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Real Estate Contract Cancellation/Rescission

It’s customary that in a transaction for the purchase of commercial or residential real estate the purchaser will have an opportunity to inspect the premises for defects and may exercise an option to terminate the transaction should problems be discovered with the property. It may seem that under the terms of the contract this is the last chance the contract can be cancelled. But, what happens when problems are unearthed after the fact? The purchasers exercise their due diligence — perhaps even hire a 3rd party inspector — discovery nothing, and then later come across latent defects in the property? Worse yet, what happens when the seller knew or had reason to know about such problems and did not disclose? Although the time to exercise the contractual contingency has likely passed, the law has a legal remedy called rescission which may, depending upon the circumstances, cancel and rescind the contract.

Generally, the law afford two types of legal remedies to aggrieved parties: legal remedies and equitable remedies. A legal remedy is essentially money damages to compensate a wronged party. Very broadly speaking, an equitable remedy is an order by the Court to do something; equitable remedies are appropriate in those circumstances when mere money damages aren’t good enough. Rescission is a form of equitable relief. If granted, a court will essentially cancel the contract as if it had never occurred and return the parties to their status quo ante — that is, the position they were in before the execution of the contract.

In the context of a real estate contract, if the purchaser can show, among other things, that there were material defects or problems either in the transaction or property, and that money damages are not adequate to compensate them for the injuries, then a court may, in its discretion, order rescission. The grant of rescission by a court is not automatic; it, like all other equitable relief, is largely discretionary. A court will inquire into many things, including but not limited to whether the party seeking rescission is at fault and, most importantly, whether it really is the case that money cannot compensate the injury. Depending upon the judge and circumstances, this is not an easy sell.

Do not hesitate to contact us should you have any problems, questions, or concerns with respect to real estate disputes.

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