Real Property: Land Conveyancing: The land contract

The land contract
  • The land contract and the statute of frauds:
    • Must be in writing – signed by the party to be bound; must also describe the land and include a statement of consideration
    • If the amount of land recited in the land contract, is more than the actual size of the parcel, the remedy for the buyer is specific performance with a pro rata reduction in purchase price.
    • [narrow] Exception to statute of frauds requirement à Part Performance: If the facts show 2 of the following 3, the doctrine is satisfied and equity will decree specific performance of an oral contract for the sale of land:
      • B takes physical possession of the land
      • B pays all or part of the purchase price, and/or
      • B makes substantial improvements to the land.
  • The problem of risk of loss:
    • Apply doctrine of equitable conversion: equity regards as done that which ought to be done.
      • Thus, in equity, once the contract is signed, B is the owner of the land, subject to the condition that he pay the purchase price at the closing.
      • Destruction: If, in the interim, between contract and closing, Blackacre is destroyed through no fault of either party, B bears the risk of loss unless the contract says otherwise.
  • There are TWO implied promises in every land contract:
    • Seller promises to provide marketable title at the closing – the title must be free from reasonable doubt; free from lawsuits and the threat of lawsuits. It’s an unencumbered fee simple.
      • Three circumstances will render title unmarketable:
        • Adverse possession – If even a portion of the title rests on adverse possession, it is unmarketable; seller must be able to provide good record title.
        • Encumbrances – since marketable means an unencumbered fee simple, servitudes and mortgages render title unmarketable unless buyer has waived.
          • NOTE: Seller has right to satisfy an outstanding mortgage or lien at the closing, with proceeds of the sale. Thus, buyer cannot claim title is unmarketable because it is subject to a mortgage prior to closing, so long as the parties understand that the closing will result in the mortgage being satisfied or discharged.
        • Zoning violations – title is unmarketable if Blackacre violates a zoning ordinance.
    • Seller promises not to make any false statements of material fact – a majority of states hold sellers liable for failing to disclose latent material defects (seller is responsible for material lies and material omissions).
      • If the contract has a general disclaimer of liability (i.e. “property sold as is” or “with all faults”): such a disclaimer does not excuse seller from liability for fraud or failure to disclose.
  • The land contract contains no implied warranties of fitness or habitability – the common law norm is caveat emptor (buyer beware).
    • IMPORTANT EXCEPTION: Implied warranty of fitness and workmanlike construction applies to the sale of a new home by a builder-vendor.
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