By Joanne Wright, Senior Associate in Commercial Property & Development.
Recent case law highlights the need to use clear and precise drafting when negotiating heads of terms or dealing with transactions to avoid creating a binding contract before you are ready.
By law, contracts for the sale of land must be in writing and incorporate all the terms expressly agreed between the parties in one document which is signed by or on behalf of each party to that contract.
In Green (Liquidator of Stealth Construction Limited (the company)) and Ireland (2011), the company made an oral agreement to borrow £300,000 from the defendant, Miss Ireland. Emails were later exchanged and the company promised Miss Ireland a charge over its property.
Although the court agreed with the liquidator that the emails did not constitute a contract, the court appeared to accept that a contract could legitimately be created by the exchange of emails and the creation of a string of emails to constitute a binding contract between the parties.
The emails had been signed on behalf of the parties as the parties’ names had been inserted at the end of the emails.
The judge commented that it was “the electronic equivalent of a hard copy letter signed by the sender being itself signed by the addressee”.
In order to prevent inadvertently falling into this trap:
- pre-contract emails should always be marked ‘subject to contract’;
- parties should avoid long strings of emails to prevent these unintentionally being classed as a single document;
- clear and precise drafting is crucial to ensure the parties’ intentions are fully reflected in any agreement.
This is just another example of unintended consequences which can be avoided if you seek appropriate advice at an early stage.