By Fredrick P. Niemann, Esq. a NJ Contract Attorney
The New Jersey Statute of Frauds requires that most real estate contracts be in writing. The most well-known type of contract that is subject to the statute of frauds are contracts for the sale of real estate, especially commercial property for $500 or more which must be in writing. In addition, contracts for the sale of residential real estate are generally required to be in writing. Quite surprisingly, however, under certain limited circumstances an oral agreement concerning the transfer of a real estate may be enforceable.
Specifically, an oral agreement concerning the sale of real estate can be enforceable where it is established by clear and convincing evidence that the following has been articulated (a) a sufficient description of the real estate; (b) the nature of the interest that is to be transferred; (c) the identity of the transferor and transferee of the interest; and (d) the existence of an agreement. The “agreement” can be found where the parties anticipate a written and more formal contract of sale.
Arguably a buyer and seller could be bound by an oral agreement for the sale of real estate even though they contemplate negotiating additional terms and incorporating them in a written contract of sale at a later point in the transaction.
Parties to a real estate transaction in New Jersey should proceed cautiously. There are some basic protections that can be done to lessen the risk that an oral agreement will be binding. First, avoid utilizing letters of intent or term sheets. But, if there is such a document, it should explicitly state on its face that it is not intended to be interpreted by the terms as a binding contract until a written agreement is executed. In addition, when negotiating orally with respect to contract terms, always provide the other party to the transaction with a short correspondence and/or email at the very outset that they do not intend to be bound to any terms as stated orally or any other writings until a formal contract for sale are executed.
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