CAN A TENANT BUY YOUR PROPERTY
WITHOUT A SIGNED WRITTEN AGREEMENT?

In some instances, the answer is “yes”. In a case that was recently decided by the Superior Court following a trial, the tenant claimed that there was an oral agreement to sell the property for under market value and the tenant performed substantial work on the property in reliance on the alleged oral agreement. The tenant further testified that the work benefited the property and that the work would not have been done but for the oral agreement to purchase the property.

The owner of the property, however, testified that there never was an oral agreement to sell the property, that the tenant did not spend a substantial amount of money, and that the tenant, in fact, had made a written offer to purchase the property but never qualified for a loan and never placed a down payment with the offer. Obviously, serious questions of credibility arise when an oral agreement is claimed by one of the parties.

The tenant continued to pay rent for a while but recorded a notice of Lis pendens so that the property could not be sold or refinanced until the Trial Court made its decision. When the tenant failed to pay rent, an Unlawful Detainer was filed and the tenant lost at the Eviction Trial.

Approximately one year after the tenant’s lawsuit was filed, the Court resolved the case in favor of the property owner. Of course, the tenant testified and had two witnesses testify to “the facts” and conversations alleged to form the oral agreement. The cross examination by this office was “enlightening”. In the written decision, the Court states “The Court finds that the (Plaintiff’s) alleged conversations with Defendant to be lacking in credibility both from the standpoint of the ability to perceive and hear the conversation, and the alleged substance of the conversation itself, as even if it were found to be credible, it is insufficient to meet Plaintiff’s burden on the issue of contract formation. The Court finds further that Plantiff’s testimony is lacking credibility in certain respects, including whether she had or had not signed certain documents, and that this has impact on the weight given to her overall testimony.”

The general rule of law as embodied in the Statute of Frauds requires a written contract for the sale or purchase of real estate. The Court recognized that in some instances, an oral purchase agreement with substantial performance by the purchaser in reliance upon the agreement can be enforceable. For example, it could cause an injustice to the party who had spent money in reliance on the agreement. However, in this case there was no oral purchase agreement and no substantial investment in the property. It does, however, raise an interesting question. If a tenant decides to fabricate a story concerning an oral purchase agreement, obtains fraudulent bills and receipts for supposed expenditures, locates an attorney willing to file the action, then the tenant (or any individual) could attempt to purchase your property for less than fair market value, and might even get away with it!

Our client in this case is presently considering a malicious prosecution action in order to recover the attorneys’ fees incurred from a lawsuit “without merit” as well as any other damages sustained. Given the Court’s opinion, there should be some form of compensation due to the property owner as a result of the Plaintiff’s unsuccessful attempt to force a sale of someone else’s property through the Court system. The lesson from this story is that you should not let anyone perform work on your property without a written agreement “to avoid confusion.”