By Kiren Narayanan - 9 Nov 2023
Most people who have purchased properties are familiar with the
standard forms of agreements for sale and purchase. Section 24 of
the Property Law Act 2007 (Act) specifically says
that to sell or purchase property, a contract must be in writing
and signed. Long gone are the days of handshake agreements - or are
they?
Section 26 of the Act says that the doctrine of part performance is
not affected. Part performance is an old, equitable doctrine which
allows for "specific performance" of a contract (i.e., forces the
parties to go through with a contract) where that contract has been
partly performed when:
1. There is an oral agreement which would be enforceable but for
the Act;
2. Part performance of that agreement has happened which:
2.1 Is a step in the performance of an obligation under that oral
agreement or exercising a right under that oral agreement;
and
2.2 Which was done on the basis that a contract relating to the
land was in existence; and
3. It would be unconscionable (fraudulent in equity) to rely on the
existence of a written contract. Essentially, it would need to be
shown that a party would suffer irreversible or irreparable loss if
the agreement was not enforced.
Does this mean people need to be overly careful then, with
discussing properties with others and trying to secure properties?
The short answer is no.
We recently acted for the defendants in Khalesi v Lane in which the
sale of two properties was discussed between the plaintiffs and the
defendants and a sum of Bartercard dollars was transferred to the
defendants prior to an agreement for sale and purchase being
signed. After reviewing the draft agreement for sale and purchase,
the defendants decided not to proceed. The plaintiffs sued the
defendants under the doctrine of part performance.
The High Court held that there was no oral agreement as there was
no certainty as to the essential terms. In particular, it was not
clear who the parties were. The defendants were not aware that the
second purchaser would be the person who was portrayed as the first
purchaser's lawyer. In addition, the use of Bartercard involved
significant complications, including payment of commission to
Bartercard of 15% of the sale price which would affect the purchase
price - another essential term.
Crucially, the Court found that there was no intention to be
legally bound until a formal agreement for sale and purchase had
been drafted, approved by their solicitors and signed. The
correspondence following the initial meeting at which the
plaintiffs say an oral agreement was entered into referred to
agreements being drawn up and the defendants seeking legal advice.
The Courts have traditionally found and reaffirmed in this case,
that the general rule is that where the parties clearly intended to
execute a formal agreement for the sale and purchase of property,
it would be unreasonable to expect that the parties intended to
create legal relations before execution of that document.
So the short answer is generally - no - you usually can't buy a
property without an agreement for sale and purchase and it is only
in rare circumstances, where all essential elements of the
agreement have been orally agreed and a party acts to their
(irreversible) detriment that you can enforce an agreement for sale
and purchase which is not in writing.
If you have any questions about the enforceability of an agreement
or are the subject of a claim such as this, get in touch with our
litigation team
Section 26 of the Act says that the doctrine
of part performance is not affected. Part performance is an old,
equitable doctrine which allows for "specific performance" of a
contract (i.e., forces the parties to go through with a conract)
where that contract has been partly performed when:
1. There is an oral agreement which
would be enforceable but for the Act;
2. Part performance of that agreement
has happened which:
2.1 Is a step in
the performance of an obligation under that oral agreement or
exercising a right under that oral agreement; and
2.2
Which was done on the basis that a contract relating to the
land was in existence; and
3. It would be unconscionable (fraudulent in equity) to
rely on the existence of a written contract. Essentially, it would
need to be shown that a party would suffer irreversible or
irreparable loss if the agreement was not enforced.
Does this mean people need to be overly careful then, with
discussing properties with others and trying to secure properties?
The short answer is no.
We recently acted for the defendants in a case in which the
sale of two properties was discussed between the plaintiffs and the
defendants and a sum of Bartercard dollars was transferred to the
defendants prior to an agreement for sale and purchase being
signed. After reviewing the draft agreement for sale and purchase,
the defendants decided not to proceed. The plaintiffs sued the
defendants under the doctrine of part performance.
The High Court held that there was no oral agreement as there
was no certainty as to the essential terms. In particular, it was
not clear who the parties were. The defendants were not aware that
the second purchaser would be the person who was portrayed as the
first purchaser's lawyer. In addition, the use of Bartercard
involved significant complications, including payment of commission
to Bartercard of 15% of the sale price which would affect the
purchase price - another essential term.
Crucially, the Court found that there was no intention to
be legally bound until a formal agreement for sale and purchase had
been drafted, approved by their solicitors and signed. The
correspondence following the initial meeting at which the
plaintiffs say an oral agreement was entered into referred to
agreements being drawn up and the defendants seeking legal advice.
The Courts have traditionally found and reaffirmed in this case,
that the general rule is that where the parties
clearly intended to execute a formal agreement for the sale and
purchase of property, it would be unreasonable to expect that the
parties intended to create legal relations before execution of that
document.
So the short answer is generally - no - you usually can't buy a
property without an agreement for sale and purchase and it is only
in rare circumstances, where all essential elements of the
agreement have been orally agreed and a party acts to their
(irreversible) detriment that you can enforce an agreement for sale
and purchase which is not in writing.
If you have any questions about the enforceability of an
agreement or are the subject of a claim such as this, get in touch
with our litigation team.
Contact
Kiren
Narayan