- The law prescribes certain formalities for the valid creation of real estate contracts, so as to avoid rights being created inadvertently
- Case law suggests that it might be possible to comply with these formalities through an exchange of emails
- Email negotiations should be marked "subject to contract"
Creation of real estate contracts
There are certain elements which are necessary for the existence of any contract. Lawyers describe these as offer and acceptance, consideration (usually, but not necessarily, the payment of money) and an intention to create legal relations. However, the law imposes additional requirements in relation to land contracts.
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides that a contract for the sale or other disposition of an interest in land must:
- be in writing;
- be signed by, or on behalf of, each party; and
- incorporate all the terms which have been expressly agreed between those parties in one document (or, where contracts are exchanged, in each).
Green (liquidator of Stealth Construction Ltd) v Ireland
In Green (liquidator of Stealth Construction Ltd) v Ireland, the High Court suggested that an exchange of emails may, under certain circumstances, be capable of fulfilling the requirements of section 2. Following previous case law, the parties accepted that, by typing their names at the end of their respective emails, they had "signed" them for the purposes of section 2.
The emails were between sisters. Each had added their first name only at the end of their email. In one case this was in a personal capacity; in the other it was accepted that the "signature" was on behalf of the sister's company, who was the other party to the alleged contract.
Section 2 also requires that there must be either a single document, or identical documents which are exchanged. The court thought that where a recipient of an email replies to it, such that an email "string" is created, this was capable of constituting "one" document for the purposes of section 2. It thought that this was "the electronic equivalent of a hard copy letter signed by the sender being itself signed by the addressee". The court contrasted this with the position where the recipient creates a new email to type a reply.
On the facts of Green, the court ruled that no contract had in fact come into existence. This was because the exchange of emails did not refer to all the terms which had been orally agreed between the parties. In addition, the emails were "not expressed in terms which suggest binding obligations on the parties" - the inference presumably being that there was no intention to create legal relations through the emails. The email which constituted the "offer" contemplated that a further document would be drawn up.
Things to consider
While the creation of a contract by email might seem superficially attractive, it will not usually be advisable for real estate transactions. It will not be suitable where the contract needs to take the form of a deed, and is likely to lead to difficulties if the contract needs to be noted at the Land Registry.
Section 2 was designed to prevent parties inadvertently binding themselves to real estate contracts. However, Green suggests that the dangers that section 2 was enacted to overcome may have re-manifested themselves through advances in technology and working practices which perhaps were not envisaged in 1989.
It has been held that the fact that an email, as viewed in the recipient's inbox, appears to have come from a particular email account does not in and of itself mean that the email has been "signed" by the sender, since this process is automatic.
What is clear from Green however is that even an informal signature may suffice. This accords with the law that has developed around hard copy signatures, which usually simply means making one's mark on a document. In J Pereira Fernandes SA v Mehta (2006), the High Court ruled that "if a party creates and sends an electronically created document then he will be treated as having signed it to the same extent that he would in law be treated as having signed a hard copy of the same document". A full signature is not therefore required and initials may suffice.
Would the practice of including a standard signature block at the end of an email, which contains the sender's contact details, meet the requirements of section 2? The sender may regard this as an "automatic" addition to the email and not something he or she has chosen to add on a case-by-case basis. However, such signature blocks are usually included as a result of settings on the user's email account which can be turned on or off.
A cautious approach would be not to create email strings and to begin each email as if it were a fresh piece of correspondence. However, many will feel that the "history" created by a chain of emails is one of the advantages of this mode of communication. Those negotiating deals should therefore ensure that they mark emails "subject to contract" (in the same way as hard copy correspondence).