This legal doctrine alters the ownership interests in real estate undergoing a sale. Once a valid, enforceable contract for sale is executed, the buyer gains equitable title, holding the beneficial interest in the property, while the seller retains legal title, primarily as security for the purchase price. For instance, if a fire destroys a property after the contract but before the closing, under this principle, the buyer bears the risk, not the seller. This illustrates a shift in the perception of ownership before the formal transfer of the deed.
The concept developed to address fairness and risk allocation during the often lengthy period between contract and closing. It prevents unfair outcomes and provides clarity regarding responsibilities and ownership interests. Historically, land held significant importance, and this doctrine provided a necessary framework for managing ownership transitions. Its continued relevance ensures the smooth operation of real estate transactions, protecting both buyers and sellers by allocating risks and benefits appropriately.
