The Peril of the ‘Handshake Deal’ in Modern Renting
In the world of real estate, the line between a personal favor and a professional obligation can often blur. When friends enter into rental agreements, there is a common tendency to rely on trust rather than paperwork. However, as recent legal outcomes demonstrate, relying on a “handshake deal” can lead to significant financial liabilities.
Consider the case of a real estate agent named Tomu, who found himself in a dispute with a landlord friend of ten years. What began as a helpful arrangement to find tenants for a property ended with the Tenancy Tribunal ordering him to pay $22,950 in rent arrears.
When Friendship Meets Finance
The conflict often arises when the terms of an informal agreement shift. In the case involving Tomu, the landlord initially agreed to a rent-free period. However, nine months into the tenancy, the arrangement changed to a request for $350 a week, which covered water, and power.
The resulting dispute highlighted a classic breakdown in communication: the tenant claimed a continuing rent-free arrangement, while the landlord maintained that a binding payment obligation had begun. Without a written contract, the dispute shifted from a matter of trust to a matter of evidence.
The Evolution of Tenancy Evidence
Future trends in tenancy disputes show a heavy reliance on “digital footprints” to settle claims. When oral contracts are challenged, tribunals glance for any tangible proof that suggests an agreement existed. In the case adjudicated by Mark Manhire, the landlord’s success was rooted in two key pieces of evidence:
- A detailed rent ledger.
- An email discussing the inclusion of water and power in the rent.
Conversely, the tenant’s claims—including the idea that commissions earned from sourcing other tenants should be offset against rent—were dismissed because there was no documented evidence to support such an arrangement. The tribunal found these submissions to be “simply not plausible” in the absence of proof.
Moving Beyond Oral Contracts
Legal experts, including Joanna Pidgeon, director of Pidgeon Judd Law, emphasize that introducing a business element into a friendship often leads to conflict. The difficulty of proving oral contracts makes them a high-risk strategy for both landlords and tenants.
To avoid the pitfalls seen in the real estate agent’s dispute, professionals recommend that all terms—including rent-free periods and commission offsets—be documented in writing.
Frequently Asked Questions
Can a verbal rental agreement be legally enforced?
Yes, oral contracts can be binding. However, they are difficult to enforce because the parties must prove the exact terms of the agreement using secondary evidence like emails, text messages, or payment histories.
What happens if a tenant claims rent was paid in cash?
If payments are made in cash and not recorded in a ledger or receipted, it becomes the tenant’s responsibility to provide evidence of those payments. Without such proof, tribunals are likely to rely on the landlord’s written records.
Should I use a written contract when renting to a friend?
Yes. Legal experts strongly recommend written agreements for friends and family to prevent the relationship from deteriorating when contractual disputes arise.
What are your thoughts on renting to friends? Have you ever had a “handshake deal” go wrong? Share your experience in the comments below or subscribe to our newsletter for more expert legal and real estate insights.