Unit 3 - Real Estate Instruments and Human Rights
I. Fundamentals of Contract Law
A contract is a legally binding agreement between two or more competent parties to perform (or refrain from performing) a lawful act for consideration.
Types of Contracts:
Express Contract: Terms are clearly stated in words (written or oral).
Implied Contract: Agreement is created by the actions or conduct of the parties.
Bilateral Contract: A "promise for a promise." Both parties are obligated to act (e.g., most real estate sales contracts).
Unilateral Contract: A "promise for an act." Only one party is legally bound (e.g., an Option or a Reward poster).
Essentials of a Valid Contract:
Competent Parties: At least 18 years old and of sound mind.
Mutual Agreement: A "meeting of the minds" (Offer and Acceptance).
Lawful Objective: The purpose of the contract must be legal.
Consideration: Something of value (usually money).
In Writing: Per the Statute of Frauds (General Obligations Law § 5-703), all contracts for the sale of real estate must be in writing and signed to be enforceable.
II. The Sales Contract: Key Provisions
In New York, once a sales contract is signed by both parties, the buyer has Equitable Title, while the seller retains Legal Title until closing.
Legal Description: Must accurately identify the land (not just the street address).
"Subject To" Provision: Identifies existing encumbrances the buyer must accept (e.g., easements).
Merger Clause: States that the written contract is the entire agreement. Any verbal promises made before signing that are not in the contract are "merged" into the document and lost.
No Survival Clause: Generally, the contract "dies" at closing. If you want a promise to remain enforceable after the deed is delivered (e.g., a promise to repair a roof), it must specifically be marked to "Survive the Closing."
Contingencies: Conditions that must be met for the contract to proceed (e.g., Mortgage Contingency or Inspection Contingency).
Liquidated Damages: Usually the down payment (earnest money). If the buyer defaults, the seller typically keeps the down payment as the sole remedy.
III. Binders and Purchase Offers
Binder: A preliminary document used in some parts of NY (like Long Island/Queens) to "hold" a deal.
Legal Status: Most binders are non-binding and state that no legal obligation exists until a formal contract is signed by attorneys.
The "Purchase Offer": In Upstate NY, the "Purchase Offer" often becomes the contract once signed by both parties. Downstate, attorneys usually draft a separate, more detailed contract.
IV. Specialized Contracts
Installment Sales Contract (Land Contract): A "rent-to-own" style deal where the buyer makes payments over time.
Deed Delivery: The buyer does not receive the deed until the final payment is made.
Lease with Option to Buy: A lease that includes a right to purchase the property at a set price within a certain timeframe. The tenant is not obligated to buy.
Right of First Refusal: Does not give the holder the right to buy now. Instead, if the owner receives an offer from a third party, they must first offer the property to the holder on those same terms.
V. Statute of Frauds (GOL 5-703)
This is the most critical law regarding real estate contracts. It mandates that any contract for the sale of real property, or a lease for more than one year, is void unless it is in writing and signed by the "party to be charged" (the person you are trying to sue).
⚠️ EXAM ALERT: QUICK FACTS
First Substantive Contact: Remember, the Agency Disclosure Form must be signed before a contract or binder is even discussed.
Who Signs?: Only the Grantor (Seller) must sign a Deed, but Both Parties must sign a Sales Contract for it to be valid.
Attorney Review: In NY, real estate agents cannot practice law. Most contracts include an Attorney Review Clause, giving lawyers usually 3–5 days to approve or cancel the deal.
Down Payments: These are usually held in an Escrow Account by the Seller's Attorney. Agents should never hold down payment funds in their own personal accounts.
KEY TERMS
Assignment: The transfer in writing of rights or interest in a bond, mortgage, lease, or other instrument to another person.
Caveat: A formal notice or warning given by a party to a court or officer to suspend a proceeding until the filer's opposition is heard.
Caveat Emptor: A Latin phrase meaning "let the buyer beware"; the principle that the buyer is responsible for checking the quality and suitability of goods before a purchase is made.
Consideration: Something of value that induces a person to enter into a contract; it is an essential element for a contract to be legally binding.
Contingency: A provision in a contract that requires a certain act to be done or a certain event to occur before that contract becomes binding.
Counteroffer: A new offer made in response to an initial offer; it has the legal effect of rejecting the original offer.
Earnest Money Deposit: Money deposited by a buyer as a sign of good faith to show they are serious about purchasing the property.
Executed Contract / Executory Contract: An Executed Contract is one in which all parties have fulfilled their promises. An Executory Contract exists when something remains to be done by one or both parties.
Express / Implied Contracts: An Express Contract is an agreement where the terms are stated in words (oral or written). An Implied Contract is created by the agreement of the parties as demonstrated by their acts and conduct.
Forbearance: The act of refraining from exercising a legal right, especially the right to enforce payment of a debt.
Liquidated Damages: An amount of money, specified in a contract, that the parties agree will be the total damages if one of them breaches the agreement.
Novation: Substituting a new obligation for an old one or substituting new parties to an existing obligation.
Option: An agreement to keep open, for a set period, an offer to sell or purchase property; it gives the optionee the right to buy at a fixed price within that time.
Power of Attorney: A written instrument authorizing a person, the attorney-in-fact, to act as agent for another person to the extent indicated in the instrument.
Reformation: A court action to correct a mistake in a deed or other document so that it reflects the actual intent of the parties.
Rescission: The legislative or judicial act of voiding or canceling a contract and restoring the parties to their original positions.
Rider: An amendment or attachment to a contract that modifies or adds specific provisions to the main agreement.
Right of First Refusal: A clause in an agreement that gives a person the first opportunity to purchase or lease a property at the same price and terms offered by a third party.
Specific Performance: A legal action to compel a party to carry out the terms of a contract rather than merely paying money damages.
Statute of Frauds: That part of state law as derived from English law that requires certain instruments, such as deeds and purchase agreements, to be in writing to be legally enforceable.
Statute of Limitations: That law pertaining to the period of time within which certain actions can be brought to court.
"Time is of the Essence": A phrase in a contract that requires the performance of a certain act within a stated period of time; failure to do so constitutes a breach of contract.
Uniform Commercial Code (UCC): A codification of commercial laws adopted in most states that attempts to make them uniform; in real estate, it often relates to personal property used as security for a loan.
Void / Voidable: A Void Contract has no legal force or effect because it lacks an essential element. A Voidable Contract appears valid but may be rescinded or disaffirmed by one or both parties based on a legal principle (such as a contract with a minor).
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