Oral Agreement Gives Rise To Property Rights

It is a well-established principle of English law that contracts involving land must be made in writing. However, that is not to say that just because an agreement relating to land is not made in writing, it is unenforceable.

One circumstance in which rights over property can be created orally is when a constructive trust arises due to an oral agreement being made with regard to a property. A constructive trust is where a person has responsibility over another person’s property as a result of the operation of law. A recent case illustrates such a circumstance. It involved two men, Mr Oates and Mr Stimson, who bought a house jointly in 1995, each paying an equal share of the mortgage. Mr Oates had financial problems and moved out in 1997. He agreed to sell his interest in the property to Mr Stimson for £2,500 and that Mr Stimson would pay him when he was able. Mr Stimson then took over sole responsibility for making the mortgage payments and for the maintenance of the property.

In 2000, Mr Stimson attempted to pay the £2,500 to Mr Oates. Mr Oates denied that the agreement existed and claimed £50,000 as his share of the value of the house.

The judge accepted Mr Stimson’s evidence that the agreement existed and that by taking over the responsibility for the mortgage payments and repairs he had suffered a detriment. The court therefore found that this gave rise to a constructive trust in Mr Stimson’s favour. Once he had paid the £2,500 to Mr Oates, therefore, the full value of the property belonged to him.

Says Syed Talha Rafique(srafique@duncanlewis.com), “This is another example of a dispute ending in litigation which could easily have been avoided had the agreement been properly documented in the first place. Relying on someone else to confirm an agreement for which there is no written evidence is risky at best. If you find yourself in similar circumstances, take legal advice.”