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Is your business looking to rent a commercial property to operate out of? You may be unsure whether you have to draft and sign a lease agreement or enter into an oral contract with your landlord. This article will outline:

  • whether an oral agreement to lease is binding; and
  • the circumstances in which an oral lease agreement is binding by detailing the doctrines of part performance and short-term leases.

Are Oral Agreements to Lease Binding?

Under New Zealand property law, all contracts for the leasing of land are not binding unless the:

  • agreement to lease is in writing, or the terms of the agreement are in writing; and
  • tenant and landlord have signed the lease document

Given this requirement, oral agreements to lease are not binding, and the verbal terms are not enforceable. This requirement ensures that there is clear evidence of the contract and the terms of the agreement between you and your landlord.  

However, there are two exceptions to this rule. You can enforce:

  • an oral agreement that you have partially performed. This exception is termed the doctrine of part performance; and
  • short-term leases.

What is the Doctrine of Part Performance?

You may be able to enforce your oral lease agreement if you have done something that demonstrates that you are performing that contract. In other words, if you can demonstrate that there has been part performance of that rental agreement.

Under the doctrine of part performance, your agreement to lease is enforceable, even though it is not in writing and you or your landlord have not signed it. If you wish to enforce an oral agreement to lease, you will have to demonstrate that:

  • it is a binding contract;
  • there has been part performance of that agreement; and
  • it would be unconscionable, or unfair, if the agreement was not enforced. 

A court will evaluate your argument and decide on whether your agreement should be enforced on the parties involved.

Is It a Binding Contract?

You will have to demonstrate that if your lease agreement was conveyed in a written document, it would have been enforceable. To be binding, a contract must have:

  • a clear offer;
  • an unequivocal acceptance backed by consideration. Consideration is something of value. For your leasing arrangement, the consideration will be your rent and outgoings;
  • certainty of terms; and
  • a shared intention between you and your landlord to create a binding legal relationship.

Has There Been Part Performance of the Oral Agreement?

As you have not expressed your tenancy agreement in writing, you will have to point to a different kind of evidence that a contract exists between you and your landlord. This evidence is the part performance of the contract. This part performance has to:

  • amount to a step in the performance of the obligations under your lease agreement; and
  • be carried out with the intention that there was a binding lease agreement between you and your landlord.

For example, say your business started paying your rent and outgoings and your landlord put in measures to ensure that the health and safety of you and your employees are not at risk. These actions were carried out after you and your landlord entered an oral lease agreement.

Both you and your landlord took steps towards your tenancy obligations’ performance. These actions were undertaken with the intention that there was a binding lease arrangement. These circumstances would meet the criteria of part performance of an oral agreement.

If you are able to demonstrate these two requirements and indicate that it would be unfair if the oral agreement was not enforced, your agreement may be deemed as binding on you and your landlord.

Short-Term Leases

If you do wish to enter into an oral lease agreement with your landlord, you can do so by a short-term lease. A short-term lease is an unregistered lease that lasts for one year or less. Although you cannot lease those premises for a long period, a short-term lease provides your business with nearly all of the same benefits as a long-term lease. The key difference is that you cannot register a short-term lease. As the tenant of a registered lease, your business gains an ‘indefeasibility of leasehold title’. This title means that the law protects the possession of your leased premises for the duration of the registration period. 

Key Takeaways

In New Zealand, you usually will not be able to enforce an oral lease agreement. It is best practice to record your lease agreement with your landlord in writing to ensure that you are both clear as to your tenancy obligations. However, if you do wish to enter into a verbal contract, an oral agreement to lease may be binding if you can raise the doctrine of part performance. To raise the doctrine of part performance, you must demonstrate that:

  • your oral lease agreement is a binding contract;
  • there has been part performance of your agreement; and
  • it would be unconscionable if the agreement was not enforced.

Alternatively, you may wish to enter into a short-term lease with your landlord.

If you are unsure whether your oral agreement to lease is binding, contact LegalVision’s property and leasing lawyers on 0800 005 570 or complete the form on this page.

Frequently Asked Questions

Can a lease agreement be oral?

 A lease agreement has to be conveyed in a written document and be signed by the tenant and the landlord to be enforceable. However, an oral lease agreement can be binding under the doctrine of part performance or if the agreement is for a short-term lease.

What is a short-term lease?

A short-term lease is an unregistered lease that lasts for one year or less.

What is the doctrine of part performance?

The doctrine of part performance makes lease agreements that would otherwise be unenforceable, as it is not conveyed in writing, enforceable. To raise the doctrine of part performance, a tenant or landlord must demonstrate that the oral lease agreement is a binding contract, there has been part performance of the oral agreement and it would be unconscionable if the oral agreement was not enforced. 

What does oral agreement mean?

An oral agreement is a contract that is made verbally and not expressed in writing. 

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