What Is the Statute of Frauds in Real Estate?
The Statute of Frauds requires that certain contracts, including real estate purchase agreements and leases longer than one year, must be in writing to be enforceable.
Key Takeaways
- Rules vary by state; always learn your specific state's requirements.
Contracts on the Real Estate Exam
The Statute of Frauds is one of the most frequently tested contract law topics on every state's real estate exam. You can expect at least one or two questions covering which agreements must be in writing, what happens when a contract violates the statute, and the key exceptions. Understanding this concept is essential because it affects virtually every real estate transaction you will handle as a licensed agent.
Understanding Contracts: Key Concepts
What It Means
The Statute of Frauds is a legal principle that requires certain types of contracts to be in writing and signed by the party to be charged (the party against whom enforcement is sought) in order to be enforceable. In real estate, the most important contracts covered include:
Real estate purchase agreements (any contract for the sale of real property), leases with a term longer than one year, listing agreements authorising a broker to sell or purchase real property, and agreements to pay a commission to a real estate broker.
Consequences and Enforcement
The purpose of the Statute of Frauds is to prevent fraudulent claims by requiring reliable written evidence of significant agreements. Without a writing, a party generally cannot enforce the contract in court, even if both parties verbally agreed to all the terms.
Exceptions and Limitations
There are limited exceptions. The most important for exam purposes is the doctrine of part performance. If a buyer has taken possession of the property, made improvements, and paid part or all of the purchase price, a court may enforce an oral agreement despite the Statute of Frauds. However, this exception is narrow and rarely appears in practice.
A contract that violates the Statute of Frauds is voidable, not void. This means it can be ratified (made enforceable) if the required writing is later created. If both parties have already fully performed under an oral agreement, neither party can later claim the contract was unenforceable.
Contracts Rules by State
Each state has its own rules when it comes to contracts. Here are a few examples of how requirements differ:
California
Codified in California Civil Code Section 1624. Applies to all real estate purchase agreements, leases over one year, and broker commission agreements. The part performance exception is recognised by California courts.
Texas
Found in the Texas Business and Commerce Code, Section 26.01. Texas additionally requires that real estate commission agreements be in writing. The TREC promulgated forms satisfy the writing requirement for most residential transactions.
Florida
Governed by Florida Statute 725.01. Florida follows the same general principles but has specific case law on the part performance exception. The FAR/BAR contract forms satisfy the writing requirement.
When the exam asks about the Statute of Frauds, focus on which contracts require a writing. The most common wrong answer trap is listing a lease of exactly one year. Remember: leases of one year or less do NOT need to be in writing. Only leases longer than one year are covered.
Rules vary across all 50 states
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