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 the terms that the parties have expressly agreed in one document or, where contracts are exchanged, in each document; and (iii) be signed by, or on behalf, of each party. It pays to observe these formalities.
In Oun v Ahmad [2008] EWHC 545 (Ch); [2008] PLSCS 71 , the High Court was asked to decide whether a contract for the sale of leasehold premises had incorporated all the terms expressly agreed by the parties. The judge reminded the parties that contracts must record all the agreed terms. If a document failed to do so, there was no binding contract on the terms that were actually recorded because those terms were incomplete. In addition, there could be no binding contract on the terms that the parties had actually agreed, because the terms had not been properly recorded in accordance with section 2.
It is possible to displace this rule if the parties have made separate contracts that are entirely independent of each other, in the sense that it is not a term of the contract for the sale of land that another contract must also be performed. Alternatively, the court may be able to rectify the written document in order to bring a contract into existence for the purposes of section 2. In this context, the document that is signed by the parties has no contractual effect until it is rectified (because it does not contain all the terms expressly agreed), but the court can specify when the contract will come into existence: section 2(4). This differs from other forms of rectification, which operate retrospectively, but the general rules concerning the availability of rectification will still apply.
In this case, the parties entered into a separate memorandum that recorded how the purchase price under their contract was to be apportioned, and provided for an additional payment of £17,000 to cover stock-in-trade. The memorandum made no reference to the contract for the sale between the parties, and did not constitute a separate and independent contract between the parties. Consequently, it had no contractual force, and the case turned on whether the judge could rectify the parties’ agreement to include the terms recorded in the subsequent memorandum.
The judge distinguished between two different possibilities. If the written document did not incorporate all the agreed terms because the parties had made a mistake, then the court could rectify the document to comply with section 2. However, this case fell into a different category. The parties had expressly agreed not to apportion the price in the contract for sale. They may have believed that they did not need to record this in writing, but that was irrelevant. It was beyond the ambit of rectification to write a term into an agreement that the parties had expressly agreed to omit. Unfortunately, therefore, the written contract did not comply with section 2, and was of no contractual effect at all.
Allyson Colby is a property law consultant
