Summary: You know what “subject to contract” means, don’t you? Of course you do. We all do. It’s a bit like “without prejudice”, only different. “Subject to contract” means that whatever I write to you and whatever you reply, we haven’t got a deal and I can’t be sued!
Let’s correct those misleading views. “Subject to contract” has nothing to do with “without prejudice”. This note is about “subject to contract”. Just because communications are headed “subject to contract” doesn’t mean that they have no legal consequences.
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The “subject to contract” umbrella stops a binding contract being made until a formal agreement has been entered into. Where parties negotiate a deal “subject to contract” they remain in negotiation until the formal agreement is made.
1. Parties can…
- Agree to negotiate under the subject to contract umbrella; or
- Declare that is what they are doing
2. At the end if they...
- Reach agreement;
- Supported by consideration sufficient for a contract
3. There is no binding contract unless or until they…
- Make a formal written contract; or
- Expressly agree to dispense with that umbrella
4. Abandonment of the umbrella is not implied merely because they have reached full agreement unless it is “necessary” to do so
5. Necessity is a strict test. It might be necessary to imply that the deal is no longer subject to contract if, before the deal had been documented, one party did something to perform the agreement the parties had reached