Executory Contracts

Executory Contract Real Estate

Any contract in which the terms are set to be fully performed at a later date is an executory contract. Some examples of executory contracts include real estate deeds, development contracts, car lease, rental lease and more. In Texas, any contract that takes longer than 180 days is an executory contract. Both parties that enter into an executory contract have duties that they must perform until the full execution of the contract.

Can An Executory Contract Be A Verbal/Oral Agreement?

Executory ContractsExecutory contracts must be in writing and must be signed by the parties that enter into the agreement. This is the only way the agreement can be enforceable. In fact, any oral agreement that is not in writing is difficult to enforce. The reason for this is that you have to prove the existence of a contract in order to enforce that contract. All you need to prove that a written contract exists is the original document with the signatures of the parties involved. There are some oral or verbal agreements that can be enforced. For example, if you have witnesses or other evidence that support the existence of an agreement, then the oral agreement you entered can be enforced.

 Uses For Executory Contracts

The following are some of the uses f executory contracts

  • Car lease: A car dealership provides a vehicle to a consumer that is making payment to the dealership. The consumer can either return the vehicle at the end of the lease period or buy the car.
  • Rental lease: A landlord provides a house or space and the consumer pays for use of the property for the time set in the contract.
  • Equipment lease: A borrower pays rent to use the equipment for a set time and the renter provides the equipment.
  • Intellectual property license: The owner of the intellectual property allows a party to use the intellectual property within the licensing scope.
  • Development contract: A contractor and client enter into an agreement where the contractor performs certain duties for the client.

Residential lease agreements combined with an option to purchase real property is generally considered an executory contract for the conveyance of real property.

Validity Of An Executory Contract In Real Estate

In a real estate situation, a contact can only be valid if the seller provides required documents and disclosures to the buyer. If the seller fails to do this, the seller faces heavy penalties because the law vies that failure as a deceptive act or practice. The law actually allows the buyer to cancel and rescind the executory contract in this situation and demand for a full refund of all payments made to the seller. This includes the down payment plus any money spent by the buyer on any permanent improvements to the property. The law also required the buyer to “restore to the seller the value of the buyer’s occupation of the property” after cancelling the executory contract. The buyer has the right to cancel the executory contract for any reason within 14 days. 

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