The continuing effect of subject to contract

Where negotiations have begun under the ‘subject to contract’ umbrella, they continue to be subject to contract unless there is an express agreement that it is no longer to apply or it can be implied that the negotiations are no longer subject to contract.

In Cohen v Nessdale Ltd ([1982] 2 All ER 97, CA (Eng)) a protected tenant (C) holding over after the termination of a lease was in negotiation with his landlord (N) for the grant of a long lease to C. Both parties labelled their correspondence ‘subject to contract’. Negotiations stalled for a while because of C’s unhappiness with N’s behaviour. They re-commenced and  an oral agreement on the relevant terms was reached. Then the landlord backed out of the deal. C argued that the oral agreement was binding (the question of compliance with formalities is not dealt with in the judgment which deals exclusively with the subject to contract issue). The English Court of Appeal found that the label subject to contract covered the negotiations in the meeting that resulted in the agreement even though the meeting itself was not expressly stated to be subject to contract. Where negotiations have begun under the ‘subject to contract’ umbrella, they continue to be subject to contract unless there is an express agreement that it is no longer to apply or it can be implied that the negotiations are no longer subject to contract.

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