What is an Oral Lease Agreement?
A verbal lease agreement, also known as a verbal lease or oral lease, is a rental agreement between a landlord and tenant that is not recorded as a written document. While many landlords and tenants understand the value of having a written record of a lease agreement, for various reasons some parties to a real property lease may opt to forego the written form and enter into an oral agreement. For example, where the lease is for a short-term or where the parties are acquaintances that may not have previously worked together, they may feel it unnecessary to have a written record of their agreement. Whatever the case, verbal leases are relatively common and as you can see below, while it is advisable to have a lease in writing, verbal leases are legally acceptable in Texas under the right circumstances.
Verbal leases are governed under state law. In Texas, oral lease agreements are generally enforceable if they are made for a period of one year or less. For example, a verbal lease agreement for an apartment or a home for a period of six months or 30 days is legally enforceable and binding between the parties . However, a verbal lease for 6 months or longer is generally unenforceable in Texas, unless there is some work that has been performed or money that has been paid.
In cases where the verbal lease is for longer than one year, it may be possible to use a doctrine known as equitable estoppel. Equitable estoppel applies where work has been performed based upon the terms of the lease or where money has been paid based upon the agreement. For example, where a renter performs work that the landlord requested as part of the agreement or where the renter purchases rental furniture from the landlord. Equitable estoppel may be used in Texas to enforce portions of a lease agreement that would otherwise be unenforceable as a verbal lease.
Oral lease agreements are most often seen for a fixed period of time that is less than one year. For example, many commercial leases that are continuations from a previous lease are for a period of 30 days. Landlords and tenants may find it convenient to let a previous lease agreement lapse and continue the tenancy for a shorter period of time during which they can renegotiate the agreement and possibly enter into a new written lease. For residential real estate that is less common, although it does happen.
Is an Oral Lease Agreement Enforceable in Texas?
Verbal lease agreements in Texas are generally enforceable. In fact, Texas law routinely enforces verbal agreements of all types. However, verbal leases do present additional risks and limitations. For example, in the event you need to evict a tenant unless you can meet your burden of proof in getting a judgment in your favor in court, while a verbal lease is enforceable—the realities of that may be more difficult.
No requirement exists for leases to be written or to be notarized in Texas. If they are written, however, they must be signed by both parties to be enforceable.
While verbal leases are generally enforceable in Texas, eviction may not be as cut and dry—such as with a written lease. A lease is a contract between a landlord/lessor and tenant/lessee. Texas law recognizes that even verbal leases are contracts. Examples of verbal leases to be aware of include:
In the above situations, if the tenant pays rent but has no written rental agreement, it may be difficult to prove what the terms of the verbal rental agreement are if the case ever goes to court. Also, another practical risk that landlords face is convincing a judge that he or she should order the tenant to vacate the property when the tenant has validly paid the rent. This is true even though the landlord does not have a written rental agreement.
Therefore, verbal leases simply come with a higher risk. That is not to say that you should never enter a verbal lease in Texas. Verbal leases are quite common, especially in smaller, independent leasing terms. However, it is always best to have a written rental agreement when possible.
While verbal leases are typically enforceable, they do not protect you like a non-refundable security deposit in case of non-payment. While the court may order a tenant to pay back rent that may be owing, a tenant who cannot pay the rent will most likely not be able to come up with any money in court to pay. So, while you may have gotten a verbal judgment ordering the tenant to pay you the rent in court, proving to the court that the judgment was not paid can be another challenge. Verbal judgments are usually hard to enforce.
If the rent is not paid on time by the tenant, the landlord has the option to file an eviction case in order to secure a judgment for past due rents as well as to proceed with an eviction order that could result in eviction in consideration of non-payment of rent.
Pros and Cons of Oral Lease Agreements
Pros
The main advantage of a verbal lease is that it provides a level of flexibility for both the landlord and the tenant. As a landlord, you have room to negotiate the terms with the tenant without the commitment required by a written document. As a tenant, you can get the landlord to agree to terms that may not be acceptable to most landlords.
Cons
Most misunderstandings that occur over the contract terms are because one or both parties assume additional restrictions or benefits apply to the agreement. A verbal contract is more open to argument over provisions that were assumed but not expressed in the discussion. Because the terms of a verbal lease are assumed rather than specified, it is difficult to prove the terms legally in the event of a breach. A verbal lease in Texas is enforceable, but only if you can prove the terms.
Legal Requirements for Enforceability
In order for a verbal lease agreement to be considered valid in Texas, it must adhere to certain legal requirements. These requirements, as enumerated in Texas Property Code Section 24.005(f), concern the duration of the lease, the rent amount, and the property’s description and must all be satisfied in order to form a binding, enforceable agreement between the parties.
There is a minimum duration that a verbal lease must meet in order for the agreement to be binding on the parties. A verbal lease of agricultural or residential real property for a term of one year or less must be in writing to be binding and enforceable. Section 28.01 of the Texas Statutes provides that leases of less than one year are not enforceable unless in writing. However, Section 28.001(a) does not apply to oral leases of agricultural or residential real estate. A verbal lease term is not necessarily limited to one year. The statute uses the phrase "a term of one year or less." This means that even if a verbal lease has a term of more than one year, the lease may still be enforceable if it is for "a term of one year or less." For example, if a verbal lease provides for a term of two years but also terminates at the end of the current calendar year, then the verbal lease only has a term of one year and, therefore, the one year exception to the Statute of Frauds applies.
Next, a verbal lease agreement must set out the agreed rent in order to be binding. This may seem like an obvious requirement and probably one that does not need to be discussed in detail, however, this is not always the case. In a landlord/tenant scenario, generally, once the tenant moves in and begins paying rent, there is no issue. Nevertheless, where the parties do not agree later, or if the tenant is delinquent, there could be a dispute regarding the actual rental amount. At the time of entering into a lease agreement, unless agreed upon otherwise, rents are typically higher early in the lease period and decrease as time passes. This may be due to the fact that at the beginning of a lease the landlord usually pays for several expenses relating to the new lease, including making repairs, obtaining insurance, paying closing expenses, and so forth. Therefore, if a landlord tries to evict a tenant for nonpayment, or raises the rent to a unreasonable level without consent, what a court will deem an "agreed rent" may come into play.
Additionally, if a landlord were to try to enforce the lease by forcibly evicting the tenant for nonpayment, this too may be an issue, as a landlord cannot forcibly evict a tenant for nonpayment unless they have knowledge of the actual lease terms and the agreed amount. A tenant may be at an advantage in this case, in that if there is a dispute as to the rent amount or if the landlord does not have accurate knowledge of the rent amount, it may bar the tenants eviction for nonpayment, even if they have not paid rent in months and owe thousands of dollars.
Next, the lease must describe the property. Although describing the property is generally required for a written lease, when a lease is oral it is sufficient if the property can be identified with reasonable certainty from the circumstances. For example, if the property is a house or building, the lease should include an address as a means of identifying the property. If the property is land, an accurate description of the boundaries, as well as a map would be appropriate. If the property is a portion of space inside a larger building, a unit number or other means for identifying the property could be used. Where a lease involves relatively minor spaces in a larger complex and identification is difficult, courts generally agree that no special description is needed beyond the name of the complex. On the other hand, where a lease involves the rental of a substantial piece of land or an entire building, more specific descriptions of the property are likely to be required.
One other point here is that the lease does not necessarily have to describe the property with particularity to be enforceable, but the other requirements of duration and the agreed rent must be met. It is not uncommon for an inaccurate written lease to exist alongside an oral lease, where the parties agree that the oral lease rather than the written lease governs after the oral lease is created. On the other hand, where the lease does not meet these requirements at all, or is ambiguous or highly contested, a court could find that it is unenforceable.
Common Issues for Oral Lease Agreements
A verbal lease agreement, even those that may be lawful when initially agreed upon, may lead to disputes over the following issues:
Disagreements Over Lease Terms
A verbal lease agreement may be susceptible to dispute as to what the true terms of the agreement were. For instance, if a tenant says that the landlords agreed to pay for utilities while the landlord says otherwise, there is no documentation regarding the terms of the oral agreement to support either claim.
In such a case, the tenant may seek to have the rent reduced by the cost of the utilities. If the tenant fails to pay rent in such a situation and then is evicted, the tenant may be able to file a lawsuit against the landlord to recover damages for the utilities that they supposedly paid as well as the costs of litigation. A similar dispute may arise between the parties as to the length of the landlord-tenant relationship.
Disputes Between Landlords and Tenants
If the property is not maintained properly, tenants may refuse to pay rent and argue that they have terminated the lease due to constructive eviction . If the tenant is evicted or if a judgment is issued that the tenant did not properly terminate the relationship, the tenant’s defenses may be weakened when attempting to collect owed rent.
In either case, tenants do not have an easy time collecting money without a lease that can be used as leverage during negotiations or litigation. In addition, even in written leases, landlords may try to argue that tenants should not have to share responsibility in a breach of contract lawsuit. A tenant may have defenses to a breach of a verbal lease agreement if a landlord has failed to perform their duties.
Also, if the landlord obtains or retains the security deposit, this may lead to disputes between the parties. Tenants may argue that they should not be required to pay the security deposit at all. On the other hand, landlords may argue that any such security deposit may be forfeited if the payment is not received.
It is always a best practice for both parties to have a written lease to avoid many of these common disputes.
What to Do if You Have a Dispute?
If a dispute arises from a verbal lease agreement in Texas, the first step is to determine whether there is any documentation or evidence – such as text messages, emails, or witnesses – to support the interpretation of the verbal agreement. If there are multiple parties involved in the dispute, it may be necessary to hold a meeting to try to reach a resolution. Document any conversations with the other party regarding the dispute, and do not destroy any of the documents that you may have regarding the arrangement, as they may be necessary if the matter proceeds to court or another means of dispute resolution.
In the event that the parties cannot reach an agreement informally, tenants and landlords can use mediation to resolve a verbal lease agreement dispute. Given the costs associated with litigation, many rental disputes can be settled through this method – which involves a neutral third party helping the parties to the dispute to reach an agreement about the matter. When parties go through mediation successfully, the mediator will often prepare a written statement regarding the agreement that all parties will sign.
As in any business transaction, keeping careful records and following good documentation practices can help to avoid problems if the original participants in an agreement move on or if there is a disagreement over its terms. Whether a tenant or landlord, the greatest risk associated with verbal lease agreements or contracts is that if there is a breach, it may be difficult to prove in court that the terms were what the party argues that they were. If someone claims that an agreement was made or that something was promised, the court must determine whether that claim is credible. It is always best to have any agreement in writing, but if it is not possible to obtain a written agreement, make a habit of instantly writing down the terms of verbal agreements when they occur, so that there will be a record of them should a dispute arise.
Tips for Protecting Your Rights
The question is then, how does a landlord or tenant protect themselves when entering into a verbal lease agreement when they really intend for all the terms to be verbal, not written? Below are some tips that will help both landlords and tenants protect their interests when entering into a verbal agreement.
Landlords
If you are a landlord and you want to ensure that you have a written lease agreement with your tenant, send the tenant a letter stating that you intend the lease terms to be in writing, and the fact that they are not has no effect on the terms of the lease. In addition, you may want to consider a short two-page lease agreement. If you do decide to use a short form lease agreement, be sure to add a clause that states the verbal lease agreement is also in effect. However, if you do not plan to put the agreement in writing , add clauses that specify the essential terms you want to have in the lease and make it clear you intend for all of the terms to be verbal. This will at least allow you to use the verbal agreement against the tenant if the tenant does not fulfill their obligations under the lease.
Tenants
If you are a tenant and you want a written lease agreement, then make this clear to your landlord. A simple letter stating that you would like for the terms to be in writing should suffice. Be sure to refer to any verbal conversations you have had with the landlord and ensure that the lease is what you expect. If after several conversations the landlord insists that the terms of the lease must be verbal, and you agree, then be sure to add clauses that specify the essential terms you expect and be clear that each term is intended to be oral. Finally, ensure that you follow through on your obligations under the lease. This will become important if the landlord attempts to evict you based on a verbal breach of the lease agreement.