Key Takeaways

  • A property contract refers to any legally binding agreement involving the transfer, lease, or use of property, whether real or intellectual.
  • Contracts must meet essential elements such as offer, acceptance, consideration, and legality to be enforceable.
  • Real estate contracts include various types, such as purchase agreements, lease agreements, and land contracts.
  • Each party has distinct responsibilities, including due diligence, disclosure obligations, and ensuring clear title.
  • Breach of contract can lead to remedies such as monetary damages or specific performance.
  • Automation tools are becoming popular for creating standardized, error-free property contracts.
  • Brokers, legal professionals, and clear documentation play vital roles in the property transaction process.

Property contracts are agreements made during the sale or lease of real estate and other items. Among the many types of property contracts are land contracts, real estate contracts, intellectual property contracts, lease agreements, bills of sale, and loan agreements. 

Land Contracts

A land contract is an agreement made by a real estate seller and buyer when buying on loan. The contract stipulates how a buyer will make payments until the full price is completed. When a land contract is signed, the title of the property is kept by the seller and is only handed over to the buyer after satisfaction of all terms of the contract, including payments.

Land contracts offer several benefits. A buyer who cannot get a mortgage because of poor credit history is able to buy real estate by making direct monthly payments. 

Land contracts also benefit sellers in the following ways:

  • Access to more buyers
  • Potential to earn more by asking for a higher purchase price
  • Ability to keep both the property and money already paid if the buyer fails to complete payments

After the land contract is signed, the seller retains the legal title of the property until all payments have been made. The buyer, however, is considered to have an “equitable title” to the property, and the seller is prohibited from selling off the property to a third party.

Legal Requirements for Enforceability

For any property contract to be legally enforceable, it must meet key criteria:

  • Offer and acceptance: A clear offer by one party and an unequivocal acceptance by the other.
  • Consideration: Something of value exchanged between parties (typically money for property).
  • Capacity: Both parties must have the legal capacity to enter into a contract.
  • Legal purpose: The contract must pertain to a lawful objective.
  • Written form (in most real estate cases): Due to the Statute of Frauds, contracts involving the sale of real estate must be in writing and signed by both parties.

Failure to meet these elements can render a contract void or unenforceable.

Contracts for Sale of Real Estate

A real estate sale contract is signed when real estate is being sold to another party. Real estate transfers fall under the Statute of Frauds, a law that requires some contracts to be in writing. 

The sale of real property follows these steps:

  1. Signing of the contract of sale
  2. Closing

It is after closing that the deed is transferred to the buyer. An ideal real estate purchase contract should have the following details:

  • The buyer's and the seller's names
  • The property details
  • The pricing and financing details
  • Closing and possession dates
  • Insurance details
  • Conflict resolution procedures
  • Termination options

The buyer normally deposits an amount called “earnest money” with a third party to show his intention to buy. This amount is refunded if the deal falls through. 

Types of Real Estate Contracts

In addition to the typical purchase agreement, real estate transactions may involve a variety of contracts:

  • Option contracts: Give one party the exclusive right to purchase the property within a specified time frame.
  • Lease-to-own contracts: Allow a tenant to rent with the option to buy later, often applying a portion of rent toward the purchase.
  • Contingency contracts: Include specific conditions that must be met (e.g., financing approval, home inspection).

Each type serves a unique function depending on the transaction's structure and needs.

The Role of Brokers

Many property sellers hire brokers to find buyers. The broker is paid a flat fee or a commission, typically 6 percent of the sale price. The law in some states requires hired brokers to be paid even if the seller changes his mind or sells through other avenues. 

Responsibilities of Parties in Property Contracts

Both buyers and sellers have important duties to fulfill:

  • Buyers must conduct due diligence, including inspections and financing arrangements.
  • Sellers must disclose known material defects and provide a marketable title.
  • Both parties should negotiate terms transparently and follow timelines stipulated in the agreement.

Additionally, parties may include provisions for dispute resolution, contingencies, and inspection rights to safeguard their interests.

The Seller's Obligation to Present Marketable Title

The seller has an obligation to give the buyer “marketable” title. Such a title is free from contention and doubt. A title that is unmarketable, on the other hand, has a chance of causing financial loss to the buyer. A seller conveys a marketable title by either showing the complete history of transfer of the title or demonstrating that he got the right to own the property through court action. 

Contingencies and Disclosures in Property Contracts

Real estate contracts often include:

  • Contingencies, such as appraisal, financing, title clearance, and inspection.
  • Seller disclosures about known structural issues, environmental hazards, or legal encumbrances.

Failure to meet contingencies or disclose issues may allow the other party to terminate the contract without penalty.

Breach of Real Estate Contracts

In some states, the law requires a seller to complete a disclosure form before the sale. The sale contract can be voided if the seller deliberately withholds details about the property.

Unlike most other breach-of-contract situations, which courts settle by awarding monetary damages, courts consider pieces of land unique and can force a seller who breached the contract to hand over the land to the aggrieved buyer.

Legal Remedies and Dispute Resolution

When a property contract is breached, several legal remedies may apply:

  • Specific performance: The court may compel the breaching party to complete the transaction.
  • Monetary damages: Compensation for losses incurred due to the breach.
  • Contract rescission: Canceling the agreement and returning parties to their original positions.

Contracts often include dispute resolution clauses requiring mediation, arbitration, or litigation as the first step when a disagreement arises.

Intellectual Property Contracts

There are two major types of intellectual property: licenses and assignments.

  • Assignment: An assignment of intellectual property involves the transfer of ownership of intellectual property.
  • License: A license of intellectual property rights gives another party rights to do specific things with the property.

Intellectual property contracts are always done in writing and must have the following details: 

  • The definition of the property
  • Any warranties and indemnities given by the owner
  • Any circumstances under which the license may be canceled or the rights reverted
  • How moral rights will be treated

Common Clauses in Intellectual Property Contracts

To ensure clarity and enforceability, intellectual property contracts often include:

  • Grant of rights: Specifies whether rights are exclusive or non-exclusive.
  • Scope and duration: Defines geographic limits and the time period of the agreement.
  • Payment terms: Details regarding royalties, lump sums, or milestone payments.
  • Confidentiality: Obligations to maintain secrecy over sensitive information.
  • Termination conditions: Outlines how and when the contract can be ended.

These clauses help protect both the creator’s rights and the licensee’s usage expectations.

Other Types of Property Contracts

  • Residential lease agreements: These are contracts made between a residential tenant and the landlord. They state the terms of the tenancy.
  • Commercial lease agreements: These are similar to residential lease agreements but are made by landlords and tenants of commercial properties.
  • Loan agreements: A loan agreement is signed by a lender and borrower. It records the terms and conditions of the loan, including the repayment plan.
  • Bill of sale: A bill of sale records a transaction between a seller and buyer. It is signed by a buyer and a seller when the seller transfers property to another party.

Automating Property Contract Drafting

With the rise of legal tech, many parties now use contract automation tools to draft property contracts. These tools help:

  • Minimize human error
  • Save time with pre-filled templates
  • Ensure compliance with legal standards
  • Enable faster negotiations and e-signatures

While automation offers efficiency, it's still wise to consult an attorney, especially for complex or high-value agreements.

Frequently Asked Questions

1. What is a property contract? A property contract is a legally binding agreement concerning the ownership, lease, or transfer of real or intellectual property.

2. Do all property contracts need to be in writing? Real estate contracts must be in writing under the Statute of Frauds. Other types, like some lease or loan agreements, may be oral depending on jurisdiction and duration.

3. What happens if a seller doesn’t disclose a property defect? Failure to disclose material defects can result in the buyer canceling the deal or suing for damages after purchase.

4. Can a property contract include contingencies? Yes, common contingencies include obtaining financing, satisfactory inspections, or the sale of another property.

5. How can I create a legally sound property contract? Use vetted templates, consider automation software, and consult a licensed attorney to tailor the agreement to your needs. You can find experienced attorneys on UpCounsel to assist with property contracts.

If you need help with property contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.