The recent case of Rowena Williams (as executor of William Batters) v Gregory Jones (25 February 2014) is the latest example of a court finding a binding contract arising from an oral or informal agreement despite the formally negotiated document recording the agreement not having been signed.
In the real estate world, an agreement to transfer or create an interest or right in land must be in writing containing all relevant terms and signed by both parties to be enforceable, so creating such contracts informally is less of a risk. But the same is not necessarily true of landlord’s consents under leases or approvals under development agreements or pursuant to restrictive covenants, and in those circumstances it would be possible for a party to find it has granted binding consent informally, without the parties having signed the consent document setting out their respective obligations.
The facts of the Williams v Jones case were that a deal in principle was done, a number of conditions were agreed including taking the advice of an accountant, a contract was negotiated and finalised, the accounting advice was taken but Mr Batters died before signing the contract. However the Court decided that, at the date of Mr Batters’ death there had been no outstanding issues between the parties. The terms of the agreement were clear, no conditions remained to be fulfilled, no-one had expressly described the agreement as subject to contract. The formal signature of the contract was consequently not necessary. Many would find this surprising. They would not expect to be bound until they had actively signed up to the contract – what after all is the point of the signature otherwise?
For those managing real estate the case serves as a useful reminder of earlier Court of Appeal decisions where landlord’s consent was held to have been granted before the formal licence deed was completed. In 1994 in Prudential Assurance Company Ltd v Mount Eden Land Ltd, a tenant applied to its landlord for consent to carry out works. The landlord's agent replied in a letter headed 'subject to licence', setting out the terms upon which a licence would be granted. The Court of Appeal held that no further consent was needed as the letter amounted to adequate consent. The words 'subject to licence' were not of themselves sufficient to make consent conditional on a formal licence being entered. In 2002, the Court of Appeal in Aubergine Enterprises Ltd v Lakewood International Ltd decided that marking or describing any “in principle” consent or approval by a landlord as “subject to formal licence” may not be enough to counter a suggestion that consent has already been given before the formal licence document was executed. In that case letters from landlord’s solicitors were headed “subject to licence” and contained conditions, but the court still found consent had been given without the need for a concluded licence deed. So it is clear that “subject to licence” does not carry the same weight as “subject to contract”.
Following these cases many leases now provide that landlord’s consent granted under it will not be valid unless by deed, but that may be less common in other agreements relating to real estate and parties should be aware of the risk that an exchange of correspondence will create a binding agreement when one party thought they were still at liberty to withdraw until formal documents were signed. In particular those representing landlords or others in relation to requests for consent or approval should guard against accidentally granting it before the licence or consent document is concluded. Any correspondence on the subject, particularly that which accompanies a draft licence, should expressly state that no consent is given until a formal document is agreed between and executed by all parties.
For further information on this or advice on any other aspect of real estate law, please contact our Real Estate or Real Estate Disputes teams.