For many years, property professionals have been able to conduct their negotiations without much fear of inadvertently creating a binding contract, thanks to section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. A contract for the sale of land or any interest in land is void unless the contract:
- is in writing;
- contains or incorporates all of the terms expressly agreed by the parties; and
- is signed by or on behalf of the parties.
Recently, a County Court judgement gave the property world a jolt by finding that an automatic email signature of one of the lawyers settling a property dispute satisfied that third limb of section 2 and a binding contract was created (Neocleous v Rees)
In the Neocleous case the email was obviously not signed in wet ink, but nor was it an electronic signature as we know it (as in an autograph). The automatic ‘signature’ was a typical footer seen on countless emails sent every day and contained the lawyer’s name, their role, the law firm name and the lawyer’s contact details. The court looked to the function of the signature, not the form, to assess whether the signature satisfied the function of a signature, which is to show the authenticating intent of the party.
This County Court judgement does not set a precedent that courts must follow. The defendant may appeal, which could mean a reconsideration of the issues by a higher court, whose decision would carry more weight.
It is also worth noting that the judge seemed somewhat unimpressed by the defendant’s use of a “serendipitous technical defect in formality”, where it was clear that, in practice, he had actually agreed to (and then reneged on) a settlement with the claimant.
Whilst further clarity would be welcomed, in the meantime we must be aware of the increased risk of unintentionally satisfying section 2. Anyone involved in discussing or negotiating a deal that relates to property should consider the following:
- Use the words ‘subject to contract’ at the start of the email or in the subject line and make it clear that you do not intend to create a binding contract until formal documentation is entered into; and
- Start a fresh email wherever possible, rather than replying within an email chain; this may help to avoid satisfying the second limb of section 2.
Until a higher court’s view on this issue emerges, this case is another warning to us all to pause before pressing send.