They Breached the AAR Purchase Contract – Now What?

 Most real estate transactions are completed without dispute. However, there are times when a buyer or seller refuses to comply with the contract and perform a contractual duty, such as a refusal to close escrow or to make agreed upon repairs.  Although you cannot give legal advice (unless you are also an attorney), it is important to know the options so you can point your client in the right direction. 

 

Under the AAR contract, a party is given an opportunity to cure these types of potential breach of contract. If a party fails to comply with the contract, the other party must deliver a cure notice before declaring a breach. If the non-compliance is not cured within three days after delivery of the cure notice (the cure period), the failure to comply becomes a breach of contract.

 

The cure notice provides a second chance to fix a problem before it becomes a breach – the cure notice does not address what happens when there is a breach.

 

All AAR contracts also contain a remedies section and alternative dispute provisions for dispute resolution.  If the situation arises – point these provisions out to your client. 

 

Remedies for Breach of Contract

Upon a breach, the party seeking relief generally has one of the following remedies:

 

1.      Contract Cancellation:  A contract may be cancelled for a material breach, misrepresentation, or fraud. However, contract cancellation is not the remedy for every breach. To justify cancellation, the breach generally must relate to a vital contract provision. Cancellation is generally not warranted for a breach of a minor contract provision that can be addressed by monetary damages.

 

2.      Specific Performance:  Specific performance may be available for a breach such as the failure to close escrow.  However, the court has wide discretion in these types of cases and specific performance is never a matter of absolute right.

 

3.      Damages:  Damages are monetary compensation for the loss suffered due to a breach of contract. The amount of damages will depend upon the circumstances and the specific breach. Generally, emotional distress damages will not be awarded for breach of contract. Similarly, punitive damages, which are damages designed to punish, are seldom awarded. However, a damage award may include an award of attorney’s fees to the prevailing party.

 

4.      Liquidated Damages:  Liquidated damages are a specific sum of money that has been agreed upon in the contract as the amount of damages to be recovered for breach of contract. The earnest money is designated as liquidated damages in the AAR contracts.  However, if there is an unreasonably large amount of earnest money, the court may refuse to award the earnest money as liquidated damages.  

 

Alternative Dispute Resolution

The AAR contract requires mediation and, if unsuccessful, defaults to binding arbitration, unless one of the parties opts out to litigate in court. https://www.aaronline.com/resolve-disputes/buyer-seller-disputes/  

 

·         Mediation is a process in which the parties meet with an impartial person who helps to resolve the dispute informally and confidentially. Agreeing to mediate does not mean that the parties are agreeing to settle, but simply means the parties are trying to resolve a dispute without going to court. The parties do not give up any right to pursue other legal remedies if mediation is not successful.

 

·         Arbitration is a process that is similar to court litigation but is generally quicker and more cost effective. Pursuant to the AAR contract, if mediation does not resolve the dispute, the unresolved dispute must be submitted to binding arbitration, unless either party opts out within 30 days after the conclusion of the mediation conference by written notice to the other.

 

Court Litigation

If the parties do not resolve their dispute through alternative dispute resolution, court litigation may be the only option.

 

·         Small Claims Court:  Many disputes in which the amount at issue is $3,500 or less can be resolved in small-claims court. The AAR contracts do not require mediation if the parties file a small claims court action. The case will be heard by either a judge or hearing officer, who then makes a decision that is final.  https://www.azcourts.gov/selfservicecenter/Small-Claims

 

·         Justice Court:  A lawsuit may be filed in the Justice Court if the amount involved is less than $10,000.  https://www.azcourts.gov/AZ-Courts/Justice-Courts

 

·         Superior Court:  If the claim exceeds $10,000, the claim must be filed in the Superior Court. Superior Court cases can take years to resolve at a substantial cost – both financially and emotionally.  https://www.azcourts.gov/AZ-Courts/Superior-Court

 

If you are involved in a transaction in which one of the parties alleges a breach of contract, immediately notify your designated broker or manager, and advise your client to obtain independent legal counsel.  https://www.azbar.org/for-the-public/public-service-center/

 

 

Michelle Lind is Of Counsel to the Arizona REALTORS® and the author of Arizona Real Estate: A Professional’s Guide to Law and Practice.  This article is of a general nature and may not be updated or revised for accuracy as statutory or case law changes following the date of first publication. Further, this article reflects only the opinion of the author, is not intended as definitive legal advice and you should not act upon it without seeking independent legal counsel.