Is your land contract valid?
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Is your land contract valid?
However advantageous a deal you have negotiated, it's worthless if the document that sets out the terms of the transaction isn't a valid contract. Documenting contracts for the sale of land on the back of the proverbial "envelope" just won't do.
In practice, a great deal of time and negotiation usually goes into ensuring that all the terms of a deal are clearly and accurately reflected in the documentation. However, if the contract does not comply with the requirements of s.2 of the Law of Property (Miscellaneous Provisions) Act 1989, you will be unable to force a seller/buyer to sell/buy in accordance with the contract, and the document will essentially be worthless.
The recent case of Francis v F Berndes Limited and others provides a useful reminder of the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which governs contracts for the sale of land. In this case, the 'contract' took the form of some heads of terms which had been signed by the parties, but the court held that this did not satisfy the requirements of section 2.
Section 2 requires all contracts for the sale of land to comply with the following rules:
(a) The contract itself must be in writing. Oral contracts are invalid, and if you believe that you have an oral contract with a third party then you should seek to have the terms regularised and a formal written contract entered into as soon as possible.
(b) The contract must be signed by both parties either as one document or as identical documents each signed by one party which are then exchanged. Letters offering to sell land and a confirmatory response will generally not be enough. Any attempt by you to suggest that this constitutes an obligation on a third party to, for example, sell land to you will not be successful. As above, you should try to ensure that you enter into a formal contract as soon as possible to make sure that a third party cannot then pull out.
(c) A formal written contract will not be invalidated by amendments or variations to the deal, provided that variation complies with all of the terms of section 2. In practice we would always advise that a formal supplemental agreement is exchanged if you need to vary a contract by, for example, amending the purchase price or changing the completion or longstop date. It also needs to contain an express declaration that all terms of the original contract are incorporated into that supplemental agreement.
(d) Unless both parties sign, no contract is in existence. Even if, for example, one party has signed a plan attached to the contract but not the contract itself, then this in the past has not been sufficient and will enable the parties to avoid their obligations.
(e) A contract has to include wording saying that the seller agrees to sell and the buyer agrees to buy. You would be surprised at how often parties have become unstuck because this wording is not expressly contained, however obvious you would think it would be that it would be implied.
Where circumstances are not straightforward, however, or where money is changing hands as a form of holding deposit for an option to purchase, then it is essential that specialist advice is taken to ensure that parties are either bound and committed or not, depending upon the intention at the time.
In general, however, the requirement for formal contracts to be entered into to buy and sell land which comply with these rules means that you will be free to negotiate and agree terms and not be bound until you are ready to commit, but compliance with the above rules is essential to ensure that commitment leads to completion.