Are Handshake Agreements Legal in Real Estate?
Published on 29 August 2022, 07:22:56 AM
Unclear terms, illegal conditions, or no consideration can void a handshake agreement to buy or sell real estate in Ontario.
You may even be committing fraud — Ontario’s Statute of Frauds requires the transfer of interests in land or real estate to be in writing. Read the statute.
Didn’t know that when you made a handshake agreement? Whether your handshake agreement holds up in an Ontario court depends on what you agreed to and how.
Quick Reads
Five elements of a legal contract
Is a handshake agreement legally binding?
How oral contracts fare in court
What to do if you’re offered a handshake agreement
Deposit protection for new home builds.
5 Things to Look for in Contracts
Making a legal contract in Ontario requires:
- Mutual consent (not coerced).
- Contractual capacity, meaning the parties have the mental ability to keep the promise.
- Purpose, such as delivery of a specific good or service.
- Consideration, like money or other things of value to the parties.
- A written agreement for real estate transactions.
Practically speaking, as long as money or other consideration changes hands, and title to the property is transferred legally without anyone objecting, no harm may be done. Do text messages hold up in court?
Is a Handshake Legally Binding in Canada?
But proving a handshake agreement (“gentlemen’s agreement”, oral contract, or whatever you call it) exists can be tricky. Without witnesses, it’s ‘your word against mind’, which is potentially unenforceable, as an Ontario father, his daughter, and her partner discovered. If you plan to sue, read Downey v Arey, 2021 ONSC 2781.
Other Ontario real estate law questions you ask us.
How Handshake Agreements Stand Up in Court
Just how do handshake agreements hold up in court? As the Ontario Superior Court of Justice judge put it in Downey v Arey, without a written agreement, expectations are unexpressed, terms are uncertain, and assumptions go unshared.
As the trio told the judge, they acknowledged a handshake agreement existed to buy the father’s house by Aug. 31, 2016 for $750,000 or $850,000 (depending on whose version the court accepted).
That’s all they agreed on. The failure to have a meeting of the minds would cost the family.
Seeking Damages for a Failed Handshake Agreement
The daughter argued in court that the agreement had been extended, by mutual consent, to May 31, 2017. The couple arranged to pay $1,800 in monthly rent to cover the mortgage, taxes, and insurance until the deal was completed. she said.
Her father insisted he never consented to the new deadline. When the couple didn’t respond to a March 2017 request to finalize the purchase, he upped the price to $1.25 million, and asked them to leave if they didn’t plan to buy. They responded with a lawsuit.
The couple asked the court to either enforce the handshake agreement, or grant a $266,000 judgment for breaching the contract, costs incurred ($167,000), and lost business the partner, a plumbing contractor, suffered while he repaired the home. The father conceded repairs were needed, and countered with $91,000 for their expenses and efforts.
What a real estate lawyer does for you.
How a Handshake Agreement Was Overturned
Downey v Arey shows why buyers and sellers are well advised to decline a handshake agreement. In the final analysis, the judge found the father was free to list and sell his home since:
- No contract existed because the father and couple couldn’t agree on the consideration (price for the house).
- They also didn’t agree on basic terms related to sale, like extending the date to May 31, 2017.
- The home was the father’s largest asset. He was 80, retired, and living temporarily in a motel. The judge questioned why such a significant financial deal would be made orally.
- The trio were unable to produce written evidence or reliable neutral witnesses to substantiate the handshake agreement.
That left the couple with no home, but nearly $179,000 for their labour, materials, expenses, and interest. As the judge ruled, it was a handshake, but no agreement.
If a real estate deal falls through, who gets the deposit?
Why You Need a Real Estate Lawyer
Talk to Axess Law’s virtual real estate lawyers if you’re offered a handshake agreement for a real estate transaction. Our licensed professionals can give you valuable, independent legal advice you may need to show a court if a seller insists an oral contract is legally binding. What’s in your agreement of purchase and sale.
Professional home inspections can turn up minor defects like holes in walls, or major structural and foundation problems that can be costly to fix. Axess Law ensures your sale is confirmed in writing, and negotiates with the seller’s lawyer if the home inspection report points out problems that you want repaired before completing your purchase.
Watch out how you word home inspection clauses.
Mortgage interest rates can change between the time you make a handshake agreement, and the seller demands final payments. Axess Law ensures you have a legally valid, signed agreement of purchase and sale to negotiate extensions to the completion date if financing is challenging to secure. Documents to bring to your legal appointment.
A clear title to a property you want to purchase can make the difference between concluding a real estate transaction on time, or withdrawing. Axess Law searches title to a property for financial encumbrances, cumbersome rights of way, or construction liens that may affect whether you exercise your buyer’s right to cancel. We include the right to withdraw by mutual consent in the agreement of purchase and sale to prevent financial penalties if title problems can’t be satisfactorily resolved. Costs to expect during the real estate closing process in Ontario.
Convenient, Virtual Real Estate Lawyer Services
Connect with virtual real estate lawyers anywhere in Ontario with our secure, confidential video conference calling software. Our remote real estate lawyers call your home or office at the appointed time to discuss your real estate transaction, and witness your signature. We make signing legal documents easy and budget friendly.
Affordable Real Estate Lawyers, Anywhere You Are
Access lawyers for less in Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.
Hire a real estate lawyer.
Book Appointments Online or By Phone
Dial 647-479-0118 to find real estate lawyers in your community, or call our toll free lawyer line, 1-877-402-4207, to meet remotely with virtual lawyers anywhere in Ontario. Use our easy booking form to schedule your own legal appointments, or pop by any Axess Law location to arrange times convenient for you.
