Contracts are an important part of business life. They establish agreements between you and your employees, landlords or tenants, suppliers, customers and with other businesses.
‘subject to Contract’ words are often used on documents exchanged by parties during contract negotiations. They intend to denote that the document is not an offer or acceptance and negotiations are ongoing. Often the expression without prejudice is used when subject to contract is meant.
However informal consent can arise for example where a landlord agreed in a letter to the ‘principle of a grant of a licence subject to contract’. Here the courts held that that consent had been granted and that the letter amounted to consent. Similarly ‘Subject to the Usual Formalities’ was construed as consent for assignment.
Key Points
· Despite the words ‘subject to contract’ parties may, in certain circumstances, be bound by terms agree without formalisation of the agreement.
· Intention and actions of the parties may justify the view that the ‘subject to contract’ banner has been impliedly lifted, as in ‘Contract by Performance’.
· Commercial parties and legal advisers should consider the intended effect of each e-mail or discussion and not assume that the ‘subject to contract’ wording offers fail-safe protection.
· Scope for this approach to apply to negotiation of general commercial contracts, as well as settlement negotiations.
WHAT TO DO?
Any letter or communication issued prior to full documents being issued should make it clear that no grant is issued until the execution of a licence or such other pre-condition(s). Previously approved wording to consider; ‘For the avoidance of any doubt we stress that this letter forms no consent in itself, and no consent will be granted until the execution of a formal licence to assign / sublet / alterations……’
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