American rule (property)

The American Rule, in the context of property law and real estate transactions, refers to the principle that a seller of real property has a duty to convey legal title to the buyer, but generally does not have a duty to deliver actual possession of the property unless the contract specifically requires it. In other words, the buyer is responsible for evicting any holdover tenants or other occupants after the closing.

This is in contrast to the English Rule, which places the burden of delivering actual possession on the seller.

Under the American Rule, the buyer’s remedy against a holdover tenant is to bring an eviction action directly against the tenant. The seller’s obligation is considered fulfilled once a deed conveying marketable title is delivered.

The American Rule is based on the idea that the buyer is in a better position to deal with the problem of holdover tenants, since they are now the owner of the property. It is also argued that it avoids the seller being held liable for the actions of third parties (the holdover tenants) over whom they no longer have control after the conveyance.

Many jurisdictions follow the American Rule, though some have adopted the English Rule or variations thereof, either through case law or statutory provisions. The specific language of the purchase agreement is crucial; contracts may, and often do, specify which rule applies or contain clauses that modify the default rule. Buyers and sellers should be aware of the prevailing rule in their jurisdiction and ensure that the purchase agreement reflects their intentions regarding the delivery of possession.

The legal basis for the American Rule often rests on principles of contract law and property rights, emphasizing the transfer of title as the primary obligation of the seller. Disputes involving holdover tenants can be complex and may involve litigation, underscoring the importance of clear contractual terms and legal counsel.