Preliminary issue — Sale of property — Defendant agreeing with plaintiff not to enter into further negotiations for fortnight after receipt of draft contract — Defendant then receiving higher offer and selling to third party after sending draft contract — Whether contract for sale of land — Whether separate, enforceable lock-out agreement — Judgement for plaintiff at first instance — Defendant’s appeal dismissed
The plaintiff, P, wished to purchase The Cottage, Chelsworth, Suffolk, PHH, the defendant, instructed a firm of estate agents to conduct negotiations on their behalf, Mr R acting for the agents. Another party, Miss B, was also interested in the property and there followed a series of offers, acceptances and raised offers. P’s offer of £200,000 was accepted, but he then was told by R that in view of Miss B’s increased offer of £210,000, the vendor was going back on his acceptance. P then threatened an injunction, stated that he would tell Miss B that he was retiring from the field, and promised a swift sale if the vendor stayed with him.
On October 3, he wrote to R, confirming an oral telephone agreement of that day: “Your client has decided that it is in his best interest to stay with my offer … subject to contract; the vendor will not consider any further offers for the property on the basis that I will exchange … within a period of two weeks of the receipt of that contract …”. The vendor wrote: “We confirm our instructions to continue with the sale to P for … £200,000 subject to the exchange of contracts within 14 days of receipt of draft contracts … if exchange … does not take place within the required time we will then reconsider the second offer”. On November 8 the vendor sent the draft contract. On November 15 their solicitors wrote that they had been instructed to proceed with a new offer from Miss B. At first instance the judge stated it was a novel point; he rejected PHH’s submission that the letter of October 3 was part and parcel of the subject to contract negotiations. It was a subsisting collateral contract on its own. He stated that there was valid consideration for that contract. Therefore, as it was a valid, lock-out contract in its own right, there was no need for compliance with the provisions of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
Held The vendor’s appeal was dismissed.
1. The crucial question was whether there had been a lock-out agreement which was capable of subsisting as a binding contract independent of the sale of land. The answer was in the vendor’s acceptance letter that P was to have a clear run and that no further offers were to be considered within a set period. There was no reason why an agreement whereby the vendor locked itself out from other purchasers should be itself subject to contract.
2. With regard to the question of consideration, P’s threat of an injunction and other action only had nuisance value, but that was something from which the vendor was freed if he went ahead with the lock-out agreement. Moreover, there was P’s promise of a two-week set limit for exchange so that the vendor knew that — if there was to be a sale — there would be no delay on P’s part.
3. It was not a contract for the sale of an interest in land as the vendor had not committed himself to a sale at that preparatory stage; nor was there any other interest in land created such as an option. Thus, there was no reason why there should be compliance with section 2 of the 1989 Act.
4. It was truly a lockout agreement whereby the vendor had agreed for valuable consideration not to negotiate with anyone else; it was a negative agreement giving an exclusive opportunity to the vendor for a fixed period: see Walford v Miles (1992) 11 EG 115. It was not incumbent on the vendor to proffer a draft contract, but once he had done so, he was bound by the 14 day stipulation. Per The Master of the Rolls: Very many people, in buying and selling a house, had their first contact with the law. A vendor could put his house on the market and strike a deal with a would-be purchaser, making his plans accordingly. The purchaser could then fail to proceed and there was need neither for explanation nor apology. The purchaser could be in a worse position: having found the house of his dreams, had his offer accepted, struck a deal, and borrowed the money, he could then find that the vendor sold to someone else — again without explanation or apology. There were two legal rules responsible: contracts had to be made in writing; and, till then, negotiations were subject to contract and not binding. However, a purchaser could make an independent agreement to have a clear run for a period ie to negotiate an undertaking with the vendor not to deal with anyone else. In the present case the vendor and purchaser had made a lockout agreement and the vendor broke it. He was liable in damages to be assessed.
Anthony Payne (instructed by Townsends, of Swindon) appeared for the defendant/appellant; David Pugh (instructed by Steed & Steed, of Sudbury) appeared for the plaintiff/respondent.
