What Is a One-Sided Contract?
A unilateral contract is an agreement that involves only one party. In other words, a unilateral contract occurs when only one person or organization must follow through with any obligations while the other does not. The more conventional type of contract – the bilateral contract – would be a transaction where both parties must fulfill requirements in order for the agreement to be valid.
The lease between a commercial unit owner and the tenant of the unit is an example of a unilateral contract. Even if the tenant pays the rent and utilities and is on time every month , there may be times that he or she will need repairs addressed and will have no say in whether the unit owner honors them. In other words, even if the tenant pays his or her rent, the unit owner may not be contractually obligated to make the necessary repairs. If the unit owner fails to make the repairs, this typically ends up being a matter for the courts to settle unless there’s a separate agreement between the parties authorizing the tenant to send a certain number of repair requests before the unit owner has to handle repairs.
One-Sided Contracts In the Real Estate Market
Unilateral contracts have a few different applications in the real estate realm, the most common of which is the real estate option. Particularly in commercial real estate, the option is an important instrument that enables a potential tenant to lock in rental rates and/or purchase price. In addition, it serves as a useful tool for property owners to gauge whether there is genuine interest in a specific piece of real estate. Even though they are relatively easy to create, these agreements should be executed with care, as they can lock the owner into a financially disadvantageous situation for many years. Real estate options are an example of how unilateral contracts are used in most situations. A unilateral contract is one in which only one party is obligated to perform, and the party that is not obligated is under no such binding contract. The aforementioned real estate option is a prime example of this type of contract. The owner agrees to grant exclusive rights to the buyer to negotiate a deal over the following few months, unable to negotiate with any other party over the same space. If a deal is made, the option is void, and if it does not, the owner is free to negotiate with anyone else as they wish. Open listings and exclusive listings are two other examples of how unilateral contracts are used in the real estate industry. In the case of an open listing, multiple brokers are invited to sell a piece of a real estate. The seller does not pay the brokers until the deal is done, at which point the commission is split between them. In contrast, exclusive listings provide more flexibility for the seller. However, it also reduces the number of agents who can sell the property. The seller has to commit to working with this specific broker for a certain period of time, usually six months to a year. The owner also pays this broker a commission, regardless of whether the deal is made through them or by another agent. Exclusive listings are sometimes attractive to sellers because the commissions are generally lower than they would be if the seller used an open listing.
What Are the Legal Consequences of a One-Sided Contract?
The legal enforceability of a unilateral contract can be a point of contention between the involved parties. Due to their nature, these contracts require parties to have the capacity to contract to be valid, meaning able to understand the nature of the contract and commit to its terms. The concept of undue influence can also play a hand in the enforceability of a contract. If a party has the ability to undo the commitments of another, such as in the case of a broker removing the sale conditions of a real estate contract, that person becomes subject to undue influence of the party to which they exhibit a vulnerable position to.
When it comes to real estate in particular, there are various clauses often used in these types of contracts such as: "as is where is" which denotes that the buyer taking possession of the property agrees to do or forget any repairs or remediation of building aspects, "all offers irrevocable until some time" which essentially means that the offer is open to negotiations until a specific point in time past which it would become void, and "Time is of the Essence" which is indicated when time limits are critical and may be used to terminate and relieve parties from offer commitments should the terms not be completed in the specified timeframe.
In addition to these clauses, due to a generalized interest in fairness, the law has insisted that contracts be fair in their terms, and not act in a way that oppresses any of the parties involved, resulting in the typical phrase "not to be unduly advantageous" being added to most contracts.
Advantages and Disadvantages of a One-Sided Contract
Pros and Cons of Using Unilateral Contracts for Real Estate Transactions
As with any contract, unilateral agreements come with both pros and cons. On the positive side, a one-sided agreement can be beneficial in certain situations. The seller might not be ready for a sale but is willing to sign an agreement stating their intent to sell within a specific timeframe. For example, if the agreement states they will sell the property in 120 days, this gives the seller enough time to get ready. They can take care of any repairs or find new housing. In this case, a unilateral contract allows the buyer more freedom to pursue other properties while being fairly certain that this particular seller will be available to negotiate at a later date.
A unilateral agreement can also be beneficial when time is of the essence. There may be many buyers vying for the same property, and a "first come, first served" strategy may be the only way for a particular buyer to land a deal. A unilateral agreement that states the property will be sold to the first person who makes a valid offer can give a buyer the edge needed to get a great property at a reasonable price. For a seller, this also gives the flexibility of time to engage in due diligence with the first buyer and negotiate for a fair price, while the agreement locks them into a deal with that buyer. Both of these scenarios may still be called "gentleman’s agreements" (they certainly don’t bear the weight of a formal contract document), but they can serve a valuable purpose and are often effective.
In spite of their potential usefulness, unilateral contracts can also carry risks, both to the buyer and the seller . For example, a contract that states the seller will sell the property only to the first buyer who makes a qualified offer could still backfire. The seller might state in the contract that they will give the first interested buyer a price only if the seller later agrees to the price. The first buyer might submit a low-ball offer; the seller, hoping to raise the offer, drags things out with the buyer for weeks until the deal falls through. Meanwhile, the seller has delayed communication with a legitimate buyer who has now moved on to another property.
This is just one example, but it goes to illustrate the kind of trouble that can break out if either party is not acting in good faith. Presume good faith and don’t enter into any sort of unilateral contract that has the potential to be manipulated. Clarifying stipulations is critical, and must be included in the contract.
A unilateral contract can also increase the risk of a lawsuit. In the previous example, suppose the lightning decree contract never states that the lowest offer will not be accepted, and one party drags the other through negotiations only to be disappointed. The aggrieved party might sue for damages, such as legal fees and the time wasted on negotiating. Finally, the biggest problem with unilateral contracts is that the unilateral nature of the agreement may prevent one party from seeking an equitable remedy. In a traditional bilateral contract, if one party breaches, the innocent party can file a lawsuit in an effort to be restored to their prior circumstances. The spur-of-the-minute deal-making that happens with unilateral contracts may not hold up in court. The best way to protect against this is to use a qualified and experienced real estate attorney.
One-Sided Contract Examples
To better understand real world applications of unilateral contracts, consider a recent case involving a developer building out a subdivision for sale. The developer decided to provide prospective buyers (for a reduced price) the option to purchase lots in the subdivision by exercising an option agreement. The developer prepared option agreements that included an option period, price for each lot, and procedures for a buyer to purchase a lot by exercising an option. Several of the proposed buyers paid the developer $100 each for an option to purchase a lot. A year later, when construction on the subdivision was complete, the prospective buyers, and the developer’s counsel, discovered that the developer’s advanced age (over 90 at the time) and bad health would prevent him from completing the construction of the subdivision. As a practical matter, the prospective buyers understood that, unless the developer found someone else to finish the subdivision and sell it to them, they were not going to get the lots for the prices stated in their options. The prospective buyers attempted to enforce their options and the developer sought relief from the court to avoid fulfilling his contracts with the prospective buyers. None of the parties were able to carry their burden to prove what was agreed to in the offered and counter-offered options. Based on the vague language in the offer and counter-offer, the court denied the sought after relief to the prospective buyers and denied the developer’s attempt to stop the sale.
Our take-away from this case is that some unilateral contracts can be dangerous. In this case, the court had to deny relief to all interested parties because none of them could meet their burden of proof regarding the contract terms that should be enforced. In this case, construction had not begun and this was a development project consisting of several lots for sale. Since the prospective buyers discharged their uzlateral contracts when they failed to get a new developer to buy the lots from the original developer, this case shows why you need to be careful when making and accepting unilateral contracts. If you are doing a project that involves many parties or many lots for sale, consider using a different form of sale in lieu of a unilateral contract on each lot.
How to Draft a One-Sided Contract When Buying Real Estate
Whether you are a buyer or seller, there are a few tips that may help you to draft a good, legally enforceable unilateral contract. Here are some suggestions:
• Make sure the contract is in writing and that no oral side agreements expire prior to the extinguishment of the written agreement. Various statutes of frauds require substantially different minimum writing requirements, so check requirements in your specific jurisdiction to ensure compliance.
• Review the statute of frauds to determine whether a certain writing may be required due to the type of property involved or the amount of the purchase. When drafting uniform contract language for many different transactions, consider preparing a standard form contract to avoid claims of error or miscommunication.
• Require definite terms such as price, item specifications, or timeframe for performance to avoid any disputes about reasonable standards where performance is not clearly defined.
• Be cautious of providing an expiration date for acceptance of the deal if such a date would benefit one party disproportionately.
• If necessary , make sure the offer is clearly marked on the signature page to avoid ambiguity as to which party is the offeror and which is the offeree.
• Make sure that the person signing the contract has authority to do so for the entity involved and to bind it to the agreement.
• Where the contract is subject to some satisfaction or performance on the part of the offeror, avoid subjective satisfaction clauses where possible such as "satisfaction with specifications" and, particularly where the offeror is a corporate entity, require objective proof of satisfaction for enforceability.
• Consider developing separate forms for executed agreements or letters of intent to avoid any claim of an unenforceable implied contract where a party asserts that the offeror is contractually bound to perform obligations under a contract where no contract was actually intended to exist.
Additionally, if the contract language may be so important to one party that it could possibly override or alter the rest of the written agreement, consider a separate provision stating the intention of the parties as to the interdependence or independence of the clauses or sections of the contract to ensure that the entire document is not rendered void and that a contract is still capable of being performed without the offensive language.