Contract Law: Contractual Tools in Property Law

The interplay between contract law and property law is both fascinating and crucial for professionals navigating the fields of real estate, intellectual property, and beyond. Understanding this relationship not only empowers legal practitioners but also entrepreneurs, investors, and anyone involved in the drafting, negotiating, or executing of contracts related to property.

Property law addresses the rules and statutory requirements related to the ownership and transfer of property. This can include real property, like land and buildings, and personal property—both tangible items like goods and intangible ones like intellectual property rights.

Contract law governs how agreements between parties are formed, interpreted, and enforced. It's the backbone of commercial dealings, ensuring that parties can rely on the commitments they make to each other. Contracts can range from simple purchase agreements to complex multi-party joint ventures, each with its nuances and legal requirements.

This post explores how contract law and property law work together and the different ways they interact.

Common Property-Related Provisions in Contracts

Contracts are often used to set the terms and record the understanding of property transactions. These include the sale of property, restrictions on the use of property, the lease of property and more. However, the rules of property law differ in specific ways from the rules of contract law. You can especially see this when the eternal nature of property meets contractual obligations in breach of contract.

Sale and Purchase Agreements and Penalties Such as Specific Performance

Under the Statute of Frauds, most states require purchase and sale agreements for real estate to be in writing. This makes their contractual nature easy to see. This document finalizes the terms and conditions of the sale and memorializes the rights and obligations of the contracting parties. It also lays out the terms and conditions that apply after they sign the document but before they complete the sale. Realtors and attorneys are careful when drawing up contracts to cover most contingencies. If the matter goes to court over breach of contract, the parties may be required to perform their contractual obligations, including specific performance, if that remedy is suitable in the circumstances. “Specific performance” means that a judge orders the parties to complete the sale under the terms they agreed to in the purchase and sale agreement, even if one of the parties no longer wants to.¹

Property Use and Restrictions

Parties often contract for property use and restrictions on it. Deeds record these non-possessory interests as restrictive covenants. These restrictions are often either written into deeds or memorialized in a separate document that is referred to in the deed. Then, when the deed is recorded in the county real estate records, everyone can see what private restrictions apply to the property.

Covenants, such as home color restrictions and landscape requirements, are listed in homeowners association documents as contractual obligations. The contract may list specific performance as the remedy, and your client may have to repaint their house or re-landscape their yard.

Another type of restriction that should be referenced in a deed is easements (which may, for example, allow another party a pathway through your property, such as a utility company running electric lines to your house). Easements may originally have been negotiated in a quasi-contractual way but they take the form of an interest in property. Similarly, a deed may reference a lien, which is a legal claim to property based on a loan the property owner took out. These limitations as well as others may be referenced in the deed.

Changing or eliminating deed restrictions is difficult to nearly impossible. A few will expire over time, but most will not. The seller has to disclose deed restrictions as part of the sales contract, and the buyer should look over them carefully.² These restrictions can outlive the parties who originally signed the contract, and as such, they become subject to property law and are not simply contracts.³

Landlord-Tenant Contracts and Lease Terms

Leases, whether for residential or commercial uses, are a specific type of contract that grants a right to use and possess real estate for a specific use for a limited time period. Leases are contracts, contractual obligations, between landlords and tenants that set the terms upon which the parties share the property. Common residential lease terms include the names of all the parties leasing the property, limits on occupancy, term of the tenancy, rent, deposits and fees, repairs and maintenance, entry to rental property, restrictions on tenant illegal activity and pet clauses.⁴ Commercial lease terms can also include exclusive use, improvements, taxes, covenants, obligation to repair, transfer structure (how the lease can be transferred if you want to leave the space before the lease is up), and personal exposure.⁵

Key Considerations for Property Law in Contracts Avoiding Breach of Contract

Because property and contract law interweave, professionals who work in these areas must be at the top of their game when examining sales and purchase agreements, leases, and land-use restrictions. Anything less could lead to contract disputes and potential breach of contract.

Legal Counsel and Contract Review

During the process of selling or buying a home, a real estate attorney works for the seller or the buyer, but not both. Some states even require parties to use an attorney. During real estate transactions, lawyers can draft and complete contracts, write amendments to standard contracts, complete title searches, and conduct closings.⁶ Out of all of this, the lawyer’s most important function is to review the contract to ensure that the terms are favorable to the party they represent and that there are no surprises.

Due Diligence in Property Transactions To Avoid Contract Disputes

Legal due diligence is a process by which the contracting parties ensure they have reviewed all necessary documents and have all the information they need to decide whether to proceed to closing under the terms laid out in the purchase and sale agreement. In property transactions, this means that they have reviewed, among other documents, the deed vesting title in the seller and all the covenants and restrictions attached to it or referenced in it, including homeowners association agreements.

The due diligence period is the time between the signing of the purchase and sale agreement and the closing. This is the time for the purchaser’s team to verify the condition of the property and the condition of the title. This is the time for inspections, title checks, appraisals, and surveys.⁷ If the purchaser’s team comes across any serious problems, they may wish to renegotiate the terms of the deal or to walk away from the purchase completely.

Regulatory Compliance and Zoning Laws in Assignment of Contract Rights

The property will also have to comply with all zoning laws and other regulations that apply to the property based on its location. Zoning may affect a client’s plans if they want to run a business from home, add a mother-in-law suite to their garage or even park an RV in their driveway.⁸

Elevate Your Legal Career With an Online Master of Studies in Law

The intricate dance between contract law and property law underscores the complexity of legal dealings in property transactions. A thorough understanding of the interplay of contract and property is essential for anyone involved in drafting, interpreting, or executing property-related contracts. For legal practitioners, investors, and business professionals alike, mastering this interplay is not just about preventing disputes—it’s about unlocking opportunities and facilitating seamless transactions that meet all legal requirements.

The evolving nature of both contract law and property law, driven by changes in technology, society, and the economy, means that the landscape is continually shifting. Staying abreast of these changes through dedicated study and professional growth is crucial for anyone looking to thrive in these intersecting realms of law.

If you are a professional looking to grow your understanding of the law, but not practice it as an attorney, consider the University of Pittsburgh School of Law’s Online Master of Studies in Law (MSL) program. Property and contracts are just two of the courses included in the core curriculum for the MSL program.

The Online MSL courses are completely asynchronous and taught by world-renowned Pitt Law faculty and industry experts. You will also go through the program with a cohort of like-minded professionals, which maximizes opportunities for collaboration, support, networking, and more. Set yourself apart as a leader when you choose to pair the core MSL curriculum with one of our in-demand specializations to learn what matters most to your career. Choose from Health Care Compliance, Human Resources Law, International Business Law, Corporate Compliance, and Sports, Entertainment, and Arts Law.

Schedule a call with an admissions outreach advisor to discuss how our Online MSL aligns with your goals and interests.