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GAZETTE
MARCH/APRIL
1980
When is a Contract?
IAN F. FRENCH, F.R.I.C.S.
What I hope to do is to outline the background to the
subject and look at some of the difficulties created from
the point of view of a chartered surveyor negotiating the
sale and purchase of property in the market place. I shall
also mention some ways of coping with the new situation
that I have come across in practice.
As an aside I would like to say what a good thing I
think it is that chartered surveyors and solicitors have got
together to discuss this topic which is of vital interest to
the two professions who are deeply involved with the sale
and purchase of property and I think if nothing else is
achieved this evening, as I am sure it will be, the meeting
will have been worthwhile if we go away with a better
understanding of each other's points of view.
Firstly, then, the background. Before the recent
Supreme Court decisions, if I agreed to sell A's property
to B, provided that any correspondence contained the
words "subject to contract" it seemed in practice if not in
law that the parties were not bound until a formal
contract was agreed and signed by both parties. I can
recall, and I am sure many other surveyors can, making
feverish dives for the correspondence in the file to see
whether the sacred words were there when a dis-
enchanted purchaser or vendor threatened to take
proceedings to enforce a contract. This gap between
agreement on a sale and a binding contract creates an
uneasy time which could in some cases be weeks or
months during which either party could, if his morals
permitted him or if the financial carrot was big enough,
pull out of the deal. Although the system could be
described as too loose and open to abuse, it did, however,
enable a purchaser make all the necessary enquiries and
have the title examined in the knowledge that he had
"secured" the property at an agreed price rather than
going to the expense and trouble of doing this beforehand.
All this, of course, applied only to sales by private treaty.
In the case of an auction the contract or conditions of
sale, as we all know, are circulated to prospective
purchasers before the auction date and interested parties
make all their enquiries about the property before the
appointed day to enable them to bid at the auction and
sign the contract or memorandum immediately
afterwards.
As a result of the two Supreme Court cases the
situation now seems to have been turned on its head. If I
agree to sell A's house to B and say to B at the time some-
thing to the effect "your offer of £25,000 is accepted," or
"we have a deal at £25,000," any subsequent corres-
pondence which sets out the essential terms of the trans-
action is likely to create a binding contract between the
parties.
This, needless to say, has caused a great deal of uncer-
tainty and is unsatisfactory from the point of view that
both parties are not afforded the opportunity of stating
the precise terms and conditions on which they wish the
transaction to take place, and indeed a vendor may
unwittingly be bound by his actions or those of his agent
or solicitor.
Now to turn to the ways that I have come across of
dealing with the new situation. The first one is an enlarged
caveat which is inserted in correspondence to the effect
that "whatever is agreed is subject to a formal contract
being agreed and signed by both parties" and for good
measure that "in the interim nothing in this letter is to be
construed as being part of a contract". These would, of
course, only be valid if stated at the time the sale was
agreed. The second is that the vendor, or the agent on his
behalf, knowingly commits himself when the sale is
agreed and in subsequent correspondence. This, I think,
can be somewhat hairy and although it may be appro-
priate on some occasions, I think, correctly, it would be
viewed with concern by the legal profession. Thirdly,
there is the practice of one particular body of heading all
correspondence "without prejudice" which presumably is
intended to prevent the plaintiff from using the letters as
evidence in any action concerning the transaction. In
another case I have seen correspondence which is
"subject to principal's approval" and another in which
the terms are "recommended for approval" but quite
clearly these would not be acceptable to the parties
involved in the majority of cases. I have even heard of one
particular organisation where they ask the party with
whom they are dealing to execute a deed under seal under
which they agree not to sue the organisation in any deal-
ings in relation to the property. Again this seems to me to
be rather one-sided and would not be generally
acceptable.
Lastly, there is the adoption of the system used for
sales by auction under which the purchaser would be
issued with a draft contract, he would make all the
necessary enquiries, examine title and if necessary under-
take a survey prior to agreeing terms which would
immediately be followed by the signing of the contract
and the payment of a deposit.
I do not know whether any of these ideas will work or
whether there is another fail-safe solution. One thing,
though, I think is important to remember and that is that
it is essential that we find a way of dealing with the new
set of circumstances in which we find ourselves which is
both legally sound and practical in application. The sale
of property will go on and we will have to work together
to find a way of working within the new framework. I do
not think myself that any solution which involves leaving
the deal up in the air is workable. A purchaser wants to
know where he stands and whether his offer is acceptable
and very often he will not make his best bid until he
knows that it is acceptable to the vendor. Nor do I think it
is practical to put an unreasonable burden on one party
such as asking him to sign his rights away. It may, there-
fore, be that if the enlarged caveat idea will not work an
auction type of system may be the only answer, the
vendor having a contract prepared and the title put in
order before the property is offered for sale. This will
enable prospective purchasers to make bids in the full
knowledge of the terms and title on which the property is
being offered and enables them to sign a contract immedi-
ately their bid is accepted. This will involve a consid-
erable change in conveyancing practice and will need the
full co-operation of solicitors and surveyors to bring
about the change.
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