ACG Pecan Creek, LLC V. Orloff, (Texas CT.APP.May 2022)
Background: Buyer agreed to buy a commercial property in Austin Texas for $3,100,000. Before closing, Seller discovered that a prepayment penalty on Seller’s underlying loan would be $630,000 at closing to release. Seller had contracted for sale based on an understanding that the payoff would be $80,000. Seller refused to close asserting the massive payoff made the contract unconscionable and claimed mutual mistake by the parties. Buyer immediately sued for breach and specific performance. Seller defends on basis that Buyer also breached an unrelated contract provision.
Evidence: The facts indicate that the massive payoff amount was because of a prior unilateral action of the lender that Seller was not aware of. Buyer became aware of the issue but refused to release the contract. The contract included a requirement to mediate in the event of a dispute before filing litigation. Buyer did not attempt to mediate and rather sued immediately on Seller’s failure to close. Seller asserts that Buyer’s breach of not mediating was a mutual breach and thus barred Buyer’s remedy of specific performance.
Court Ruling: Court found that it is a general rule of equity jurisprudence that a party must show that he has complied with his obligations under the contract to be entitled to specific performance. Therefore, a party cannot obtain specific performance of a contract without performing an express, specific, non-ambiguous obligation (mediation before litigation) required of him by the contract. Because Buyer offered no evidence that he made any attempt to comply with the provisions of the contract requiring mediation before litigation, he has failed to establish entitlement to specific performance relief. Seller wins (in defeating a specific performance remedy).
JBRICE Holdings, LLC V. Wilcrest Walk Townhomes ASS’N Inc., (Texas Supreme Court, April 2022)
Background: Corporate Owner purchased two townhomes in the Wilcrest Walk subdivision in Houston, and then offered the townhomes for lease on a vacation rental website for short-term rentals. Homeowners Association (HOA) demanded Owner to cease and desist and claimed the neighborhood covenants prohibited short-term vacation rentals, such as on basis as a commercial business.
Evidence: The covenants did discuss leasing. They included provisions of the covenants; and that any failure by the lease to comply with the terms and conditions of such documents shall be a default under such leases. And, other than the foregoing, there shall be no restrictions on the right of any townhouse owner to lease his unit. But another covenant limits townhome occupancy to “private single-family residences for the Owner, his family, guests, and tenants,” and it forbids commercial uses. No building shall be used or occupied for any business, commercial, trade, or professional purposes, apart from or in connection with the use thereof as a residence. The HOA adopted rules forbidding townhome rentals that would require an owner to remit state hotel tax, effectively banning rentals of fewer than thirty days.
Court Ruling: The Court finds no distinction in the covenants as to short-term or long-term leasing, among the provision that allows for residential leasing, and further finds that none impose a minimum lease term. The Court rules: “In interpreting covenants, courts do not extrapolate restrictions beyond those to which the owners agreed.” Further, because the HOA’s newly adopted rule conflicted with the covenants of record, the HOA did not have the authority to create the new rule. Owner wins - but Court reminds HOA that it does have the right to amend covenants if they can find 75% to agree.
Birch Prop. Partners, LLC V. Simpson, (Georgia.CT.APP., June 2022)
Background: In April 2016, a Builder and Buyer entered into a contract for the construction of a home for $326,324. Buyer moved in December 2016 and soon submitted a punch list to Builder in January 2017. Builder responded “Got it. I will get these items scheduled and let you know when.” In April 2017, after no repairs had been done, Buyer hired an engineer to inspect the home. The engineer detailed extensive defects and code violations in a lengthy report. Efforts to resolve failed and Buyer sued Builder for breach of contract, breach of warranty, and negligent construction.
Evidence: Based on the engineer’s report, a different contractor testified that it would cost $216,798 to make all repairs. The Builder testified that all necessary repairs could be done for $15,000. While clear that there were problems needing to be addressed, the parties could not agree on the amount needed to fix it all. Buyer refused to allow Builder to come and make repairs and insisted on a cash settlement. Builder refused.
Court Ruling: Builder argued to Court that any award should be based on the difference in the fair market value of the house as contracted compared to as constructed. Trial Court disagreed and awarded $156,620 damages and $21,700 attorney fees. Appeal Court rules that trial courts are given wide latitude in determining damages, that “ as a general rule, damages for defective construction are determined by measuring the cost of repairing or restoring the damage”, and that proof of the cost of repair is more likely to represent the true damage suffered that would the opinion of an expert as to the difference in home condition values. Buyer wins. Judgment affirmed (for a total amount that is over half of the contract price of the new house).