When thinking about sellers failing to complete a sale at closing, I am reminded of a classic Seinfeld episode where Jerry rents a car, but upon arrival, the vehicle is unavailable. The agent explains that they ran out of cars, to which Jerry responds:
“See, you know how to take the reservation. You just don’t know how to hold the reservation. And that’s really the most important part of the reservation. The holding. Anybody can just take em.”
Similarly, a buyer entering a contract to purchase a business needs solid assurance that the seller won’t suddenly change their mind, become a monk and join an ashram, or seek better offers. The buyer rightly expects the seller to fulfill their side of the bargain. The seller must be obligated to complete the sale once the contract is signed, protecting the buyer from the seller’s capriciousness or failure to fulfill the agreement. This is when the legal instrument known as specific performance comes into play.
What Is Specific Performance?
Specific performance is a legal remedy that forces the breaching party to perform their contractual obligations, rather than simply paying liquidated damages. This means a court can order the seller to go through with the sale and transfer to the buyer as agreed initially.
When Can Buyers Seek Specific Performance?
To successfully obtain specific performance, buyers must demonstrate several key elements:
- Valid contract: The purchase agreement must be legally enforceable
- Buyer performance: The buyer has fulfilled (or is ready to fulfill) all their contractual obligations
- Seller breach: The seller has defaulted by refusing to complete the sale
- Inadequate monetary damages: Money alone cannot adequately compensate the buyer’s loss
- Definite terms: The contract terms must be clear and specific enough for a court to enforce
How Common Is This Remedy?
Unlike other areas of contract law where specific performance is rare and difficult to obtain, it’s pretty standard in business sales and real estate transactions. If buyers meet the legal requirements, the courts routinely grant these requests.
This doesn’t mean it’s automatic – buyers must still be prepared to demonstrate they completed their side of the bargain, including having financing in place and being ready to pay the agreed-upon purchase price and fulfill all other contingencies required. Thus, when these conditions are met, courts will typically force the reluctant seller to complete the transaction and deliver the business or property as initially contracted.
In most business transactions, buyers rightfully expect additional protections if the seller fails to perform:
- Monetary damages: Recovery of costs, expenses, and losses caused by the seller’s breach as agreed in the contract.
- Return of earnest money: Getting back any deposits made
What It Suggests When Sellers Resist Standard Remedies or Red Flag Alert!
When sellers resist including these customary and standard protections, it should raise immediate red flags about their intentions and the viability of the transaction. A seller’s reluctance to agree to standard buyer remedies might indicate:
- Uncertain commitment: They may not be fully committed to selling
- Hidden problems: They might know of issues that could prevent closing
- Multiple offers strategy: They could be keeping options open with other buyers (despite possibly agreeing to a no-shop clause)
- Title or ownership issues: Problems they haven’t disclosed or resolved
- Financial distress: Inability to clear liens or satisfy mortgage obligations
- Partner Problem: Other owners in the deal may present problems in selling.
Without standard remedies, the Buyer is essentially making a one-sided commitment. The seller gets:
- Buyer’s earnest money deposit at risk
- Buyer’s time and resources invested in inspections, appraisals, and due diligence
- The right to walk away with minimal consequences
Without any tangible recourse, the buyer gets screwed if the seller opts not to perform. In other words, just a one-way ticket to palookaville. Hence, the reservation taking but not the reservation holding and fulfillment.
Before proceeding with a contract lacking standard buyer protections, consider:
Why Is the Seller Resisting?
- Have they provided a legitimate explanation for removing these provisions?
- Are they willing to discuss alternative protections?
- Does their reasoning make sense given the property and circumstances?
What’s Your Risk Tolerance and Unique is this Acquisition?
- Can you afford to lose your time, opportunity, and due diligence costs?
- Is this truly a once-in-a-lifetime opportunity, or are comparable opportunities available?
- Are you negotiating from a position of strength or desperation?
Negotiate Alternative Protections
If the seller won’t agree to specific performance, consider:
- Liquidated damages clause: Pre-agreed compensation for their breach
- Extended due diligence period: More time to evaluate before you’re fully committed
- Shortened closing timeline: Less time for them to change their minds
- Tightened No-Shop Clause: Make it very difficult for sellers to solicit or listen to other offers.
Consider Walking Away
Sometimes the best deals are those you walked away from:
- When red flags are numerous: Multiple concerning behaviors from the seller
- If your leverage is minimal: In desirable markets where you have decreased negotiating power
- When alternatives exist: If comparable properties are available with standard terms
- If the risks outweigh the benefits: When potential losses exceed the opportunity value
A seller’s unwillingness to provide standard buyer protections isn’t automatically a deal-killer, but is pretty close, and at minimum it should be a deal-examiner. Take the time to understand why they’re resisting, what risks you’re accepting, and whether the opportunity justifies proceeding with reduced protections.
When a seller shows who they are through their contract terms, believe them. A seller who won’t commit to standard performance expectations may not be someone you want to do business with, regardless of how attractive the acquisition might be.
After all, as Jerry might say: “Anyone can just take a contract, but do you know how to fulfill the contract? And that’s really the most important part of the contract: the fulfillment!”