A builder was approached by a friend to do some residential renovation work. They agreed on the services the builder would provide and how much the friend would pay. Given their relationship, they did not enter into any formal written residential building contract.

All went well...initially. The builder started the renovation work and the friend paid for the work provided. However, a personal issue arose between them that caused their friendship to deteriorate. As a result, the friend no longer wanted the builder at his home, or to finish the renovation work.

The builder was justifiably frustrated by this. The renovation job was an important source of revenue for his business, and there had been no complaints or issues regarding his building work.

What can the builder do?

Because the builder has potentially breached the Building Act 2004 by failing to enter into a written contract and provide prescribed disclosure information to his friend (assuming that the residential building work was valued at or over $30,000), the builder may face other practical issues in enforcing the verbal agreement against his friend.

However, in general, verbal agreements (like written agreements) are enforceable under New Zealand law. The first hurdle in enforcing verbal agreements is proving that they are valid.

Generally speaking, a contract is legally valid if a number of essential elements are present, including a clear offer by one party and acceptance of that offer by the other, and an intention by both parties to create a legally binding arrangement. With verbal agreements, it can be difficult to prove that all these essential elements are present. For example, it can be difficult to prove that the parties were no longer merely negotiating, and had reached clear agreement on the essential terms.

After showing that the verbal agreement is valid, the next hurdle is proving the precise terms of the agreement.

With verbal agreements, it can be difficult to provide clear evidence showing that a particular term was agreed by both parties, especially if the other side presents their own contrary evidence.

In the above example, the builder may need to prove that the parties agreed that the renovation work would continue until fully completed, and that the friend had no right to unilaterally cancel the agreement early, without the builder’s consent.

Overall, while verbal agreements can be useful in situations where the work is simple or low-value, they can be difficult to enforce for complex or higher-value work, such as the builder’s agreement above.

Accordingly, and to avoid enforceability issues later, it is recommended that all agreements are recorded in writing in some way.

Additionally, it is recommended that professional advice is sought when negotiating and recording all agreements to ensure that they are complete, and provide you with adequate protection.

Kirsten Ferguson
Commercial Lawyer
Wellington