Mon, January 25th, 2010
When a Formal Agreement to Lease Property is Not Required
The statute of frauds requires most agreements to be in writing in order to be enforcable. California Civil Code Section 1624, which I mentioned in the last two posts, allows certain exceptions, mostly out of fairness to the parties who intended to have a formal agreement, but never really followed through with a written agreement. In my last post, I mentioned one exception. In this post, I describe another exception, one that applies only when the facts of a particular case support enforceability of an agreement.
In the case of Derrick v. C.W.R. Ford Co. , a lessee offered to lease real property upon certain conditions. The property consisted of a storefront and a basement in Oakland. The lessee wrote these terms down in a letter and sent it to the landlord. The landlord responded with a separate letter, with some new, rather minor, terms. Eventually, the parties agreed to the arrangement, which was for ten years. The minor term(s) included the requirement that the tenant pay for any alterations and obtain a bond in doing so. For three years, the tenant paid rent and leased the property. Then, the landlord sold the building. There never was a formal written agreement which any of us would refer to as “the lease agreement”. Just the letters, and receipts for rent payments.
The new owner subsequently attempted to increase the rent. The lessee didn’t agree, because it thought that it had a prior, enforceable agreement. The new owner then brought unlawful detainer proceedings (an eviction process). In the end, the appellate court was asked to determine if the back-and-forth of letters between the lessee and the original owner was sufficient to take the “agreement” out of the statute of frauds.
The court held that the statute of frauds did not apply here, since the parties clearly agreed to the arrangement laid out in the prior letters. The fact that there were minor variances from the letters was not significant since it is sufficient to have letters, receipts, and similar evidences of writing in order to establish an enforceable agreement in writing.
Two things to remember. One, this line of reasoning does not only apply to real estate contracts or arrangements, but to other commercial agreements as well. Two, it is not wise to ever assume that a court will enforce an informal exchange of writings in the same manner as a formal agreement. As I mentioned earlier, this exception is fact-intensive. Here, it was sufficient. In many circumstances it is not.
Most importantly, getting to the point where a court must make this determination is rather expensive. It’s much less expensive to have the agreement drawn up first, with all essential terms agreed to at the outset.
Posted by Nick Yonano at 05:31
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