'Subject To Contract' - Is It Necessary?

Many of our clients ask whether or not they should include the phrase "Subject to Contract" on emails, letters or other documents. When and why should you do this, and will it ever help?

What is the purpose of "Subject to Contract"?

The expression indicates that the parties are still negotiating and have not yet reached an agreement on the terms. Before 1989 it was extremely important to include the phrase, as there were a number of cases in which the Courts had held that correspondence and discussions showed that binding contracts had been exchanged for the sale and purchase of land - even though this was not the parties' intention. That situation improved with the snappily entitled Law of Property (Miscellaneous Provisions) Act 1989, but old habits die hard.

One point to note in relation to that Act is that it only applies to contracts for the sale, lease or other legal estate in land. If you are negotiating a licence rather than a lease or a sale contract, the...