New York's highest Court ruled on March 21, 2013 on an issue that matters to all real estate professionals - PAY ATTENTION
In White v. Farrell, the Court answered the issue of "the measure of a seller's damages for a buyer's breach of a contract to sell real property".
The Court ruled: "the measure of damages is the difference, if any, between the contract price and the fair market value of the property at the time of the breach".
PAY ATTENTION: The Court expressly set the time for damages at the time of breach, not at the time of resale. Additionally, the Court said that the degree that the resale price should play on a determination of damages is determined by how long after the breach that the property was resold.
New York now expressly utilizes the Time-of-the-breach rule as the measure of damages. While its excellent that the law is now clear, be mindful that ascertaining the fair market value at the time of the breach is a question of fact for a jury, unless the property was immediately sold at arms length at the time of the breach. Therefore, in this situation, both the seller and the buyer will want to retain expert appraisers to demonstrate their position with respect to fair market value at the time of the breach.
Alternatively, its suggested that a liquidated damages clause is utilized and avoids this dispute altogether - so - make sure that the contract of sale is drafted properly and spells out the damage in the case of breach.