Force of Law Definition for a Real Property Transaction
Force of law is described as "a right which the law gives a contracting party to cause another, in certain events, to do what he has covenanted with the creditor to do or to pay damages if he does not." It also has been defined as "the effect which attaches to a deed, and by which it becomes obligatory in the sense that there can be no valid defence to an action on the bond, except only such as are recognised by law, as lache, payment of the deed, release, accord and satisfaction, estoppel, and the like."
In the context of real estate lease transactions, the term is routinely used in the context of the legal construct of a "personal covenant versus a real covenant." The term has no unified definition . It has been described as "an agreement by deed under seal to do a specified act, or, if the party promising fail to do so, to pay money, or damages for injury caused by the breach of a duty or promise." It is a financing term to indicate the extent to which the debtor is personally bound. "Force of law" refers to the extent to which the obligation is "run with the land." For example, a tenant’s obligation to repair or maintain the premises under a lease which provides that the obligation to repair is a covenant which is intended to be enforceable against subsequent owners (i.e., a covenant running with the land) and would be enforceable by the landlord against a subsequent owner of a building, even if such subsequent owner had not agreed to be bound by the obligations of the lease.
Documents and the Rule of Law
In the real estate world, force of law has a practical importance that cannot be overstated. When it comes to transactions that are governed by contract law in order to protect ourselves against loss or injury, some documents have the force of law. These are written documents, meaning formalities apply. In real estate matters the appropriate formalities include notarization of signatures, witnessing of some provisions, and sometimes even registration and or filing of the document. The three commonly occurring types of documents that have the force of law in real estate transactions are deeds, mortgages and leases. Deeds are signed agreements sometimes called an exchange deed or receipt and acknowledgment. A deed is much more than document, it is an instrument. Instruments are always written. Before any piece of property, piece of land or building can ever be sold or transferred, a deed must be signed. This applies to any piece of property, regardless of cost as long as it is more than a matter of dollars and cents. In cases where the owner of property passes away, his or her will may dictate the future of that property and becomes a final deed when executed properly. Be sure that the will is drafted properly in accordance with all of the rules that must be followed for it to become a deed. The second most common type of instrument or legal document with the force of law is a mortgage. The time of a mortgage is sometimes called the mortgage term, and it is a debt backed by the value of the property. For a mortgage to be in the form of a deed, there must be a signature plus all of the formality requirements for a deed. A mortgage is only valid if it has been registered. To be registered, a mortgage has to be filed in the land registry office and recorded in a public place. Since it is recorded in a public place you will be able to obtain copies of the mortgage at any time. Leases are generally for a period of time. For example, a one-year lease or a two-year lease. It also has to be signed in the form of an agreement. This too, must be properly registered. If the appropriate formalities are not observed, that lease will not have the binding force of law.
Government and the Force of Law
While certain custom and usage can have significant force in a real estate transaction, those practices and usages can, of course, vary from region to region and thus may not be determinative of the outcome of a dispute. In many instances, it is the governmental regulations or statutory law that gives additional force to the arguments of litigants, to determine their respective rights.
For example, in a matter of first impression, New Jersey’s Appellate Division weighed the particular contractual provisions and customary practices of the real estate professionals involved versus statutory regulations governing realtors and real estate agents, and determined that the statute trumped the professional’s customary practices. Bhalla v. Sathicq, A-3105-10T2 (N.J. Super. Ct. App. Div. Jan. 25, 2013).
Real estate licensees in New Jersey are licensed pursuant to the Real Estate License Act, which is governed by N.J.S.A. 45:15-1 et seq. The statute governs the relationship between broker and seller and clearly outlines the obligations each has to the other during the course of a real estate transaction. For example, N.J.S.A. 15:15-3(1) provides that "[e]very written contract between a broker and an owner shall entitle the broker to a commission if he produces a buyer ready, able, and willing to purchase on the terms set forth in the contract." In other words, it is incumbent upon the real estate broker to be sure it has a contract that allows it to be reimbursed for its commission, or be sure that either it has been paid upon acquisition of a buyer or be sure to have a client ask for a reduction in the broker’s commission during the course of the transaction negotiations.
As such, when a real estate agent’s buyer was not willing to pay the commission directly to the broker – as the statute provided the right to be paid under the circumstances – the appellate court determined that, per the statute, the commission agreement was void (i.e., there was no agreement to waive the statute), and the deal fell through.
Contracts and the Imposition of Force
Enforcement of real estate contracts occurs under the same force of law as a court judgment. The most common form of enforcement occurs through the filing of a lawsuit. Breach of a real estate agreement can be enforced through a specific performance action – a legal request to a judge to order the parties provide the contractually agreed upon rights and remedies. Of course there are many other legal remedies that can be requested through a court, but legally binding an agreement is an important component of a contract dispute.
Real estate agreements can prove problematic because of the size and scope of rights and responsibilities being offered and accepted. Agreed upon terms will need to be enforced under contract principles and the parties’ dispute resolution provisions.
The court system may be used to resolve contractual disagreements regarding breach or non-performance. Courts have the ability to make legally binding determinations regarding conflicts in real estate contracts. A variety of resolutions can be used to help the parties enforce their contracts, provide for financial compensation, or force performance of contract obligations. The courts may award financial damages in place of any obligation set out in a contract or even order full performance of the entire contractual agreement. The court’s award of damages is intended to force the parties to fulfill their obligations under the agreement by providing the improperly receiving party with compensation if the agreed terms are not performed. Thus , while a court may not be able to force someone to part with their money or personal property, it can order repayment or substitution in lieu of parting with the assets. Cases involving real estate are no different than other civil issues when it comes to going to court to resolve a dispute – and the result is always uncertain.
Other forms of resolution include mediation or arbitration. Most real estate agreements will contain an arbitration provision that provides for the resolution of disputes outside of a courtroom. Arbitration is a common form of settling disputes; however, many times the arbitration is not binding on the parties (however, it may be binding and must be enforced under law if it is expressly a binding arbitration). Arbitration allows parties to resolve a dispute outside of court, much like a mediation, where a third person attempts to mediate the problem in hopes of reaching a resolution. The result of the mediation or arbitration is not binding on the parties until they either reach a resolution or one party prevails and the other agrees to be contractually bound by the result.
Most commercial agreements will include a provision for confidential resolution of disputes, including mediation and arbitration. The result of a mediation or arbitration is confidential and while the result may be known to the parties, unless a settlement agreement is reached between the parties and the result made public, the result is not known to the general public.
Attorneys and Real Estate Force of Law
To ensure the legality of a real estate transaction, it is important to seek the counsel of a legal professional. Your lawyer is the only person who can ensure that a contract has legal force of law. Only lawyers are governed by a code of professional conduct that ensures that they provide you with competent and diligent representation. Only your lawyer has a fiduciary duty to make sure that all matters that ought to be raised are considered in your best interests. It is very important that an innocent purchaser asks these questions and puts them to their own lawyer who will ensure that the contract is given the required legal force of law.
Examples: Land Law in Practice
There are times when the force of law in real estate is apparent. That is the case in three examples outlined below.
A seller once agreed to pay the realtor a bonus commission of $1,000 if the property sold for a price in excess of $350,000. When an offer was presented that did, in fact, exceed that threshold, the seller consistently refused to accept it because of his dissatisfaction with the sale price. The realtor sued for the $1,000 bonus and lost. Why? Because the agreement was unenforceable.
Another realtor accepted a deposit from a buyer during an open house. The deed registered in the land registry office showed a municipality called Lots Corners when, in fact, the house was located in the next town. To the seller, it was irrelevant . To the realtor, it should have been. The realtor sued to recover the deposit and the sellers counterclaimed, asserting that the realtor’s failure to do what he was supposed to do caused them damages (including interest). The realtor won.
An owner rented out a cabin on several occasions but felt he wasn’t paying the right tax. He wanted to set up the cabin as a business and sought a legal opinion on how that would affect the property taxes. After the owner did what was suggested by the lawyer, the owner’s tax liability increased to about $3,000 per year. His lawyer had never said that would happen.
These case studies illustrate that you can’t infer what you want from what’s in a contract. You need to understand what it says.