When a party to a real estate transaction suspects or is advised that the other party will breach its terms in the future, the question arises as to whether the innocent party is excused from its obligations under the purchase and sale agreement (\”APS\”). The answer to this question depends on whether there has been an anticipatory repudiation of the contract. If anticipatory repudiation occurs, the innocent party is relieved of its obligations and may treat the contract as terminated. If there has not been an anticipatory repudiation, the innocent party must continue to perform its obligations under the contract.
What is Anticipatory Repudiation?
Anticipatory breach of contract, also known as anticipatory repudiation, occurs when one party to a contract declares their intention to breach the contract before performance is due. This anticipatory act only becomes a breach of contract if the innocent party accepts the repudiation. Until the innocent party accepts the anticipatory repudiation, the contract is still in full force and effect. Anticipatory breach of contract may occur in several ways, including by express declaration or inference from the conduct of the repudiating party.
Not every intention of a party to breach a contract before performance is due amounts to anticipatory repudiation. The anticipatory repudiation must be unequivocal and severe enough to deprive the innocent party of substantially the whole benefit it would receive under the contract. The test for whether a party has anticipatorily repudiated the contract is an objective one – that is, whether a reasonable person in the position of the innocent party would conclude that the breaching party does not intend to be bound by the terms of the contract.
If all the above elements are met, the breaching party has anticipatorily repudiated the contract.
What are the Implications of Anticipatory Repudiation?
If one party to a contract anticipates that the other party will breach the contract, the innocent party has three options for responding. First, the innocent party can ignore the anticipatory repudiation and await performance. Second, the innocent party can urge the repudiating party to retract the anticipatory repudiation and await a response. Third, the innocent party can accept the termination of the contract. The innocent party should consult with a lawyer to determine each case\’s best course of action.
Terminating the APS
When you\’re buying a business, it\’s important to do your due diligence to ensure that you\’re getting what If the innocent party chooses to accept the repudiation of the contract, it must clearly and unequivocally communicate this to the repudiating party within a reasonable time. Failure to communicate the acceptance of the repudiation allows the repudiating party to retract its repudiation and force the innocent party to complete its obligations under the APS. This can be particularly damaging for a purchaser if the purchaser fails to be prepared for closing and the seller decides that they are ready, willing, and able to sell the property to the purchaser on the closing date.
Consequences of Termination of APS
If the innocent party chooses to accept the termination of the APS, neither party has any further obligation under the APS. However, by accepting termination of the APS, the innocent party loses the right to seek the equitable remedy of \”specific performance\”. The innocent party\’s sole recourse would be to seek damages. Please carefully consider your decision before accepting the termination of the contract.
Conclusion
Don\’t wait to take action if you\’re in the middle of a real estate transaction and think the other party might breach its terms.
Retain an experienced lawyer who can protect your interests and help you enforce your rights in case of anticipatory repudiation.
You deserve to have someone fighting for you to get the best possible outcome from this difficult situation. Let us be that someone for you.
Contact us today for a free consultation! We\’ll review your case and let you know what we can do to help.