DAVID J. WILLIS
Attorney at Law
363 N. Beltway 8 Suite 1100
Houston, TX 77060
Tel. (713) 6213100
Fax (281) 8209310
LoneStarLandLaw@aol.com
EXECUTORY CONTRACTS
WHAT ARE THEY AND WHY ARE THEY A PROBLEM FOR
INVESTORS?
By David J. Willis
Attorney at Law
By now, most investors know that new provisions of the Texas Property Code (Sec.
5.062 et seq.) went into effect September 1, 2005 and that leaseoptions are now defined to be
“executory contracts.” But what exactly is an executory contract and why should we worry
about it?
Executory contracts include any transaction that defers some action by either party that
pertains to ownership or possession of real property into the future. Think of it this way: an
“executed” contract is one that is fully performed today. It is done, finished. An “executory”
contract, on the other hand, leaves something dangling. Usually the dangling item is the most
important item of all, namely, who owns the property and when do they get the deed?
In a typical executory contract (such as a contract for deed) one party (the seller) holds
“legal title” to the property. This usually means he has a deed to the property in his name. The
other party (the buyer) holds “equitable title,” meaning that he has only an equitable right to
receive legal title at some time in the future. This arrangement gives an advantage to the seller,
because enforcement of “equitable rights” by a purchaser generally involves filing suit and
asking that one’s equitable rights be recognized and enforced a cumbersome and expensive
process at best.
Unscrupulous investors used this situation to their advantage. They disregarded the
buyer’s equitable rights, representing to Justices of the Peace that such buyers were ordinary
tenants when they were not, obtaining evictions for minor defaults, and often confiscating large
down payments in the process. The investor was