, which in a falling market, could mean a financial disaster for the Buyer. In effect, if the Seller sold the property to another Buyer, the defaulting Buyer would be responsible for damages measured by the price in his or her contract versus the actual sales price realized by the Seller.<\/p>\n
The alarming thing about this provision is that in my forty plus years of practicing real estate law, I have never had an attorney for the Seller refuse my request to eliminate the second option.\u00a0 So,if for some reason, you Buyer’s Agents are forced to “fly solo” because your client will not retain an attorney, I urge you to, at the very least, make sure that you request a change from the printed form.<\/p>\n
The changed version reads, that “if the Buyer defaults, the Seller may\u00a0retain Buyer’s deposit, and such retention shall constitute Seller’s sole remedy against the Buyer” That remedy is a horse of a different color and,of course, much more favorable to the Buyer.<\/p>\n
Those of you who are starting to serve as Buyer’s Agents should also be aware that many Sellers are inserting provisions in the purchase and sale agreements to the effect that “since there is no way to truly measure the damages suffered by the Seller, if the Buyer defaults,both parties agree that the retention of the entire deposit constitutes an acceptable remedy for both side.”<\/p>\n
I strenuously resist this provision when representing Buyers, unless their deposit is very small.\u00a0The only Massachusetts Supreme Judicial Court decision\u00a0which actually address this issue held that five (5%) was a reasonable sum for liquidated damages. Many deposits are in excess of five (5%) per cent. I would rather leave the provision quoted above out of my agreement, and argue that five (5%) per cent is, indeed, plenty of compensation for a Seller, especially if the default occurs in a relatively short period of time. I have a lot more wood to cut if I have agreed the retention of the deposit, no matter of what amount, is a “fair measure” of damages.<\/p>\n
It is never pleasant when circumsatances dictate that a Buyer must “walk away”. In circumstances where we are representing Buyers, it is important not to turn this cruel turn of fate into a financial disaster for the Buyer, which usually\u00a0cannot be easily remedied.<\/p>\n","protected":false},"excerpt":{"rendered":"
One of my pet peeves as a Massachusetts real estate attorney is the printed language in most standard purchase and sale agreements regarding liquidated damages. To paraphrase the legalese contained in the printed form “if the Buyer defaults, the Seller may keep Buyer’s deposit as liquidated damages unless the Seller within thirty days of such … Continue reading The Liquidated Damage Provision in the Sales Agreement–Often misunderstood, more often a trap for the unwary<\/span>