Last week there was some confusion in the comments on a story in Property Industry Eye as to whether or not a legally binding contract for the sale of land could be entered into, erroneously, if written correspondence was not marked ‘subject to contract’.
It was suggested that, “If a prospective buyer makes an offer without stating it is subject to contract, and the seller accepts that offer in a signed letter or email, without them stating the sale is subject to contract, then UK contract law dictates that a legally binding sale has been formed. Regardless of whether conveyancers are involved, and contracts exchanged.”
It was further stated: “This I’m sure was tested in court, and if memory serves the seller was forced to sell his property because he sent an email accepting an ‘unconditional’ offer.”
Current UK legislation states that:
A contract for the sale of an interest in land is void unless it complies with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989):
• be in writing
• contain or incorporate all of the terms expressly agreed by the parties in one document or, where contracts are exchanged, in each, and
• be signed by or on behalf of each of the parties to it
In addition, preparing a contract for the sale or other disposition of land is generally a reserved legal activity under Sch.2 of the Legal Services Act 2007 and it is a criminal offence for anyone other than a regulated lawyer to do so.
I have been unable to locate the ‘unconditional’ offer case referred to above. If anyone is aware of it, or any other relevant case, please let me know.
It is highly likely that it/they will contain circumstances that are unusual and unique, and no doubt the devil will be in the detail.
Therefore, in my opinion, inadvertently creating a legally binding contract for the sale of land without complying fully with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989), is extremely unlikely.
However, including the words ‘subject to contract’ in correspondence can do no harm.
Rob Hailstone is CEO of Bold Legal Group.
The comment referred to appeared here:
EYE readers say estate agents should make clear that a property is ‘under offer’
I was just finishing my articles as a training solicitor and practising conveyancing at the time of the 1982 Act (I then moved into estate agency for good or ill!) and remember quite clearly that, unlike the provisions of the previous Law of property Act 1925 you could no longer create a contract by accident by leaving the words subject to contract off documentation. However, I also remember being told that many solicitors would continue to use the phrase out of habit and fear of not using it,
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This case has been brought to my attention.
The decision of the Court of Appeal in Joanne Properties Ltd v Moneything Capital Ltd [2020] EWCA Civ 1541 is an important reminder of the principles of “subject to contract” and the issue of when a contract becomes binding.
https://bwlgroup.co.uk/news/joanne-properties-ltd-v-moneything-capital-ltd-subject-to-contract
“The case is a useful reminder of a number of principles.
Firstly, subject to contract as a principle is there for a good reason. It allows parties to understand whether they are negotiating or whether an agreement has been reached.
Secondly, subject to contract negotiations will continue to be regarded as subject to contract until the matter is resolved. It need not be on every communication; the negotiations continue on this basis. But as a matter of good practice, and to avoid any misunderstandings, ensure it is written on all correspondence you send that is “subject to contract”.
Finally, the fact that one party considers matters resolved will not be enough – there must either be a formal contract or a clear basis for inferring that the parties have intended to waive the subject to contract principle.”
It would appear that conveyancers should always use the phrase ‘subject to contact’, not so clear as to agents and the public, but still prudent to do so.
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