The purchase of a family home is usually the largest purchase that you will make in your lifetime. It should therefore come as no surprise that there are strict laws regarding how properties may be purchased and sold to help prevent properties fraudulent transactions. One of these laws is that contracts for the sale of property must be in writing and signed by the seller (the “vendor”).
However, there are times where a property may be validly sold without a written contract, on the basis of an oral agreement.
This blog explains how an oral contract for the sale of property may be enforced and discusses a recent decision of the NSW Supreme Court on this issue.
Background
The primary purpose behind the requirement for written contracts is to both prevent the fraudulent sale and purchase of properties and/or minimise the likelihood of a dispute arising about the terms of an oral agreement. In broad terms, the equitable doctrine of part performance was developed in an attempt to address these issues.
In the case of oral or unsigned contracts for the sale of land, the agreement may be enforceable by the Courts under the doctrine of part performance if a certain test is met. This test was developed by the English Courts in the case of Maddison v Alderson (1883) which determined an agreement may be enforceable despite the statutory requirement for writing and signing, if the following criteria were met:
- the oral agreement was partly performed; and,
- “the acts relied upon as part performance [are] unequivocally, and in their own nature, referable to some such agreement as that alleged.”
Case Study
In the recent judgment of Phung v Phung [2019], the NSW Supreme Court upheld the doctrine of part performance in relation to oral contracts for the sale of property.
In this matter, the plaintiff was seeking to enforce an oral contract that he had made with his brother, the defendant, to purchase a unit for $180,000.
To determine whether the oral contract was enforceable, the Supreme Court of NSW applied the test from Maddison v Alderson. In doing so the Supreme Court was able to identify part performance that was ‘unequivocally referable’ to the oral contract between the two brothers, demonstrated by:
- the plaintiff had taken possession of the unit;
- the plaintiff had carried out renovations on the unit; and,
- the plaintiff had paid all outgoings for the property, in the form of rates and strata levies.
Notably, the Court formed the view that the fact that the plaintiff had paid the defendant a sum of $180,000 was not in and of itself sufficient to constitute an act of part performance.
The Supreme Court held that the property had been validly transferred to the plaintiff due to part performance and made orders to that effect.
Conclusion
Despite the fact that oral contracts for the sale of property can be enforced on the basis of past performance, we highly recommend that a written contract be prepared and executed by both parties prior to any sale. A written contract clearly sets out the respective rights and obligations of the parties and can help avoid a dispute about the enforceability of an oral contract.
If you are looking to purchase or sell a property, Coleman Greig’s Property law team of expert property lawyers and conveyancers can assist you in preparing the contract for sale.
Likewise, if you are trying to enforce an oral contract for the sale of property, Coleman Greig’s Litigation and Dispute Resolution team can assist with any negotiations or in proceedings relating to the enforcement of an oral contract. For more information, please contact:
