Terminating a verbal contract

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Dear Steve,
Is there really such a thing as a verbal lease-to-purchase option? If so, how do I terminate it?
— Gabe

Dear Gabe,
A person’s word may well be as good as his or her contract — except when it’s not. Such are the dangers of not getting it in writing.

First, I’ll assume you’re not a renter wanting to opt out of a verbal lease-option agreement. If that was the case, the landlord would probably be glad to let you off the hook, especially if you’ve paid extra toward a purchase that you’re not going to make.

The rental market, after all, has picked up a lot of steam with all those foreclosures we’re hearing about.

So I’ll give you the landlord’s view. Yes, it’s true that real estate agreements in many states must be made in writing to be fully enforceable, particularly if they’re made for longer than a one-year period. But, and this is a big “but,” that doesn’t always trump “statute of fraud” laws.

For example, if one party — in this case, the renter — relies on a verbal contract and dutifully enters into “full performance” of that contract, then that renter has more solid legal footing.

In other words, if that tenant paid base rent on time plus an agreed-to premium toward purchase, then you really have no justification to end that agreement, even though it isn’t in writing. It could get worse if the tenant spent considerable monies improving the house based on such an agreement.

You can see that this could make termination a problem. The renter could sue for “specific performance.” Moreover, if you as a landlord agreed on a final purchase price with the tenant, then that price would still apply at the end of the option period. Of course, the problem with verbal contracts is that someone will have to prove one existed in the first place. And courts typically favor property owners over renters in decisions involving verbal pacts.

Another option is that you offer rental credits to the tenants to cover any improvements and options paid, assuming they’d agree to back out of the deal. Still, you may have to consult a local real estate attorney for advice on this one.

Get it in writing, folks!