When ‘subject to contract’ is meaningless

The words ‘subject to contract’ are not lightly to be disregarded. The court can ignore them when they are meaningless or where the parties’ subsequent words or conduct show an intention to be bound by the relevant agreement.

Hong Kong Housing Authority v Hung Pui ([1987] 3 HKC 495) concerned the operation of the rent review clause in the lease of a restaurant. The tenant offered to pay a revised monthly rent of HK$120,000. The landlord’s solicitors wrote back accepting the offer. The letter was headed ‘subject to contract’. These words normally indicate that the parties are still negotiating but here they appeared at a time when negotiations had concluded and no formalities were required or contemplated. The tenants later paid rent at the agreed revised level. Godfrey J held that the words ‘subject to contract’ in the landlord’s acceptance could be ignored since (a) they had no meaning in this context and (b) the tenant’s subsequent words and conduct showed an intention to be bound by the agreement.

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