What is a Verbal Lease
A verbal lease agreement is an unenforceable contract that forms between a tenant and a landlord. A verbal agreement can be formed when both the tenant and landlord agree to rent out a property to the former in exchange for payment. Even though verbal agreements and handshakes can create a binding contract if there is sufficient evidence of intent, the vast majority of landlords do not choose to rent out properties without a written tenancy agreement.
Typically, verbal lease agreements are limited to informal arrangements where tenants are renting either a secondary or temporary space from the landlord. This leaves the tenant without most rights usually afforded to other tenants under the Residential Tenancies Act (RTA) or the Landlord Tenant Board, which is the governing body that settles landlord-tenant disputes.
Because they are unenforceable, verbal agreements tend to create uncertainty for both the landlord and the tenant. Neither party is protected by the law and it leaves them both exposed to mistreatment. The important thing for landlords to understand is that if they choose to rent out a property without a formal tenancy agreement, they must abide by the terms of their verbal agreement .
In most cases, once both the landlord and tenant discuss their rights and responsibilities, a verbal lease agreement can be formed in seconds. For example, a verbal tenancy agreement may be created if you decide to rent out a spare room in your apartment to a co-worker for the following month after discussing how much you will charge them for rent.
Because they are typically short-term arrangements, there are several common uses of verbal rent agreements. For example, some landlords choose to rent out residential units to boarders, lodgers, roommates, and subtenants on a verbal basis to accommodate someone who stays in their home for a few weeks or months. Similarly, other landlords choose to rent out their properties to tenants who only need a place to stay for a few days or weeks for the cost of a daily or weekly rent.
While it isn’t against the law to rent out a property without a written tenancy agreement, it is a short-term solution that is only appropriate for informal situations. For all other scenarios, the Residential Tenancies Act (RTA) requires landlords and tenants to enter into a written tenancy agreement before the tenant moves in.
Are Verbal Leases Legal
The prevailing attitude of the law, absent an indication by statute to the contrary, is that a lease may be made by parol as well as in writing. Erleigh v. Brown, 17 S.W.2d 469 (Tex. Civ. App. 1929); see generally Lowe, Leasehold Estates § 1.03 (2d ed. 1994). In this vein, the Texas Property Code states that "[a] lease for a definite term may be created by either an oral or written agreement" and that "[a] lease for an indefinite term may be created by either an oral or written agreement." TEX. PROP. CODE ANN. §§ 91.001, 92.001. The statute does not specify a time period, however, so a definitive term can be created for any length of time. The statute does not require a lease agreement to be in writing, but only requires a lease with a definite term to be in writing if the rental period exceeds one year. Id. § 91.011.
As with other contracts, the existence of a valid lease agreement requires "mutual assent between parties capable of making a contract." Fambro v. Acrobrokerage, Inc., No. 14-06-00944-CV, 2007 WL 1531761 (Tex. App.—Houston [14th Dist.] May 29, 2007, no pet.). "A lease may be created even where the parties do not agree upon the essential terms if the process for fixing the essential terms is sufficiently definite so that the contract is not illusory." Id. An illusory promise is one "that, despite appearing to be a promise, does not actually bind the promisor. A promise is illusory if the promisor retains a choice of alternative performance by stating it as a condition." Morrison v. Chan, 699 S.W.2d 205, 209 (Tex. App.—Houston [1st Dist.] 1985, writ ref’d n.r.e.). In the commercial lease context, the dispute usually revolves around whether a lease agreement existed at all, rather than whether an existing lease agreement is enforceable.
Advantages and Disadvantages to Not Having a Written Lease
Tenants: The greatest disadvantage of not having a written lease is that without a written and signed lease the landlord is not prevented from unilaterally changing the rental terms. This can include increasing monthly rent, changing moving out conditions or backtracking on oral promises made in order to get you to sign the lease. Having a written lease prevents these kinds of surprises.
Landlords: Without a written and signed rental agreement, the landlord may be unable to get you out of the premises. If the lender forecloses on the property or the owner sells the the property to a new owner, your tenancy is now subject to the new owner’s rules and the new owner may not be willing to honor the rental terms of the old owner – especially if you resisted paying increasing rent.
You should also be aware that if a written lease was required by law and the tenancy results from an oral lease, courts may not be willing to enforce other provisions of the tenancy when they are disputed.
In short, while failing to have a written rental agreement probably won’t get you evicted, it leaves the door open to the landlord doing or saying something that makes it harder for you to stay in the home.
What Problems can Arise
Without a written lease or rental agreement, landlords and tenants are left with a high risk for disputes. While most tenancies start off as trouble-free experiences, as time passes, it’s not uncommon for disagreements to arise. An oral or implied agreement is prone to misinterpretation about a particular term. It could be that the landlord assumes the tenant will not stay past a certain date. Or the tenant assumes the repair work needed would be done immediately while the landlord believes it would not be done until later in the lease term.
Another problem facing a tenancy without a written lease or rental agreement is evicting a tenant. If the landlord cannot prove the date the tenant moved into the rental unit, the landlord then does not know how much notice to give to vacate. The notice period can be from 30 (least amount of time to 1 year (longest amount of time) depending on the terms of the lease, the nature of the tenancy, and government regulations. Losing a copy of the lease can also cause friction, especially if there are demands made for money to cover damages or other issues that the tenant alleges occurred. When these issues arise, having a written lease or rental agreement in place from the beginning can prevent disputes from occurring in the first place. But even if the tenancy has already started, a written rental agreement can still help iron out the details of the relationship between tenant and landlord.
Who Has What Rights
Understanding Tenancies Without Written Lease Agreement
Not all landlords and tenants enter into written agreements. While it is preferable to have any terms and conditions clearly defined on paper, verbal agreements can also be legally binding. If a tenant and a landlord enter into an oral agreement, both are considered to have signed the lease and are entitled to protections under the law.
Many people believe that without a signed lease, they do not have to pay rent. This is not true. Depending on the specific laws of each state, when a tenant and a landlord have an agreement for a specified period or a rental period of one year or longer, it is presumed that the agreement is an oral tenancy-at-will and a tenancy at will should be implied from the oral agreement. In these circumstances, the tenant setting up a tenancy-at-will must continue to pay rent until the landlord provides a timely notice to quit . By paying rent, the tenant is in essence saying that they wish to remain in the premises. The landlord is not obligated to give the tenant written notice to vacate, but must provide a notice if the lease agreement is for six months or greater. Notice required by law will vary from state-to-state, but generally the tenant must be given either 30 days or 60 days, depending on the length of the tenancy.
There are some basic protections that are common to almost every state’s law, and California is no exception. If you do not have a written lease, you are considered a month-to-month tenant, responsible for on-time payment of monthly rent, and the landlord is required to make any necessary repairs. Even in cases where the landlord does not provide the tenant with a written notification to terminate the lease, the tenant is at-will. With this status, the tenant may still terminate a lease by providing appropriate notice (30 days if your rent is paid on a monthly basis).
Securing your Verbal Terms
If you are going to enter into a verbal lease, you should try to secure the terms even if the law allows for the verbal agreement. Your best bet is to set the terms you’ve verbalized in a Lease Agreement that you and the tenant sign – however, that might not be possible, depending on the circumstances. If that’s the case, the best option is to secure the terms in an email from one party to the other acknowledging the terms. A backup would be to have another people as a witness to the terms you’ve reached.
How to Formally Document an Agreement
The goal for both landlord and tenant is to transition from a verbal or handshake agreement to a written lease agreement that outlines the terms, conditions, rights, and duties of both parties. Landlords and tenants should define the terms of the lease, such as the exact amount of rent, the duration, late fees, security deposit, renewal of the lease, and obligations related to repairs, utilities, and damages. At this point, the agreement goes from a legally binding "handshake" agreement to a legally enforceable written lease. It may be advantageous for the landlord and/or tenant to record the oral agreement as evidence, in the event that a breach occurs, in order to provide evidence that the agreement existed . The greater the detail in the written lease, the better. For example, include who will pay for ongoing maintenance of a pool – the landlord, the tenant, or split? Many times, there can be some negotiation on terms. For example, if the lease has to be renewed on the first of every month, can the landlord agree to re-negotiate on the first of every other month? Options for remedying a breach of the agreement should be included in the written lease. Once the lease is fully negotiated, which may be a protracted process, it should be drawn up and signed by both the tenant and the landlord. Do not assume that a prospective tenant is common law spouse. Be sure to define the exact status of the relationship in the written lease.