The Gazette 1980

MARCH/APRIL

1980

GAZETTE

When is a Contract? IAN F. FRENCH, F.R.I.C.S.

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.

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

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