Exchange of contracts requires an intention to be bound and formal delivery of each party’s part of the contract to the other, the Upper Tribunal (Lands Chamber) has confirmed, allowing an appeal against a decision of the First-tier Tribunal in Hafiz Mohammad Aslam v Abdul Rehman [2022] UKUT 251 (LC).
Hafiz Aslam owned property in Woking. The proceedings concerned his application to HM Land Registry under section 73 of the Land Registration Act 2002 to cancel a unilateral notice entered by Abdul Rehman on the register of title to the property to protect a contract for sale. The FTT found that contracts were exchanged for the sale of the property on 14 September 2018. Aslam appealed on the ground that the FTT made an error of law in finding that contracts were exchanged as the facts could not justify such a conclusion.
Aslam purchased the property in 2009 and in 2013 made a declaration of trust that it was held for himself and Rehman in equal shares. In 2017, Aslam obtained a bridging loan secured on the property in order to buy another property in Woking owned by Rehman. He subsequently defaulted on the bridging loan, the lender appointed receivers and the property was put up for sale at auction.
The parties met on 14 September 2018 and Rehman produced a contract in duplicate for the sale of the property by Aslam to him. The FTT found that Aslam signed his part of the contract at Rehman’s request and handed it to him, reposing in him sufficient trust that Rehman was acting as his agent in respect of the impending sale. Subsequently, on 20 September 2018, the parties met with solicitors who later invoiced Aslam for “receiving contract documentation showing sale of property to Mr Rehman”.
To achieve an exchange of contracts, each party has identical contracts or parts of the contract and each signs its own part. At the time of execution, the parties mutually intend that neither will be bound until the executed parts are exchanged. The act of exchange is a formal delivery by each party of its part into the actual or constructive possession of the other with the intention that the parties will be bound when exchange occurs but not before: Commission for New Towns v Cooper [1995] Ch 259.
The FTT had failed to explain how contracts had been exchanged at the meeting on 14 September 2018. There was no finding of fact that Aslam in handing his part of the contract to Rehman intended to deliver it so as to exchange contracts. Equally there was no explanation as to why the act of agency meant that Rehman held his part of the contract on behalf of Aslam and why that constituted delivery. On the facts, the FTT could not have justified a finding that exchange of contracts had taken place and the decision was set aside. The registrar was directed to respond to Aslam’s application as if Rehman’s objection had not been made.
Louise Clark is a property law consultant and mediator
