Closing a real estate transaction can be a difficult process. One or more of the parties may change their minds or try to sabotage the deal for various reasons. Trying to negotiate, even with a formerly trusted business associate or partner, may become an agonizing fiasco. In such a situation, the services of an experienced real estate attorney are invaluable to assure a successful closing.
The Supreme Judicial Court of Massachusetts, in the case of K.G.M. Custom Homes, Inc. vs. Stephen J. Prosky & others, No. SJC-11449, on May 29, 2014, issued a decision to try to remedy an unraveled real estate development deal. The main issue the court had to sort out was the proper damages for the aggrieved party, since there was no way to salvage the actual deal itself.
The Proskys are three siblings who own a fairly large piece of undeveloped land in Norton. In 1999, they talked to their real estate broker, David Joyce, about the possibility of selling the land to a developer. He suggested the property might be attractive to someone who wanted to build affordable housing. The broker referred the Proskys to K.G.M., a husband and wife real estate development company.
The Proskys and K.G.M. drafted and signed a purchase and sale agreement for the Proskys to sell K.G.M. three lots. The sale price would be based on how many buildable housing lots could be approved and permitted. K.G.M. would be responsible for obtaining the permits and approval from local officials and agencies to develop the lots for residential housing. The sale was set to close within 21 days after receipt of final approvals and after the expiration of any appeal deadlines.
For some unknown reason, the attorney representing the Proskys advised K.G.M. falsely that a higher offer for the property had been proffered to the Proskys. In addition, the Proskys’ attorney withheld information before the closing and then arrived with a videographer and refused to permit the attorney for K.G.M. to actually handle the closing documents, holding them up several feet away and demanding that the lawyer read them from a distance. The trial judge later characterized the Proskys’ attorney as “taunting” the K.G.M. attorney, guaranteeing that the development agreement deal would not close. The Proskys’ attorney then advised K.G.M.’s attorney to tell his clients to prepare a demand for liquidated damages, a remedy provided by the sale contract.
K.G.M. filed suit for specific performance, that is, for the Proskys to sell them the lots as they had initially agreed to do, for $725,000. The superior court judge concluded that the Proskys, through the actions of their attorney, anticipatorily repudiated the agreement, which means they violated the contract even before it had begun to be executed. This would ordinarily entitle them only to liquidated damages as provided by the contract. However, the trial judge ruled that the Proskys’ attorney had also committed an actual breach of the implied covenant of good faith and fair dealing. This principle requires that neither party to a contract do anything to prevent the other party from realizing the benefits of that contract. By his actions at the closing, the attorney prevented the deal from closing so that K.G.M. had no hope of obtaining the property they had negotiated to buy from the Proskys.
The trial court, because of the actual breach of contract, gave K.G.M. the option to choose either liquidated damages, as provided by the contract, or specific performance. K.G.M. chose liquidated damages, and the court awarded K.G.M. $495,483.66, which included permitting costs they had incurred, as well as attorney’s fees both before and after the lawsuit. The Proskys appealed, contending that they did not commit an actual breach, and therefore, monetary damages were not available.
The Supreme Court affirmed the trial court’s ruling, holding that the trial judge did not err in finding an actual breach by the Proskys, due to their attorney’s sabotaging the closing, and therefore the judge’s decision offering K.G.M. a choice of remedy was proper. This is a sad instance where an attorney prevented a real estate transaction from coming to fruition and exposed his clients to financial losses.
As experienced Massachusetts real estate attorneys, Pulgini & Norton can help you with all of your real estate legal needs. If you have a question regarding your property rights, give us a call today at 781-843-2200 or contact our office online, and we can help legally clear the way for you.
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