Section 24 of the Property Law Act 2007 provides that in order to be enforceable, a lease of land must be in writing and signed by the party against whom it is to be enforced.  However, an exception to this rule arises where an oral agreement to lease has been the subject of "part performance".

The High Court has recently considered the doctrine of part performance in Dunroamin Nurseries Ltd v Zealandia Horticulture Ltd [2013] NZHC 1074.  In that case, a draft deed of lease existed but a final version was never signed.  Notwithstanding this, the lessee occupied the premises and paid rent to the lessor.  After three years, it sought to terminate the lease, alleging that it had never agreed to the terms of the draft deed.  The lessor asked the High Court to enforce the lease.

The Court agreed to do so, on the basis that the threefold test for part performance had been met.  In particular:

  • There was a sufficient oral contract.  An offer to lease was made by the lessor when it handed over the draft deed of lease.  While there was no express acceptance, it could be inferred from the lessor's failure to put forward a counter-offer, its taking over of the premises and its payment of rent
  • The taking of possession, issuing of invoices and receipt of rent were sufficient acts of part performance, consistent with the contract alleged by the lessor
  • It was not unconscionable for the lessor to rely on the part performance.  The relevant circumstances by which unconscionability is to be judged are those at the time of the part performance (not those existing later).  The lessor had acted in good faith and had taken a number of steps in reliance on the existence of a lease, including the erection of a building and the financing of it. 

The case serves as a cautionary tale for parties whose lease agreements are oral only.  It confirms the real risk that, where a lease is not contained in a signed document, it may not be enforceable.  Moreover, even if a Court does order its enforcement, that enforcement may be on different terms than those which a party had understood to apply.