Contractual complications

TOBY KRAMERS of Ashton Graham, warns that under some circumstances a contract may not be binding even after exchange

AS IF the existing marketplace did not confront property practitioners with enough problems, recent developments in the law will increase uncertainty.

It has long been thought that prior to an exchange of contracts matters are entirely fluid but that after the exchange of contracts matters will be set in stone: the completion date and the price will be agreed, all parties will be bound and buyers, sellers, landlords and tenants can start making plans.

This principle was reflected in the Law of Property (Miscellaneous Provisions) Act 1989 in which it was expressly stated that a contract relating to an interest in land could only be made in writing and had to incorporate all the relevant terms which had been agreed by the parties.

Therefore, parties could not unwittingly enter into contracts for the disposal of land by way of correspondence or by agreeing heads of terms but, once contracts had been formally exchanged, all parties were bound and knew where they stood.

However, the courts have now ruled that provisions that relate to normal contracts can be applied to property contracts. The kind of issue which can arise as a result was neatly illustrated by a recent case decided by the Court of Appeal.

The case related to a property which had potential for development as a block of flats. The seller had provided the usual responses to the buyer’s enquiries but it failed to update its replies when it became aware of another planning application which would have a material impact on the buyer and would affect the buyer’s development proposals.

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The buyer only became aware of the application following exchange of contracts. They refused to complete and sought the return of their deposit but the seller argued that the buyer was only entitled to rescind where there was an error or omission resulting from fraud or recklessness.

However, it was decided that the buyer was entitled to the deposit as the relevant standard condition was not fair and reasonable in the circumstances and, consequently, failed to satisfy the provisions of the Unfair Contract Terms Act 1977.

This is a warning that sellers must take their obligations to reply to enquiries seriously and that the exchange of contracts might not alter the right of an injured party to rescind the contract.

This article is for general information purposes only and does not constitute legal or other professional advice. We would advise you to seek professional advice before acting on this information.

Ashton Graham is authorised and regulated by the Financial Services Authority. Ashton Graham solicitors are regulated by the Solicitors Regulation Authority, No. 50075.