Last month Division 2 of the Washington Court of Appeals upheld the proposition that a real estate purchase and sale agreement lacking specific terms is unenforceable. In 16th Street Investors LLC v. Morrison, (unpublished opinion) the court found the PSA did not create a legal obligation for the seller to sell, but rather an agreement to agree, and in doing so reversed the trial court’s decision ordering specific performance of the contract.

This case involved the proposed sale of redevelopment property in downtown Vancouver, Washington. The property was one of several acquired by a speculator and promoter of a revitalized downtown Vancouver. As part of the sale Mr. Morrison wanted an option to purchase a condominium in the redeveloped property if there was a residential component.

The buyer and seller executed a purchase agreement. The buyers completed their due diligence and ordered the closing agent to prepare closing documents. Upon examination, Mr. Morrison felt that the language granting his right to purchase a condominium was unacceptable. He refused to close. The buyer’s sued and the trial court ordered specific performance. Mr. Morrison appealed the trial court’s decision.

The Court of Appeals examined the essential terms of a real estate contract, stating that they generally include the “subject matter of the agreement, the consideration and terms of payment.” Hubbell v. Ward, 40 Wn.2d 779, 787, 246 P.2d 468 (1952). When a contract contains all of the material and essential terms of a future contract such that a court can ascertain what the parties must do to constitute performance, then the court may order specific performance. Hubbell, 40 Wn.2d 787.

The Hubbell court separately enumerated 13 specific material factors in a real estate contract (involving structures, not just land): (a) time and manner for transferring title; (b) procedure for declaring forfeiture; (c) allocation of risk with respect to damage or destruction; (d) insurance provisions; (e) responsibility for: (i) taxes, (ii) repairs, and (iii) water and utilities; (f) restrictions, if any, on: (i) capital improvements, (ii) liens, (iii) removal or replacement of personal property, and (iv) types of use; (g) time and place for monthly payments; and (h) indemnification provisions. Hubbell, 40 Wn.2d at 782-83; Kruse v. Hemp, 121 Wn.2d 715, 722, 853 P.2d 1373 (1993).

The court found that the purchase and sale agreement proposed by Morrison contained all of the material elements. However, the court found that a memorandum attached the PSA expressing Morrison’s desire to purchase a condominium to be “ ‘an agreement to do something which requires a further meeting of the minds of the parties and without which it would not be complete.’ “ Keystone Land & Dev. Co. v. Xerox Corp., 152 Wn.2d 171, 175, 94 P.3d 945 (2004) (quoting Sandeman v. Sayres, 50 Wn.2d 539, 541-42, 314 P.2d 428 (1957)). Agreements to agree are unenforceable in Washington. Keystone, 152 Wn.2d at 175.

In looking at the purchase agreement with memorandum as an organic whole, the Court of Appeals decided that because one part of the agreement – the condominium carve-out – was not specific enough to determine what the parties intended, the whole contact failed.

Quite often we see terms added to a standard purchase agreement using NWMLS Form 34 Addendum/Amendment to Purchase and Sale Agreement. This case is a reminder that hastily drafting resulting in ambiguous terms can lead to an unenforceable agreement if one of the parties later decides to back out of the deal. In this case as late as after all conditions have been met and the parties are at the closing table.