Understanding Oral Lease Agreements: Risks and Rights

What is an Oral Lease Agreement?

A verbal lease agreement is a rental agreement that has not been documented in writing by the landlord and the tenant. The tenant may have some documentation of the agreement, such as a bank statement showing rent being paid in a specific amount or a copy of a text message conversation between the landlord and tenant where the parties indicated the amount owed each month. If there are no documents in existence at the time a dispute arises, the parties must rely on each other’s oral testimony regarding the term of the agreement, the rent , and the other conditions of the tenancy.
A verbal lease agreement differs from a written lease in that both the terms of the agreement and the same parties’ signatures are missing from the document. The most significant issue regarding an oral lease agreement is that there is a lack of proof regarding the terms of the agreement. Written leases provide a framework for the parties to rely on when resolving a dispute or misunderstanding. Oral agreements often require additional documentation to provide proof of the parties’ intentions.

Are Oral Leases Enforceable?

The legal validity of verbal leases varies in different jurisdictions. In the United States, for example, the general rule is that verbal agreements for the transfer of an interest in real property (such as a lease) fall within the Statute of Frauds, and hence a lease with a duration longer than one year must be in writing to be enforceable. Other common law countries, however, have had different rules. Under the common law, the "doctrine of part performance" has long been an established exception to the Statute of Frauds, allowing for the enforcement of verbal agreements for the transfer of an interest in real property which have been partially performed. The rationale for this exception is that a verbal agreement that is "unequivocally referable" to the contract in question should not be set beside despite the absence of the written memorial of the contract.
For this doctrine to operate there must be a sufficiently clear link between the conduct which has occurred and the oral agreement: that is, the conduct must be so clearly referable to the oral agreement as to be inconsistent with any other explanation; and the conduct must relate to the land in question. Note, however, that although part performance may render a contract enforceable despite non-compliance with the statute, it is not able to create new legal rights or interests.
In Canada the current legal position regarding the enforceability under the Statute of Frauds of verbal lease agreements is that the doctrine of part performance has been effectively codified into the Ontario Statute of Frauds, RSO 1970, c. 408, s. 4. The correspondence between Canadian and American law is very close. The common law rule has been relaxed only slightly: an equitable interest is created even where the conduct is referable to the contract on its face and inconsistent with any other explanation.

Advantages and Disadvantages of Oral Lease Agreements

When opting for a verbal lease agreement, both landlords and tenants should be aware of the pros and cons associated with this particular approach.
Pros for the Landlord:
A verbal lease agreement can be an ideal way to sign a lease quickly. There are some leasing situations where a tenant needs to move in immediately and the landlord is only available for a short period of time.
For instance, some landlords consider April 1 to be the start of the rental season, in which the first day of April represents the last hurrah of a tenant lighting up an apartment for the next influx of renters. For this reason, on that final weekend of March, a flood of students looking for apartments to rent for the fall of their senior year of college may become available for lease signing. Since these students are so eager to secure an apartment for the fall, it is a perfect opportunity for the landlord to expedite the process and get it over with. Verbal leases can also save time and stress in the event of an emergency. If a landlord’s basement apartment suffers a flood, it is often necessary to take on tenants immediately in order to recuperate losses. A verbal agreement can mitigate many headaches associated with a formal rental agreement.
Pros for the Tenant:
From the tenant’s perspective, a verbal lease is similarly beneficial — but to a great degree depends on the tenant. For the tenant who does not plan on staying long, the verbal lease agreement is a major plus. A tenant can avoid paying any fees the landlord may charge for the use of a leasing agency’s services. By going outside of such a service, a tenant can save upwards of a month’s rent.
For the tenant who has a job that requires a greater degree of flexibility, a verbal lease also provides major benefits. In recent years, people have found themselves moving across the country or the world with very little notice. For example, a person could decide to take a job in another city, and either intend to move immediately, or, due to familial obligations, find out that they must leave town the next day, and thus legally terminate their current lease. A verbal lease allows them to walk away as quickly as they came.
Cons for the Tenant:
From the tenant’s perspective, there are many reasons why a verbal lease is not a good idea. A verbal lease agreement can pose major risks to the tenant if he or she is not familiar with his or her rights when it comes to a rental agreement. Because verbal lease agreements lack the written proof of a rental arrangement, the tenant can easily find himself or herself at odds with the landlord’s beliefs about what was discussed. In the event of a dispute, there is very little chance, if any, of the tenant ‘s interests being supported by the court.
For instance, a verbal lease agreement assumes that both the landlord and the tenant have made their goals clear. Without committing anything to paper, it is very easy for the tenant to believe that he or she agreed to a lower rental fee than actually stated, and vice versa for the landlord. In the event of a verbal lease agreement, it will be the legal system’s duty to determine the specific terms of the agreement. A tenant who has lived in a more expensive apartment, for example, may have agreed verbally to a lower fee than the landlord claims to remember. Without proof of the conversation, it will be the court’s discretion to determine how much rent is being paid, or if an agreement was made at all.

Typical Problems with Oral Lease Agreements

Many people have experienced problems with residential lease agreements, and those issues are often different when it comes to verbal leases. Here are a few examples:
Disputed Terms
A verbal lease is an arrangement based on a tenant and landlord agreeing to a set of terms. Disputes typically stem from the potential vagueness of those terms, and it is not uncommon for a misunderstanding to occur. For example, if a landlord agrees to rent his or her home for three months at $2,000 per month but the tenant only takes possession for six weeks , the landlord who wants all the rental money to be paid may be out of luck if the tenant refuses to pay. The tenant may argue that they were only to pay the rent for the six weeks.
Procedural Issues
A verbal lease may not be deemed legally-binding because of procedural issues. What this means is that certain information that a lease must contain may not be included in an oral agreement. A verbal lease does not always allow for the tenant’s rights to be protected, so landlords should take the necessary steps to make sure that the terms of the lease are explicitly detailed.
Disputes Over Rent Payments
A common source of disputes with verbal agreements for real estate leases is the rent itself. Common problems include when the rent is due, how payment will be accepted, and whether the rent is too high or low. If there is no record of the payments, a landlord may find it difficult to prove he or she has been paid.

Protecting Yourself in an Oral Lease

The best way to avoid disputes between a tenant and landlord is to put everything in writing. For verbal leases, however, tenants and landlords can take some steps to protect their interests. For example, we recommend that a tenant take some steps to protect himself/herself from potential disputes.
Conversations with the landlord
A good way to protect yourself is to document any conversations you have with a landlord regarding the lease. For example, if the landlord agrees to fix a broken refrigerator, document that phone call or conversation with the landlord in writing. Use the date of the conversation and put that you (or they) stated that the refrigerator is not working properly. Then, put that the landlord stated that the refrigerator would be fixed. Then, put down in writing the things the landlord stated they would do to remedy the refrigerator issues.
Rent receipts
If the landlord eventually tries to state that you did not pay rent, you can use those rent receipts to show that you have paid. You should also request a receipt for cash payments you make to a landlord. This will help you know that you made the rent payment for that month.
Recordings
Keep in mind that in Kansas you legally have the ability to record telephone conversations with a landlord. Kansas law allows you to record conversations, as long as you are a party to the conversation, or on a phone call that you are aware it is being recorded. If the landlord wants to deny a conversation, but you do indeed have a recording of the conversation, then you can use those recordings as evidence in court.
The general rule for landlords is to always get a lease in writing. Verbal leases usually pose more risks for the landlord than the tenant. Landlords can use some of the same tips as outlined above to keep things in writing. Another suggestion is to have a clear lease and ensure that all parties sign the lease agreement to avoid misunderstandings.

When to Hire an Attorney

If you enter into a verbal lease agreement, there are certain circumstances where it is prudent to seek legal advice. One example is where the property owner fails to honour any aspect of the verbal lease agreement. A tenant should act quickly and contact a lawyer who can assist with the goal of ensuring that the terms of the verbal agreement are honoured. Depending on the circumstances, asking the other party to honour the terms may not be successful. Where legal action is necessary, obtaining a lawyer’s assistance is often required.
Another circumstance where seeking out legal advice should be considered is when the landlord would like to evict the tenant prior to the end of the lease term. The ability to terminate a verbal lease depends on the intentions of the parties when the lease was made. If a shorter term was intended a landlord may be able to rely on the lack of intention to grant a long-term lease. If the party who wants to end the lease is the tenant , then a short term lease may be easier to terminate. There are various other factors that will determine the rights of the parties under a verbal lease and it is wise to seek out legal advice in these cases.
When making or responding to a claim in court, a court will want to hear the best evidence of what the parties intended. In situations where the alternatives to a verbal lease have advantages (e.g., written lease agreement), a party may want to rely on the impossibility of proving what was agreed to.
It is always a good idea to seek out the guidance of a legal professional about your circumstances if you are worried about taking legal action with respect to an agreement you made with someone else, regardless of whether there was a verbal or written agreement.