We were recently asked to advise on the nature of a contract based on an email exchange between a buyer’s agent and a seller’s agent. This issue has come up in earlier posts and will again no doubt as roles and methods of communication continue to evolve. Anyway now might be a timely reminder to reacquaint yourself with the risks of email exchanges in contract negotiation. Read on
When are your vendor clients, (and you) locked in by email?
Some sellers and buyers don’t want to be locked in until the proverbial ink dries on the contract. You’ve probably seen or even typed emails during negotiations with phrases like subject to the parties signing a formal contract..., which have traditionally made it clear to other side that there’s no deal until the contract is signed.
A recent Supreme Court decision has shone a light on this practice, with some adverse consequences for a seller and its agent.
Bear with us, we’ll be brief:
- The seller engaged the agent to sell its commercial property and business. The agent found a buyer and started negotiating with the buyer’s representatives. The price was circa AUD$1.75m
- The parties each adopted words similar to those above (subject to the parties signing a formal contract) in email exchanges
- However they also used other phrases which ended up giving some mixed messages. Here’s a great example:
I look forward to receiving your clients confirmation that our offer is accepted as clearly both parties are now going to start incurring significant expenses.”
- The response to this was equally confusing:
“We accept the below offer which we understand will be subject to execution of the contract provided…”
- The seller found another buyer willing to pay more.
We suspect that, at about this time, all hell broke loose and people became concerned about their employment!
- The Court confirmed that a contract can exist even though:
- the “subject to execution of the contract” correspondence was used;
- negotiations were between buyers’ employees and seller’s agents;
- some conditions were still yet to be agreed on; and
- no contract was ever signed.
Lessons to be learned
The lessons to be learned are:
- be crystal clear in your choice of words when negotiating deals
- signatures and contracts are not always necessary to evidence an agreement.
As always, if in doubt about your turn of phrase, or that of the other side, just call us. Fallout can be minimised by some early, simple, clarifying correspondence.
Cheers, from the team at PD Law