Determining How Long Real Estate Contracts Last

What is a Real Estate Contract?

A real estate contract is generally defined as a legally enforceable agreement between two or more persons for the purchase and sale of real property. When the word "real estate" is mentioned, it does not mean merely the land and any structures that sit on the land, but it also includes all of the rights that the owner has in the land, such as the right to sell it, the right to rent it out, etc., so a real estate contract is usually for the transfer of ownership in either all or some of the rights in the land from one person to another (the seller to the buyer) .
A basic real estate contract is usually described as having these key components:
• The legal names and addresses of each of the parties involved for the real estate contract;
• A description of the real estate involved in the transaction (this is commonly referred to as the "legal description" of the real estate);
• The date the real estate contract was entered into by the parties;
• The date by which the contract will be completed such as the date that the property is to be closed;
• The price to be paid for the transaction;
• The terms of payment indicating the full amount, payments schedule, and interest;
• How the parties will deal with circumstances where the property is encumbered by liens, utilities or tax assessments;
• What will happen if one of the parties defaults under the contract; and
• When, where and how the ownership in the land and possession of the land will be transferred.

Real Estate Contracts’ Common Duration

The duration of real estate contracts can vary, but there are some common time frames for which they are valid. A standard commercial or residential real estate sales contract is generally valid until closing. At closing, the transaction closes, and the contract expires.
In some instances, the real estate contract will specify a different expiration date, such as a 30 or 90 day period. A buyer may choose this type of contract if they are unsure whether they want a specific property. This sort of contract gives the buyer time to think about the purchase before finalization of the deal.
Many leases are considered contracts, either as part of a contract or as a stand-alone contract. In these cases, they’re usually valid for 12 months, unless otherwise specified. A more expensive lease may have a lease term of anywhere from three to five years.
Many real estate contracts also have an automatic renewal provision. In these situations, the real estate contract renews for the same duration upon expiration. Sometimes, the lease is subject to a rental increase at renewal.

Contingencies Affecting the Length of a Contract

Contingencies and Contract Validity — the Next Logical Question becomes "How Long is the Contract Term?"
So that being said, here are some important notes you’ll want to consider as it relates to the "duration" of your contract:

What contingencies, if any, can you identify in this contract? Do they give you a duty to do something within a particular period of time? For example: A Seller says "I’m going to list my house for sale and if I receive an offer within 30 days, I’m under contract to sell the house." Or, if you’re the "Buyer" and you’re going to buy the house for whatever reason it’s worth, and if the Seller can find 3 comparable houses and they think it’s worth "xyz," you’re obliged to buy "xyz" whether it’s worth more or less. That is a contingency. Or if you say "I’m going to purchase the house unless I get a 40% interest rate." Or if you say "I’m going to buy the house unless my uncle doesn’t approve of it." Any type of condition or contingency in the nature of whether or not we perform our obligations under the contract creates an uncertainty.
If we have some sort of contingency, typically the contingency is satisfied upon the performance of some act within the time specified. If we don’t perform our obligation within the stated period, or can’t because the contingency itself can’t be satisfied within the terms of the contract, the contract rights terminate.
Then, if you consider again the concept of the absolute discharge, it comes to mind that it would not require the doing of any act to satisfy the condition; that is, the performance of the obligations by the performance of a requisite act within a stated period of time, but rather would be satisfied by a default in performance of an obligation, as in such a case, the person who "defaulted" his obligations could not thereafter do anything to satisfy that obligation, once time has expired, the obligation to perform the act would be discharged.

What Happens After a Contract Expires?

When a contract on real estate expires, both the buyer and the seller have several options. If the seller has fulfilled all of his or her obligations under the contract and therefore has received the money in return for the transfer of the property to the buyer, then the contract has been completed. It is over. However, if the seller failed to receive the purchase price or complete their obligations under the contract, then the seller may consider this contract to be in default and pursue remedies under the contract. The same is true for the buyer. If the seller has performed all or most of his or her obligations under the contract and is not entitled to damages as a result of the buyer’s failure to perform, then the contract is complete. If the buyer or seller failed to perform, however, the party who can show that they have not completely performed can consider the other side to be in default and pursue remedies.
The party who has failed to perform may be liable for damages should the other party pursue that remedy. If both parties have failed to perform, each party may pursue damages against the other. Both parties can agree to renew the contract or both sides can agree to an out of court resolution to the contract dispute including a compromise. In some cases, the court may decline to enforce an expired contract if it is deemed to be inappropriate. In that case, a buyer will try to recover damages from a seller based on misrepresentation and other breaches, while a seller will try to recover damages from the buyer due to a breach of the contract. In those situations when the contract contains a provision that the contract is automatically renewed assuming that the buyer and seller have not yet closed, then the contract is probably still in existence. Sometimes, the parties can agree to extend the closing date to the new closing date. However, if neither party signed a new contract, then the previous one would be over. If the contract does not contain an automatic renewal clause, then the individual parties may have to renegotiate the contract. If one party breached the contract, the non breaching party has the right to terminate it, but is generally entitled to collect damages.

Renewing a Real Estate Contract

In some cases, a Florida real estate contract must be extended, particularly when an unforeseen delay prevents the transaction from closing on the original closing date. The parties often agree to amend the contract, changing the closing date to a date that is mutually acceptable to seller and buyer.
An extension is typically granted with no strings attached, so if you are the seller, there is really nothing left to negotiate. If there are issues, such as having to move prior to closing or not being able to close until you settle on the new property, this may be your last chance to get some concessions either in the sale contract or even in a lease back agreement. For buyers , the contract extension is an opportunity to negotiate better terms or concessions from the seller since the seller’s motivation was probably to either close the property or keep it off the market. If you have exhausted every option, such as pre-inspections, submitting an offer without contingencies, and being flexible with repairs and seller concessions, you may be able to negotiate a lower sale price since the seller must incur carrying costs during the extension period.
Remember, sellers are never obligated to extend the closing date. However, if you have signed a real estate contract and other contingencies are preventing the transaction from closing on time, you may not have a choice. Follow the example set by the seller; if the seller wants to make it happen, provide evidence that you want to proceed with the transaction.

Legal Aspects of Real Estate Contract Lengths

Under New York State law, the duration of a contract is critical. When a contract specifically states that it has a term of six months or less (it must be six months or less from the date the agreement is signed), then there is no statute of frauds requirement forcing a 2-year duration clause. If the contract has a term of more than 2 years, the statute of frauds requires that the contract must be signed and in writing or the contract can be deemed void and not enforceable in court. If a contract is not signed and in writing, a court will only enforce it if the party trying to enforce the contract can prove that the other party has performed under the contract and the other party breached it.
The above statute of frauds will also apply to the option contract with the option rights being for a six month term or less. However, if the parties agree that the option contract should be for a term of more than 2 years, then it must be signed and in writing or the statute of frauds will apply as described above. Again, same legal test to prove its terms if the party trying to enforce it can prove that the parties have performed under the contract and the other party breached it.
The length of a real estate contract is extremely important and must be reviewed carefully. A detailed review by an attorney can save significant time and money.

Real Estate Contract FAQ

I’m negotiating a real estate agreement. How long should I make the contract valid for?
The difference in quantity of contracts signed and transactions closed between inexperienced and experienced buyers and sellers is frequently due to their approaches in negotiating contract durations. Experienced buyers and sellers push for as brief contract timelines as possible, while less experienced buyers and sellers tend to arrive at the other extreme end of the scale and seek either a standard full 30 days or, even worse, leave it blank entirely.
A basic rule of thumb for contract duration is: negotiation and seller motivation. Consider how quickly the seller wants to close and tailor the duration timeframe accordingly.
One of the most typical mistakes buyers and sellers make is when they fail to agree on the contract period. Because the buyer often controls the timing of the transaction, if the seller is eager to finalize a sale as soon as possible, then the buyer should accept the contract timeline proposed by the seller. If the buyer has any intention to submit a counter-offer with a different duration, it is critical that the counter-offer deadline be stated explicitly in order to avoid an ill-timed acceptance of the offer. If you are a seller unsure whether the buyer will accept the amount of time you have proposed, consider adding a statement that provides the seller with the freedom to review and reject the offer within a defined time window.
My lender has requested additional time before closing. Is it a good idea to grant them an extension?
In some cases, extending the contract duration for a lender is appropriate. For example , if the lender is working on financing another property for the borrower, or is waiting on final approvals. In these scenarios, a 24-hour extension for a lender can make all the difference. This sort of extension is rare, however, and should not be given unless the lender has reached out to the seller requesting said extension. Like any other contract situation, however, give sellers the smallest extension timeframe you feel confident the lender can meet.
I thought that in California, there was only 30 days before a closing and that the contract had to be fulfilled within that timeframe. Is that true?
This is not true. A contract duration is, in fact, subject to negotiation and the discretion of the buyer and seller to decide. Nonetheless, even experienced sellers can get into a bidding war for a contract duration they hadn’t originally considered. In that case, it is best to consider whether the buyer has the ability to follow-through on the transaction. Being up-front with your seller about their intended date of purchase closing is crucial. Buyers tend to want a month leeway to secure their home and don’t always give sellers the same consideration. Discussing timelines up-front helps you build rapport and trust with your buyer, which can help ensure the completion of the transaction. While the timeline of real estate contracts is almost exclusively left up to buyer and seller agreement, we advise our clients to review all options before settling on a contract duration in order to ensure that they’re receiving the most favorable opportunity for themselves as possible.