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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 Ł300,000. 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] EWCA Civ 89
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