Alert – be careful with your emails
A recently reported case (Neocleous v Rees, 20/09/19) provides a stark reminder that care is needed so as not to create inadvertently a binding contract for the sale of land via a string of emails.
Briefly, in order for a contract for the sale of land to be legally binding in England and Wales, it must:
- satisfy the general legal requirements for the creation of a contract (offer, acceptance, consideration and intention to create legal relations); and
- must be in writing, incorporate all the terms that the parties have expressly agreed in one document and must be signed by or on behalf of each party.
In that case the email between the lawyers:
- identified the land in question to be sold/bought;
- cited the agreed price; and
- (the court held) were “signed” by the automatically generated email signature placed at the bottom of emails when sent.
The necessary requirements were met and so a binding contract was created between their clients for the sale of the land.
The case focused on a specific point – the defendant seller had disputed that a binding contract had come about because it said the signature requirement mentioned above had not been met. It was contended that an automatically generated email signature was not sufficient to bind a party to a contract. However, on the facts the court rejected that argument and the seller was forced to sell the land on the terms contained in the exchange of emails.
Leaving aside the narrow point on which the case was decided, we (clients, lawyers and agents alike) are all on email pretty much all day every day making offers, accepting offers, agreeing deals, etc.
It’s easy to think that the situation that arose in this case would not ordinarily crop up because most people most of the time would probably think that once a deal is struck in principle – usually by way of heads of terms – the lawyers will get on and draft the actual transaction documents to give legal effect to what has been agreed.
But what this case demonstrates is a need for caution.
What can or should you do to avoid falling into the trap of inadvertently creating a binding contract when negotiating a deal via heads of terms/emails?
- Probably the best thing to do is to state expressly in the heads of terms/emails that there is no intention that the heads of terms/emails are to be legally binding. In practice, this is often not included. Sometimes “subject to contract” appears, but this is not risk free – see below.
- Marking the heads of terms/emails as “subject to contract” should help, but in certain limited cases may not do so, for example where the parties then nevertheless go on to do what they have agreed without a further contract being drawn up first.