Specific Performance
A legal concept that requires a party to abide by the terms of an agreement.
A simple example can be if a PSA is executed and then the seller decides not to sell the land. The buyer can sue for Specific Performance and a court can enforce the terms of the contract requiring the seller to sell based on the terms in the executed PSA.
Putting ‘Specific Performance’ in Context
Scenario Overview
Cascade Equity Partners, a real estate private equity firm based in Portland, Oregon, has executed a Purchase and Sale Agreement (PSA) to acquire a neighborhood shopping center known as Cedar Grove Plaza. This 85,000-square-foot retail center is situated in a high-traffic suburban area of Portland, Oregon. Cascade Equity Partners sees an opportunity to execute a value-add strategy by re-tenanting several vacant units and upgrading the property’s facade and common areas.
The Agreement
The PSA outlines the key deal terms, including a purchase price of $15.5 million, a 60-day due diligence period, and a firm closing date set for 30 days after the conclusion of due diligence. During due diligence, Cascade Equity Partners conducts property inspections, lease audits, and financial reviews, all of which return favorable results. Confident in the property’s potential, they provide notice to the seller that they intend to proceed to closing as stipulated in the PSA.
The Issue
With only two weeks remaining before the scheduled closing date, the seller, Northwest Retail Holdings, notifies Cascade Equity Partners that they no longer wish to sell the property. Unbeknownst to Cascade, the seller has received an unsolicited offer from another buyer offering $16.75 million — $1.25 million higher than Cascade’s agreed purchase price. The seller informs Cascade that they plan to back out of the deal unless Cascade agrees to match the new offer.
Legal Action
Rather than renegotiate the terms, Cascade Equity Partners initiates legal action to enforce “Specific Performance” of the PSA. They argue that under the executed contract, Northwest Retail Holdings is legally required to sell the property at the agreed price of $15.5 million. Cascade’s legal counsel files a complaint with the local court, seeking an order requiring the seller to abide by the terms of the PSA.
The Court’s Decision
The court finds in favor of Cascade Equity Partners. Under Oregon contract law, real estate purchase and sale agreements are enforceable contracts, and real estate is considered “unique” under the law. This uniqueness is why courts often grant “Specific Performance” rather than merely awarding monetary damages. The judge issues a ruling that requires Northwest Retail Holdings to sell Cedar Grove Plaza to Cascade Equity Partners for the original purchase price of $15.5 million, as outlined in the PSA.
Lessons Learned
This case highlights the power of Specific Performance in real estate transactions. Because real estate is considered a unique asset, courts are more inclined to enforce a purchase agreement rather than simply awarding financial compensation. For real estate investors like Cascade Equity Partners, having the legal option to enforce Specific Performance ensures that the investment strategy and projected returns are not derailed by a seller’s attempt to back out of the deal. This protection is one of the reasons why Purchase and Sale Agreements are carefully negotiated and legally binding once executed.
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