Legal Question in Business Law in Michigan

Re: What happens if the new business owner breaks the land contract?

The answer to this question will depend upon the terms of your agreement. Under contract law, the terms of the contract govern your rights and obligations. Accordingly, if an agreement already has been signed, your ability to retain any deposit the buyer has made will depend upon whether the terms of the agreement give you that right. If the deposit is being held by a third party, such as a broker, then you must also look to the written terms of the agreement with the broker. In most situations, the broker's agreement will be tied to the terms of the purchase agreement.

If no agreement has yet been executed, then terms may be included which provide the seller with the right to retain a deposit if the buyer does not complete the transaction. Your inquiry suggests that a land contract still must be drafted and executed by the parties. The land contract could be drafted to include a provision for the downpayment to be retained in the event of a breach by the buyer.

It should be noted, however, that Michigan law does not favor a "forfeiture", inasmuch as it suggests that one party is "getting something for nothing". Instead, a contract provision to allow the seller to retain the deposit might be based upon some prospective loss to the seller if the buyer does not complete the sale, so that the deposit is compensation to the seller.

There are additional issues which may affect your rights and obligations under the transaction as it has been described. This response is not intended as legal advice. Your rights and obligations will depend upon the particular facts and circumstances affecting this matter. You should consult an attorney in your area to discuss all of the relevant facts and circumstances. No attorney/client relationship is created as a result of this response. I may be contacted at 248.788.8225, to discuss this or other legal matters.