Can a handshake be trusted?

A verbal or gentlemen’s agreement is simple and convenient, especially when a transaction is deemed to be straightforward and uncomplicated. Although it is general practice to make use of these type of agreements, and in many instances without any complications, problems usually start to creep in when there is a disagreement between the parties.

In cases where there are no documents setting out salient terms, conditions, objectives and intentions of the parties, especially terms relating to prescribed procedures and rules in case of disagreement, it can often result in prolonged processes of dispute resolution or legal disputes aiming to find suitable solutions.

A lease agreement is a good example of a formal document setting out important details and particulars to the agreement between a lessor and lessee. Details generally included in a lease agreement can be the following –

• Lease period and option to renew.
• Monthly rental amount and escalation thereof.
• Deposit payable to lessor.
• Terms relating to maintenance requirements from both the lessor and lessee, etc.

It is recommended to draft a clear and concise written document containing all the relevant terms to an agreement. Not only does this provide clarity for all parties to the contract regarding their rights and responsibilities, but also offers useful information and guidance to legal representatives in the case of disagreement.

Although it is not always possible to put everything to paper due to deadlines and other time constraints, it is advisable to at least formalise essential terms of an agreement, even if it is in the form of a term sheet/letter of consensus. This can be done by simply sending the other party a document/letter confirming the terms of your oral agreement, clearly stating that should their understanding be different, they should notify you to enter into further discussions to ensure that consensus is reached.

At ASL Advisory we recognise that putting agreements on paper can be an administrative burden which you would rather avoid, however, we would recommend that doing this should not be postponed as this will eventually result in not doing it at all. Our team of financial and legal professionals are capable of ensuring that this administrative process benefits you as much as possible. We can even help you process the journals in your accounting records if required! To enquire on how we can take matters like these off your hands and can free you up to focus on the urgent matters in your business, please make contact with Tiaan Jordaan at tiaanj@asl.co.za or Arnold Scholtz at arnold@asl.co.za without delay.