Benny has rented Alex’s home every summer for the past three years. In preparation for this year’s summer’s rental, they verbally agreed on the cost of rent for the 2021 season. Alex then sent an email request to Benny for a $3,000 deposit along with an attachment of a written contract for signing. Benny immediately transferred to Alex’s account three thousand dollars but did not sign and send back the contract. With only two weeks before the summer season, Benny called Alex just to follow up and was informed by Alex that the house was just rented to another party. Alex explained that although Benny gave a deposit, he never signed the contract. Alex continued to explain that he did not willingly renege on his agreement with Benny, but rather he was unaware that the exclusive agent that rented out his home during the winter was authorized by contract to rent it out for the summer as well. In order not to ruin his relationship with the agent that rents out his home every winter, he agreed to rent it via the agent for the summer as well. In Bet Din, Benny claimed that since he put a $3,000 deposit towards the rental he was legally entitled to the home and demanded that the other party be denied access to the property. Furthermore, Benny claimed, that upon inquiry in the market for a last-minute vacancy available for rent, he found prices to be substantially higher. The rent for one property of interest was nearly 25 percent higher than that of Alex’s home. Benny was vehemently unwilling to release Alex from his commitment to rent him the property unless Alex compensates him for the additional cost of rent due to a last-minute rental.
Is Benny entitled to the property for the summer? Is Alex required to compensate him for the additional cost of a last-minute rental? How should the Bet Din rule and why?
TORAH LAW
According to the ruling of the Shulhan Aruch, the sale of real estate is viewed as a binding transaction upon the transfer of funds and the signing of the proper documentation. In the absence of either the transfer of funds or signed documentation, both the buyer and seller can potentially renege on the transaction. Notwithstanding, the party that elects to renege in such an instance is subject to various forms of penalty. The degree of penalty is likely
dependent on the stage and context of the parties’ agreement.
The above ruling is applicable strictly to the sale of real estate. Regarding the rental of real estate, by Torah law, it is sufficient for a tenant to transfer funds to his landlord to execute an effective binding agreement. If, however, a landlord indicates that the rental transaction is not final until funds are transferred and a contract is signed, a tenant is required to comply with such a request to finalize the rental. Additionally, if it is common practice in rental markets, that in addition to the transfer of funds a lease is signed to finalize a deal, the transfer of funds alone is insufficient.
Although a buyer or a seller of real estate can legally renege after the mere transfer of funds prior to the signing of a contract, nevertheless, some halachic authorities impose a severe castigation on one who does so. However, many halachic authorities differ and maintain that regarding real estate one is not subject to chastising. In view of the above dispute, a Bet Din will refrain from chastising a party that reneges on a real estate transaction when only money is transferred between the parties.
The same is applicable to a rental agreement in which a landlord requires his tenant to sign a contract to finalize the agreement. As mentioned, in such an instance the transfer of funds is insufficient and does not constitute a binding rental agreement. Hence, if either the landlord or the tenant opts to renege at that point, a Bet Din will refrain from chastising the reneging party.
By the rule of the Shulhan Aruch, it is considered untrustworthy to renege on one’s word. A man’s word is his honor, and it is unethical to back out of a deal. A Bet Din will nevertheless not enforce a party to live up to their word. In the absence of a binding agreement, a Bet Din will not enforce an agreement.
Additionally, if a party was genuinely unaware of a pre-existing situation at the time he gave his word, some halachic authorities waive the responsibility to keep one’s word.
VERDICT The Last Rose of Summer
Our Bet Din ruled in favor of Alex the landlord, by denying Benny access to the property and rejecting his compensation claim. As explained in Torah law, since Benny did not sign the contract upon request, the rental agreement was not finalized. Although Benny indeed transferred funds, Alex is entitled to rely on the halachic authorities exempting him from castigation by a Bet Din for reneging on a real estate deal after receiving payment. Additionally, although Alex gave his word to Benny to rent him his property, he was genuinely unaware of a pre-existing arrangement that he had with his broker. In such instances, numerous halachic authorities do not view reneging on one’s word as unethical. Nevertheless, our Bet Din suggested that Alex conduct himself honorably and offer Benny some compensation for his anguish. Alex complied with our suggestion, and peace was restored between the two friends.
YOU BE THE JUDGE!
THE ART OF DECEPTION
Steven is an owner of a residential building complex. By contract, a tenant who wishes to rent in the luxury building is required to prepay a year in advance at the time of signing. Gary, an old friend of Steven’s, showed interest in one of the smaller apartments in the building. Steven quoted Gary the price of $3,800 for the apartment and Gary rejected the offer as the price seemed exorbitant. Steven then showed Gary a larger apartment he had just rented out on the floor below for the whopping sum of $4,500. Steven explained to Gary that based on the larger apartment’s square footage the going rate for his apartment is at least $3,800. Gary was convinced, he signed and prepaid the first year of his two-year contract. A short time thereafter Gary spoke with the tenant on the floor below and inquired about the size and cost of his rental. The tenant told Gary that he was paying $3,800 for his apartment, which was clearly larger than Gary’s. Gary confronted Steven and demanded his money back claiming that the apartment was rented to him under false pretenses. Steven dismissed Gary’s claim with the wave of a hand, defending his position by claiming that the contract made no mention of any contingencies or considerations regarding the $3,800 cost of rent. He added that he did not necessarily recall the exact figure he told Gary regarding the larger apartment. Furthermore, Steven explained that the larger apartment was indeed valued at $4,500 in the market. Gary contested and refused to be a victim of deception.
IS GARY ENTITLED TO BREACH HIS CONTRACT? IS HE ENTITLED TO HIS MONEY BACK?
HOW SHOULD THE BET DIN RULE AND WHY?