Partly oral "rent to buy" agreement upheld by High Court
The High Court has upheld a partly oral, partly written "rent to buy" agreement, signed in front of a kaumatua by only one of the registered owners.
In 2002 the "K" family were renting a five-bedroom Housing New Zealand property in Napier but wanted a buy a place of their own.
The Ts owned a smaller $104,000 house in Napier that they were keen sell as they had moved to Australia, and had been on the market for some time.
The Ks met Mrs T through their church when Mrs T was on a visit home. They agreed that, provided the Ks paid the mortgage on the Ts' Napier property at $200 a week, the Ts would sign over both the mortgage – said to be $72,000 at that time – and the title to the property after 18 months.
They met with their local kaumatua and signed a "rent to buy" agreement. Mr T said via telephone that he was happy to go along with whatever arrangements his wife made.
The Ks lived in the property and paid the mortgage and all the outgoings. Three times over the next three years they asked the Ts to sign over the property. Twice the Ts avoided the issue. The third time they said they had changed their minds.
The Ks moved out and issued proceedings.
In the meantime, the Ts sold the house for "at least" $180,000.
The High Court found that there was ample basis for a finding that Mrs T, acting on behalf of herself and her husband, had agreed to sell the house to the Ks after 18 months, saying:
"lack of sophistication and loose language … do not disqualify a claim by one party for breach if, on an objective assessment, [it is clear] that both parties intended to bind themselves to a legally enforceable arrangement".
The fact that the purchase price was never specified as such did not make the agreement void for uncertainty, the Court found.
The Ts other argument, that the contract was void because is hadn't been signed by Mr T, was also rejected based on:
(a) Mrs K's unchallenged evidence that Mr T had authorised his wife to represent him, and
(b) the fact that the Ks had partly performed their side of the contract by paying the $200-a-week mortgage.
The High Court couldn't order the Ts to sell the property to the Ks because they had already sold it to someone else, so it awarded damages.
The Ts were ordered to repay all the money the Ks had paid under the agreement – about $29,400 – plus costs in both the District Court and the High Court, on the basis that the Ts wrongful cancellation (after taking advantage of the Ks performance over three years) had deprived the Ks of a substantial opportunity and meant the Ts enjoyed a substantial windfall.
Fortunately then, in this case, the right result was achieved in the end – though not without a lot of heartache and legal costs on both sides. While the Ks probably thought at the time that a lawyer was an unnecessary expense, the few hundred dollars a proper agreement would have cost them would have saved them the hassles and thousands of dollars incurred over the ensuing 6 years.
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This article is brought to you by Colette Mackenzie of Gibson Sheat Lawyers and its subsidiary The Conveyancing Company, specialists in property law, mortgage broking, refinancing, buying and selling residential or commercial property, and subdivision.
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