Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides that contracts for the sale of land must: (i) be made in writing; (ii) incorporate in one document all the terms that the parties have expressly agreed or, where contracts are exchanged, in each; and (iii) be signed by or on behalf of each party.
The provisions were enacted to prevent parties from inadvertently creating contractual commitments and to limit opportunities for parties that have genuinely contracted to escape their obligations. Unfortunately, however, the requirements are so strict that any failure to incorporate an agreed term can potentially invalidate the contract between the parties, as well as the omitted term.
Concerns over the injustice that this could cause has led to a suggestion that it may be possible for parties to contracts for the sale of land to enter into supplemental agreements unrelated to the land itself without complying with section 2 (Tootal Clothing Ltd v Guinea Properties Management Ltd [1992] 41 EG 117), but this was brought into doubt in Grossman v Hooper [2001] EWCA Civ 615; [2001] 2 EGLR 82; [2001] 27 EG 135.
At long last, North Eastern Properties Ltd v Coleman [2010] EWCA Civ 277; [2010] PLSCS 87 has given the Court of Appeal an opportunity to clarify the position. The court ruled: (1) that the parties can enter into separate contracts that are entirely independent of each other where the land contract does not specify that another contract must also be performed; but (ii) this does not enable parties to a composite transaction to separate out expressly agreed terms where performance of the land contract is conditional on the performance of the separately documented terms.
Applying these principles to the facts, the court decided that 11 contracts for the sale of flats were valid despite the omission of a provision regarding the payment of a finder’s fee. The court ruled that the performance of the contracts for sale was not conditional on the payment of the fee.
The fee did not form part of the consideration for the land contracts; the buyer had specifically required the seller to omit all reference to the fee from those contracts, since the buyer had hoped to introduce third parties to take assignments of the benefit of the contracts and intended to reserve the finder’s fee for itself.
Interestingly, the decision vindicates the use of entire agreement clauses in contracts for the sale of land. The court concluded that their inclusion in the land contracts indicated that those contracts were not conditional on the payment of the finder’s fee and, indeed, that each land contract was independent of the others.
Importantly, the court also ruled that the presence of the entire agreement clauses did not invalidate the finder’s fee agreement and that if (as in the instant case) a collateral agreement is supported by its own consideration, which is not conditional on compliance with a land contract, the collateral agreement will be enforceable in its own right. The decision provides valuable guidance for conveyancers, and is a welcome victory for commercial common sense.
Allyson Colby is a property law consultant
