Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes strict requirements in respect of contracts for the sale or disposition of an interest in land. Such contracts must be made in writing and signed by or on behalf of the parties to it. This must be done either in one document or, if there is an exchange of contracts, in each part.
The section was enacted to prevent parties from unintentionally binding themselves to contracts. It ensures that parties know for certain when they are bound to an agreement and the terms they have agreed. As a result, it is no longer possible to create a legally binding contract through a string of letters that, read together, would have constituted sufficient evidence of a contract under the previous legislation.
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes strict requirements in respect of contracts for the sale or disposition of an interest in land. Such contracts must be made in writing and signed by or on behalf of the parties to it. This must be done either in one document or, if there is an exchange of contracts, in each part.
The section was enacted to prevent parties from unintentionally binding themselves to contracts. It ensures that parties know for certain when they are bound to an agreement and the terms they have agreed. As a result, it is no longer possible to create a legally binding contract through a string of letters that, read together, would have constituted sufficient evidence of a contract under the previous legislation.
However, e-mails are now one of the most popular forms of communication. They are quick and easy to send and tend to be less formal. Consequently, it might be thought that it could be as difficult (if not more so) to create an agreement that relates to land via e-mail.
Indeed, the court did reject the argument that the parties had entered into a contract to create a legal charge by e-mail in Green (liquidator of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (Ch); [2011] PLSCS 143. The liquidator challenged the validity of the legal charge granted more than a year after the e-mail exchange on the ground that it was an unlawful preference under section 239 of the Insolvency Act 1986.
The lender’s bid to establish a previous agreement to create a charge, which the parties had entered into by e-mail, failed on the grounds that the e-mail correspondence omitted key terms expressly agreed by the parties and referred to the preparation of a further document. In addition, the exchange, which was between sisters, was not expressed in terms that suggested that they were entering into binding obligations.
None the less, several worrying points emerge from the judgment. The liquidator accepted the reasoning in J Pereira Fernandes SA v Mehta [2006] EWHC 813 (Ch); [2006] 1 WLR 1543 (in the context of the statutory requirements for a guarantee) that the parties had signed their e-mails by inserting their names at the end of their respective messages. He also accepted that the e-mail string constituted a single document for the purposes of section 2. Significantly, the judge agreed that this was right where, as here, a second e-mail is sent as a reply to an earlier message and so creates a string (as opposed to a new e-mail referring to an earlier e-mail). The parties had created the electronic equivalent of a hard copy letter signed by both parties.
The decision suggests that, if the relevant requirements are met, it might be easier to create a contract relating to land by e-mail than by paper correspondence. If so, parties would be well advised to ensure that the phrase “subject to contract” appears prominently at the top of all communications. Another safeguard would be to encourage users to change their practice and use separate e-mails, instead of e-mail strings.
Allyson Colby is a property law consultant
