Don’t rely on handshakes and verbal agreements: Miller
By Rob Lamberti, AdvocateDaily.com Contributor
Business deals and agreements between family members should be confirmed with a written contract to protect the interests of all of the parties involved, says Toronto civil and commercial litigator Jonathan Miller.
Handshakes and verbal agreements are fraught with the possibility of becoming a point of contention between the people involved when trying to recall just what was agreed to, says Miller, an associate with the Toronto office of Shibley Righton LLP.
"A handshake and a couple of conversations" isn’t exactly the best evidence, he tells AdvocateDaily.com.
"Plan for the worst. It’s an awkward conversation to have at the beginning, particularly with business contacts and family members, but having the discussion up front can help prevent headaches down the road if things go sour," Miller says.
"It’s along the same lines as going into a marriage with a prenuptial agreement."
Miller cites three files he’s handling where unwritten deals are being contested. One case involves a family; the second is among acquaintances in a business deal; and the third deals with an arm’s-length, third-party relationship.
Agreements and deals should be formalized on paper, says Miller, no matter what the relationship is between those involved.
"I'm not saying it has to be so formal that you get lawyers involved in drafting the deal, but something that sets out the terms of the arrangement," he says.
"I think about this in the family context specifically because this problem often comes up in estate disputes."
It could be a scenario where a child claims that he and his now-deceased mother had an agreement, but there is no document to support the claim.
"You have Child A saying they have this agreement and Child B is trying to fulfil their role as the estate trustee and doesn’t know anything about it, and says, 'You have to pay back the money,’ or ‘You don’t get the money,’ or whatever the case may be," he says.
Without an agreement, it’s difficult for people to accept an estate claim, Miller says.
He suggests the bare minimum should be written into an agreement involving a family where, for example, a parent lends money to a child. It should at least include the amount, whether there’s any interest and the expected date of repayment.
"It could be as simple as an IOU and what the loan was for," Miller says. In business, however, a few more details should be documented, he adds.
"It doesn’t necessarily have to be a full-blown contract reviewed by lawyers, but it should set out the general terms of the agreement."
Miller cites an example of a case he’s handling where a tenant apparently paid for renovations to the property, but there was no agreement in place with the landlord "and then it becomes a question of who’s responsible for paying for the work."
"Just setting out the basic structure of how that’s going to work can really prevent headaches later.”
He says family members ought to look at a formalized agreement as a sort of insurance plan that prevents conflict in case something goes wrong.
"Families start out with the best of intentions, but you never know what can create a rift between people," Miller says.
"And so it goes back to trying to avoid this headache later on for the people who are left trying to figure out what the deal was," he says.
"It’s awkward. Nobody likes to do it, particularly in those family scenarios, but if you plan for the worst, it will make things much easier down the road."
An additional benefit of having the agreement documented is that it can provide a resolution for problems that might not have been foreseen, says Miller.
"Having something written allows the parties to go back to that as a framework to deal with issues that come up that they didn’t think about in the beginning," Miller says.