Emails may create a binding property contract

It is surprising to many property professionals that there is no longer a requirement for an inked signature in order to create a binding contract. This is more surprising again where the contract relates to an interest in land.

A contract for the sale of land must satisfy Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (the 1989 Act). The purpose of the 1989 Act was to produce certainty in relation to contracts for the sale of land and reduce the need for extrinsic evidence to establish the terms of the contract. Section 2 of the 1989 Act provides that the contract must:

— Be in writing

— Be signed by or on behalf of both parties

— Incorporate all the terms the parties have agreed in one document (or, where contracts are exchanged, in each document)

In Green v Island [2011] EWHC 1305 (ch) two sisters had exchanged emails following an oral agreement that a company would borrow £300,000. Emails were later exchanged confirming the arrangements and each sister added her name electronically at the end of each email.

In one of the emails one of the sisters confirmed that her company would grant the other sister a charge over its property in exchange for the loan. Subsequently, the liquidator argued that this confirmation was not binding because Section 2 of the 1989 Act had not been satisfied because the emails did not contain all the terms which were orally agreed and there was no enforceable obligation against the company to grant the legal charge over its property. However, the Court accepted that the string of emails satisfied the requirements that the contract be in writing and be signed by the parties.

The string of emails constituted a single document signed by both parties. The Judge commented that it was “the electronic equivalent of a hardcopy letter signed by the sender being itself signed by the addressee”. However, the Court found the contract did not incorporate all the terms agreed between the parties and so the third limb of Section 2 of the 1989 Act was not satisfied.

Nevertheless, lessons must be learnt in that adding the words “subject to contract” or “subject to lease” in communications (including all electronic communications) remains prudent to avoid inadvertently creating a binding contract and in land transactions finding that the parties have bound themselves and satisfied Section 2 of the 1989 Act. This is especially so in relation to heads of terms. It is also wise for emails in relation to land transactions to state that any contract will only be formed by the signature and exchange of a separate document intended to form the contract. Property professionals should observe these rules and remember that their correspondence can bind their principals. They should also avoid long “strings” of emails to prevent these being classed unintentionally as a single document.

Some perhaps surprising recent cases involving electronic communications are also worthy of mention:

— An exchange of emails where a vendor gave a confirmation as to a “sole agency” created a binding contract which meant the vendor was later held liable to pay that estate agent commission as well as another estate agent who sold the property: Nicholas Prestige Homes v Neal [2010] EWCA Civ 1552 Court of Appeal

— A signature by a client on a fax quotation which was then returned to the contractor as an email attachment created a binding contract even though the contractor who later took advantage of the signature to successfully claim a binding contract had previously stated that a formal contract would follow. In this case the email correspondence was sufficient to form a binding contract. Immingham Storage Company Limited v Clear Plc [2011]

From Clyde & Co Summer 2012 Real Estate Bulletin

Written by Keith Conway

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