Sales of land — Agreement to sell by correspondence made “subject to contract” — Payment of £20,000 returnable only if legal title found defective — Vendor returned payment and withdrew — Purchaser registered estate contract — Whether contract “subject to contract” — Whether only part of contract “subject to contract”
The plaintiffs, William Cowlin (Holdings) Ltd, are the owners of a site in Stratton Street, Bristol. On January 18 1988, an offer to purchase the site for £2.5m was made on behalf of the defendant company; the offer was “subject to contract”. On the following day a letter marked “subject to contract”, and containing a counteroffer was sent to the defendants on behalf of the plaintiffs. This letter contained a term that “if[the offer is accepted], a deposit of £20,000 will be paid … while contracts are drawn up. The deposit shall be returnable only if the freehold and leasehold titles … are found defective”. Two further letters passed between the parties: on January 25 the defendant offered to purchase at the increased price of £2.77m, but otherwise on the same terms as to the payment of the £20,000 deposit; that offer was accepted on the same day “subject to contract”.
On February 23 1988 the plaintiffs informed the defendants that the deal was off, and the £20,000 deposit was returned with interest. The defendants registered a class C(iv) land charge under section 2(4) of the Land Charges Act 1972 against the plaintiffs. The plaintiffs commenced proceedings to have the land charge vacated, and the defendants alleged that they had an enforceable contract: the term of the agreement regarding the £20,000 deposit denied the normal protection of the words “subject to contract” following the case of Alpenstow Ltd v Regalian Properties plc [1985] 2 All ER 545.
Held In dismissing the defendants’ appeal from a decision of the court below that there was no enforceable contract and that the land charge should be vacated, the exchange of letters did not constitute a binding contract for the sale of the land. The parties’ intentions must be deduced from the documents, and it was clear that they intended to be contractually bound only by the term as to the £20,000 deposit. This was a sum paid by the defendants for the right to negotiate, an earnest of their sincerity; it was repayable only if the vendors’ legal title should prove defective. The exchange of letters amounted to a binding contract only as to this payment. The words “subject to contract” have their clear prima facie meaning unless there is a strong and exceptional context, as in the Alpenstow case, where they have a different meaning.
Alpenstow Ltd v Regalian Properties plc
[1985] 2 All ER 545 distinguished.
David Neuberger QC (instructed by Lyons Davidson, of Bristol) appeared for the plaintiffs; and Terence Cullen QC and George Mann (instructed by Burges Salmon, of Bristol) appeared for the defendants.
