Have you ever come across the phrase SUBJECT TO CONTRACT in any document? Do you understand what it means? If you don’t then the story of my US based friend David would interest you.
David saw a property on the internet. Fourteen thousand (14,000) square feet of prime real estate near Grand Anse Beach at $25 per square foot. David had been longing to own a part of Grenada. He had been on the lookout for property. On seeing the advert, immediately and impulsively, David contacted the owner and offered to buy the property for $350,000 EC. He offered to send down the 10% deposit to a lawyer appointed by the owner. And he agreed with the owner that he will be in Grenada within 45 days to complete the transaction. All of this was done over the phone.
When David told me about what had happened, I explained to him that even if he paid the deposit and made arrangements to come to Grenada to complete the deal; the owner could still back out if he changed his mind or got a better offer. This is so because an oral contract for the purchase of land is unenforceable by legal action.
David quite naturally asked if I thought he should get an agreement in writing. We had a discussion on it and I pointed out to him that in one sense he was buying ‘cat in bag’ having not seen the property. I suggested to David that it would be wise to give himself some wriggle room so that while demonstrating his clear interest in purchasing the property, he did not bind himself to doing so. I told David that he should put his offer in writing to purchase the property Subject To Contract. Of course I advised him to consult a lawyer.
David contacted a lawyer in Grenada. The lawyer put together a written offer from David to purchase the property subject to contract. The written offer was accepted by the owner and David paid the 10% deposit to be held by the lawyer subject to contract.
When David came to Grenada to inspect the property, the situation changed. He fell out of love with the property. When he went on spot he discovered that the property, though near to the sea, as stated in the advertisement, did not have the sea view that he had firmly planted in his mind.
With that discovery David decided to withdraw from the deal. However, the owner got quite angry and insisted that David must complete the transaction failing which he would sue him.
As it turned out, David was able to withdraw his offer to buy the property, without legal implications. The magical words “SUBJECT TO CONTRACT” meant that he had not given a binding promise to purchase the property. The three magical words were legal code words for: “I am still negotiating and I reserve the right to change my mind”.
Another formula used by lawyers to obtain legal wriggle room is to head up documents with the words, WITHOUT PREJUDICE. Documents headed with those words, as a general rule, cannot be used in Court. Hence an agreement headed WITHOUT PREJUDICE cannot be enforced in court.
JOSEPH EWART LAYNE
This article is for general information purposes only. Its contents do not constitute legal advice. Before you act on any matter in this article, seek advice from an attorney-at-law.
Joseph Ewart Layne is the Principal of JEL Diaspora Management. He is a graduate of Hugh Wooding Law School; he holds an LLB (Honours) and an LLM (Corporate & Commercial Law) from London University and a LLM (Legislative Drafting) from UWI, St. Augustine. He also holds a BSc. (First Class Honours) in Applied Accounting from Oxford Brookes University and is an ACCA Affiliate.
JEL Diaspora Management which is owned by JEL Professional Solutions offers an attorney-client management service including recommending and engaging attorneys on behalf of clients and managing the attorney-client relationship. Other services offered by JEL Diaspora Management can be viewed on the Services page.