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4 options sellers have when a buyer terminates a contract

On Behalf of | Jan 12, 2024 | Real Estate Law

Selling commercial property is a complex transaction that involves various stakeholders.

Unfortunately, there are times when a buyer decides to break the contract. In such instances, sellers must explore alternative options to mitigate potential losses and navigate the aftermath of a terminated deal.

1. Negotiate a resolution

When a buyer breaches a contract, communication becomes important. Sellers can engage in open discussions with the defaulting party to identify the reasons behind the termination. Understanding the buyer’s concerns may pave the way for renegotiation, allowing both parties to reach a mutually agreeable solution.

2. Retain the earnest money

In many commercial property transactions, buyers provide earnest money as a show of commitment. In the event of a contract breach, sellers can retain this deposit. It serves as a form of compensation for the time and effort invested in the deal. However, the ability to keep the earnest money depends on the terms outlined in the contract and local real estate laws.

3. Seek damages

In certain situations, sellers may consider pursuing damages resulting from the breach of contract. This involves quantifying the financial impact of the terminated deal, such as additional carrying costs or lost opportunities. Seeking damages requires a careful assessment of the situation and may involve legal processes outside the scope of this discussion.

4. Mediation or arbitration

As an alternative to litigation, sellers and buyers can explore mediation or arbitration. These dispute-resolution methods involve impartial third parties who facilitate negotiations or make binding decisions. Mediation and arbitration can provide a faster and less formal resolution compared to traditional legal proceedings.

Facing a terminated contract is undoubtedly a challenge for commercial property sellers. With the federal government expected to reduce short-term interest rates in 2024 to around 4.25%, even a setback now may result in a better deal down the road.