Verbal Agreements – The Property Perspective

“A verbal contract isn't worth the paper it's written on” (Samuel Goldwyn)

A recent High Court judgment is yet another reminder of how essential it is to comply with all necessary formalities when entering into any sort of agreement, particularly when dealing with the sale of property.

A fight over eviction and a property transfer attack

1. A property was transferred to a buyer in terms of a sale agreement in 2015.
   


2. The occupants of the property refused to vacate, and when the new owner applied for their eviction, they alleged that in 2007 they had verbally agreed with the original owners that, upon finalisation of several specified issues, they would enter into a formal agreement of sale to purchase the property.
   


3. They therefore asked not only for the eviction application to be dismissed, but also for the 2015 sale and transfer to the new owner to be set aside in order to transfer the property to their own nominated family trust.

What the Court said

• Any such verbal contract would, held the Court, be an “agreement to agree” which in our law certainly can be valid and binding, but generally only if it complies with all the formal and other requirements for validity applying to the “main” contract that they have agreed to enter into.  
  


• The occupants’ problem was that a verbal agreement for the sale of immovable property cannot be valid, because this is one of the few classes of agreement which our law requires to be (a) in writing and (b) signed by both seller and buyer “or by their agents acting on their written authority”.
  


• The occupants were accordingly given 15 days to leave the property, and the original sale and transfer remain in place. 

Three things to bear in mind

1. Remember that in our law you will usually be bound by what you agree to verbally; property sales are one of only a few specific exceptions to that principle. 
   
   
   
   But as a general rule verbal contracts are best avoided.  They are a recipe for misunderstanding and dispute because people tend to hear only what they want to hear, and to then convince themselves that their memory is better than yours.  Worse, a dishonest opponent will have more wriggle room to get out of your agreement.  Rather have everything recorded in black and white, and signed.
   


2. Also tread carefully around “agree to agree” scenarios.  Our case law is full of costly disputes over “letter of intent” and “let’s agree now to enter into a full contract later” cases.
   


3. In particular, if you are about to embark on any form of property transaction, the lesson is, as always, to seek legal help before you agree to anything.  There’s usually a lot at stake when property’s involved, and many pitfalls for the unwary.

August Newsletter