Subject to Contract


Many of us are familiar with “subject to contract” when buying a property, as a safeguard against being bound.

For example if you make a written offer for a property “I will buy your house for £500,000, completion in 30 days” and the seller agrees in writing, you are both bound.

If however you mark your letter or email “subject to contract” you cannot be bound, until the transaction is embodied in a formal legal contract signed by the parties.

What is less well known is the importance and the wisdom of including “subject to contract” in commercial agreements, when you are in a dispute.

If you are trying to resolve litigation and sending emails to and fro, there can come a time when you intend to have a binding agreement but the other party does not or vice versa.

If that happens there can be “satellite” litigation which will cost as much as the initial cost outlay, you were trying to avoid in the first place.

Sometimes people say they will negotiate with a view to having the terms put into a formal agreement signed and prepared by lawyers, or sometimes what is called a “Tomlin Order” which is a schedule attached to a Court Order setting out the terms.

If however you actually reach an agreement this will not avail you, and you cannot say later ‘Well I wanted the wording slightly different’ or to include something like an indemnity or something you had overlooked.

If, however, you make it clear that the negotiations are “subject to contract” you cannot be bound until there is a formal process and the second stage is reached.

Hylton-Potts operate from London but help clients all over the country especially small and medium sized businesses (SMEs) and there is a 24 hour email helpline/service with expert advice. Rodney is a recognised expert in litigation and advising businesses with over 25 years experience.