Why doing deals by e-mail can be dangerous

Property LawIt's all too easy to be bound inadvertently into a contract if you do deals by e-mail. The key phrase to remember and use in any correspondence is "Subject to Contract" warns solicitor Kelly O'Hara

E-mail is a wonderful invention for business and personal use alike, allowing us to communicate quickly, often saving time and money.

By its very nature, e-mail encourages us to communicate informally. In the case of property however, e-mail could in some circumstances, end up becoming a very dangerous tool indeed.

The following story is fictitious - devised to help illustrate an important and rather alarming point.

Just before leaving the office for the golf course one sunny evening, Tom sent an e-mail to his business contact, Frank, setting out in typical, informal e-mail language, that Tom accepted Frank's verbal offer to purchase Tom's property. The offer was based on an agreed price subject to particular terms, with this understood by Tom when he sent off the pre-golf message.

Later that evening, Frank sent a reply e-mail acknowledging the terms of this agreement, with both parties instructing their solicitors to prepare and agree a formal contract for the sale the following day.

Neither Tom's e-mail nor Frank's reply e-mail was marked "subject to contract".

Just before the completion of formal contracts, Frank ran into a few cash flow problems and thought he could solve them by backing out of the deal to buy Tom's property.

Little did Frank know however that as soon as he had clicked "send" on that first sunny evening, he had inadvertently entered into a binding contract for the purchase of Tom's premises, which he would have to honour if he wanted to avoid the possibility of being sued.

Although it is not generally necessary for a contract to be in writing in order to make it binding, our law provides that contracts for the sale of land must, in the main, be evidenced in writing to be enforceable.

However, a formal written contract is not required. It is merely sufficient if certain key terms of an agreement are "evidenced in writing" (whether in one document or in a series of "linked" documents).

Such terms include the identity of the proposed seller and the proposed purchaser, the identity of the property in sale, the agreed purchase price and any other terms that are material to the agreement.

Accordingly, our case law contains numerous examples of parties entering into binding contracts in error down through the years by, for example, signing receipts for sales or by exchanging letters between themselves or by the exchange of letters between their solicitors.

While the tale of Tom and Frank is fictitious, there is a danger in this internet age that parties who are negotiating the sale or purchase of property could quite easily bind themselves to an agreement through e-mail, long before a formal contract has been completed.

While two parties may agree in principle to buy and sell property, it may be far from desirable for a prospective seller or purchaser to be legally bound at the very outset of an agreement.

There are many important matters that may have to be addressed before the parties can freely commit to the sale or purchase, including for example, funding arrangements (as Frank learned) or arranging to have the property surveyed.

A seller may also be wary in particular of contracting to purchase a new property before committing to sell their existing property.

As a result, a long standing practice has developed whereby parties involved in negotiations for the sale and purchase of property (whether their involvement is as prospective sellers and purchasers or as estate agents or solicitors) mark their correspondence as being "Subject to Contract" to avoid a binding agreement coming into effect prematurely.

Given the ease with which parties can bind themselves by e-mail correspondence, it is imperative that this practice of marking correspondence "subject to contract" is carried over to the use of e-mail correspondence.

Indeed, it may be preferable if e-mail correspondence could be avoided where two parties are communicating on the sale or purchase of land.

Historically, the cautionary tale in the property world was that a vendor and purchaser could bind themselves into a contract for the sale of land by jotting down a note of the deal on the back of a cigarette packet.

But who needs a cigarette packet when you have e-mail? You have been warned.

Kelly O'Hara is a solicitor in the commercial department of McCann Fitzgerald