Definition
This clause specifies which state's laws apply to interpreting and enforcing the contract. Real estate contracts typically specify the property state's law.
Not sure where this fits?
Answer a few questions and we’ll open the path that fits, at the right step.
Find my pathAbout this term
Governing law clauses specify which state law controls. Most real estate contracts specify the state where property is located (makes sense—that state's property law applies). Importance increases when parties are from different states: contract disputes are resolved under specified law, not each party's home state law. Example: New York buyer purchases property in California; if contract specifies California law, disputes are resolved under California law. Governing law differs from venue (where lawsuit occurs). Related clause: choice of venue. Governing law clauses allow predictability: parties know which laws apply. Without clause, courts must determine applicable law (often disputed). Governing law typically favors party whose home state law is chosen—parties negotiate over choice when possible. In real estate, property state law is almost always governing law.
Pro Tip
Verify governing law clause specifies property state. This ensures state property law controls.
Example
Contract includes: 'This agreement governed by laws of State of California.' Disputes are resolved under California law, regardless of where parties live.