The use of the phrases “subject to contract” and “without prejudice” are often used in negotiations. However, there is an important difference between the presumptions these two statements create.

The intention to create legal relations is an important ingredient to any agreement. The expressions “subject to contract” or “subject to lease” or “subject to agreement” can be used to rebut this presumption during negotiations so it makes clear that the writer does not intend to be legally bound by an offer until a formal agreement is in place.

Correspondence made in a genuine attempt to settle a dispute and stated to be “without prejudice” cannot be admitted as evidence in litigious proceedings. This means any offers made in a genuine attempt to settle must be kept confidential and cannot be used in evidence against either party should the settlement discussions fail. Simply heading a document “without prejudice” will not protect a document from being treated as open correspondence, unless it is at its heart a genuine effort to resolve a dispute.

It is key to note that a binding agreement is made on the acceptance of a without prejudice offer, so if you want to agree a settlement in principle but leave the detail to be further documented, or if it involves the creation of a legal estate that requires specific statutory steps to be followed, then the offer needs to clearly set those out as conditions of acceptance and to be also marked “subject to contract or lease or agreement”.