By Royal Morton
When real estate investors get comfortable or casual or just want to get a great deal done, they sometimes rely on oral “handshake” deals. Putting promises, understandings or statements/assertions in writing may also be seen as “impolite” or an “unnecessary complication”. However, putting these different types of communications in writing and making any written record as accurate and clear as possible, can be critical to protecting an investment in a deal if a dispute arises. It can be the difference between having to hire a real estate litigator or not, between settling a dispute on good terms or not or winning or losing in court.
Generally, A’s oral promise to sell a future subdivided lot to B is not enforceable in law unless that promise is in writing and supported by something B gives A in return. There are exceptions to that rule, such as where B can show their reliance on A’s promise or that A did something consistent with that promise.
However, B will almost certainly have to hire a real estate litigator to figure out whether B can prove A’s promise was even made, before having to then prove reliance on it. Moreover, without putting an oral promise in writing, proof of that promise may not even be admissible in court if a written document intended to be the entire agreement expressly states that there are no other promises outside of that document.
Proving in court that A made the promise can be very easy if the promise is in writing. A written promise to B is enforceable on its face if it is made in return for something A received or that B gave to someone else (ie…it is a real estate contract).
Separate from a promise, a mere understanding between two developers may be that A will contribute 20% of the development cost and B will contribute 80%. That understanding may never amount to a legally enforceable promise by A to B, let alone a contract between them. Yet it may be very helpful to B to put that understanding in writing if A later says they never intended to pay any development costs. For example, a dispute may arise if A claims they gave an extra $500,000 towards A & B’s joint purchase of some development land on A’s understanding that B would pay 100% of the development costs.
In that case, a simple text or email that B had sent to A about B’s understanding of a 20/80 split of the costs could be critical. That one text sent at the right time and not disputed by A at that time could be very valuable to B. It could give B the leverage needed to get a favourable settlement with A or help get a win in court if B sues A for 20% of the development costs. In that scenario, B may assert that they would never have purchased the land with A had there not been an understanding that A would contribute 20%.
Therefore, although there is no promise or contract B can enforce, B could claim that A would be “unjustly enriched” in law if A gets a certain share of profits without having paid 20% of the development costs. Based on the text B had sent to A, B might be able to prove that B and A had a “reasonable expectation” that A would share 20%, even though A made no promise to do so and paid an extra $500,000 to purchase the land.
In the case of assertions, these are communications from one person to another that are merely of a factual state of affairs. There is no promise to do something in the future and there is no understanding without which a deal may not have been made. If A asserts to B that two parcels A wants to sell to B are approved for subdivision into 15 lots, that is a statement of fact. The governing municipality has either approved that subdivision or it has not. Yet as simple as it may be to mention that fact in a text or email, very often someone like B enters into a contract with A to buy those parcels in reliance on A’s assertion, without mentioning that in writing.
If that assertion is not ideally put into a formal contract, even just a Whatsapp message from B to A like “Since you’ve said the city approved it for 15 lots, I’ve decided to buy it”, may be of great value to B. The value of that message could be the difference between success and failure in court if B sues A for negligent misrepresentation or B seeks to rescind the contract. Formal contracts are much better than simple texts or emails, but even a contract may not be enough if the promise or assertion is not clearly written. Without input from a seasoned realtor or real estate solicitor or litigator, what might be intended as an accurate record of the deal does not actually reflect that.
By putting important communications in writing and in accurate and clear language, one strengthens the utility of promises, understandings or assertions made by someone else with whom you buy or sell dirt. Otherwise, there is great risk to relying on promises, assertions or understandings not recorded somewhere in writing before consummating a deal. The foregoing is a very general statement of rules of law and is a simplified way of making a point. It is no substitute for seasoned, careful and practical legal advice in a given situation.
Federation of Law Societies of Canada v Canada: Constitutional Challenge to Certain Amendments to the Income Tax Act
The Federation of Law Societies of Canada (the "Federation") filed an application on September 11, 2023 in the Supreme Court of British Columbia challenging the constitut…Read more
Mandatory Disclosure Rules: The Reportable and Notifiable Transaction Regime
The federal government has expanded the mandatory disclosure rules in the Income Tax Act (“ITA”) by making changes to the reportable transaction rules and introducing a n…Read more