When buying a house, is a verbal agreement binding?
Now a days it is very hard to find your dream house or the perfect investment. Once you have found it. You and the seller are verbally in agreement. Then someone else is willing to pay more for the house and the seller does not want to comply after the verbal agreement anymore. Can you hold the seller to the verbal agreement? In the following I will explain when buyer and or seller are bound to the verbal agreement.
Consumer-buyer does not want to comply after verbal agreement
Article 7:2 of the Civil Code states that, in the case of the sale of a home where the buyer is a private individual (a consumer) not acting in the course of a business or profession and who is going to live in the home himself, there is a legally valid contract of sale only if it is concluded in writing – by means of a signed deed of sale. The idea behind this provision is that the legislator wants to protect the consumer-buyer. Without a signed contract, there is no sales agreement according to the law. The consumer-buyer cannot be successfully sued for performance, even if there are several mails and the draft contract has been sent to the parties. The consumer-buyer can therefore renounce the verbal purchase without any consequences. If the private individual buys a property as an investment, he is not a consumer-buyer but a and can be held to an oral agreement.
Consumer-seller fails to comply after an oral agreement with consumer-buyer:
The Supreme Court ruled in 2011 (ECLI:NL:HR:2011:BU7212) that in case of an oral agreement on the sale of a residential property to a consumer-buyer and the consumer-seller refuses to cooperate in the drafting and signing of a sales contract, then the consumer-seller may (also) rely on Article 7:2 of the Dutch Civil Code that the oral agreement has no legal effect. Therefore, the consumer seller can successfully invoke the requirement of written form and performance cannot be successfully claimed from him either.
Consumer-seller fails to comply after oral agreement with business buyer:
The Amsterdam Court of Appeal (ECLI:NL:GHAMS:2020:2757) ruled in 2020, that after an verbal agreement had been reached between a consumer seller and a business buyer, but before the sales contract was signed, the requirement of writing does not apply to the purchase between a consumer seller and a business buyer. It ruled that the consumer seller was bound by the verbal agreement on the sale and that the seller had imputably failed to comply and was therefore liable to pay damages to the business buyer.
With this ruling it is now certain that a consumer seller can be held to an oral purchase agreement by a business buyer.
Business/ professional vendor does not want to comply after verbal agreement:
The Supreme Court (ECLI:NL:HR:2011:BU7212) ruled that a business seller (e.g. investor) cannot rely on the requirement of writing. After all, if the protection of Article 7:2 of the Civil Code were to apply to all sellers, the professional seller would only be bound towards the consumer buyer after the sales contract had been laid down in writing, whereas in the case of a professional buyer he would already be bound by an verbal agreement. This would put a professional seller in a better position towards a consumer buyer than towards a professional buyer. This is contrary to the intention of the legislator, who wants to protect the consumer buyer.
However, the consumer buyer can still rely on the requirement of writing and therefore on the consumer protection of Article 7:2 of the Civil Code.
Business buyer does not want to comply after verbal agreement:
Art. 7:2 of the Civil Code does not apply if the buyer is a business buyer. One is a business buyer when the property is bought for other purposes than to live in it as you own home. Professional and private investors are business buyers. The business buyer can therefore be held to an oral purchase agreement. The business seller can successfully claim performance of the oral agreement.
Schematic representation of who is bound by an oral purchase agreement:
Consumer seller – consumer buyer => buyer and seller not bound
Consumer seller – professional buyer => buyer and seller bound
Professional seller – consumer buyer => seller bound/ buyer not bound
Professional seller – professional buyer => buyer and seller bound