Painsmith Landlord and Tenant Blog

A practitioners landlord and tenant law blog from PainSmith Solicitors

SUBJECT TO CONTRACT: WHAT DOES IT MEAN?

Many people dealing with short term residential tenancy agreements will have seen the term “subject to contract” used but what does this actually mean?

The basics are that in English law a contact does not have to be in writing (and in this context we are talking about usual residential tenancy agreements). For a contract to be made one part has to offer to do something, e.g.. let a house, on the basis they will receive something in return, e.g.. Rent, and this offer is then accepted by the other party telling the person who made the offer. This could simply be a conversation.

To avoid contracts being unintentionally created most agents make clear that all negotiations are “subject to contract”. In practice many agents have a standard form of words on emails or letterhead setting this out. This mans that the parties are free to have negotiations and in principle reach an agreement. It is usually at this point that an actual tenancy agreement will be sent out. Provided the initial negotiations are “subject to contract” even at this point no contract will have been created. This means that the parties are not yet bound by the terms.

For the contract to bind all the parties both sides need to physically complete the document. What this usually means is that the Landlord (or his agent when so authorised) and the Tenant will each sign their part of the agreement. Usually these agreements will then be returned to the agent who will then oversee completing the transaction by exchanging and completing the documents by dating the same. It is at this point that the contract is completed and the parties are then bound by the terms.

The system can seem cumbersome but provides safeguards for both sides. Usually both sides want to have the opportunity to have negotiations. In particular Landlords will often wish to check references and ensure monies etc are paid before the agreement is actually completed. Tenants may be looking at more than one property. It is vital then that parties understand that once they sign (or Landlords give the agent authority to sign), exchange and date the agreement they will be contractually bound. If a party does not want to become bound until some condition or additional authority is given they should either withhold the signed agreement or make clear the terms upon which they agree to the agreement being completed. Once completed either side can then require the other to comply with their obligations.

Subject to contract is a useful device to protect all parties but you should be clear as to when completion has taken place and only allow completion of an agreement if you actually want to be bound by the contract! Once completed there may be no way back.

Filed under: England & Wales, FLW Article, , ,

8 Responses

  1. David Benson says:

    So if a contract can be verbal, shouldn’t it be “subject to written contract”?

  2. PainSmith says:

    In a sense you are right but the case law and the convention is that subject to contract means subject to written contract.

  3. Thanks for clearing up what this means! Good blog.

  4. Ying says:

    Thanks for good blog. We are facing issues with landlord/agency. We signed AST agreement and post back to agency. After 2 weeks, we asked for our copy of agreement signed by landlord, but they can’t provide it, and attitude is very unprofessional. We decided to end the transaction and not move in and informed them in writing. This happened before tenancy start date. Several days later, they emailed me a complete copy of agreement. They claim we breach agreement and claim for compensation and don’t return our deposit. In this case, are we bound to the agreement? According to your blog, we are not bound. But there are various different saying. Some say we are bound once we signed, exchange is not important.

  5. Ying says:

    Here is a piece of information from a US website, arguing against your statement:

    The lessee is generally required to sign the rental agreement to signify that he accepts and understands the agreement and his responsibilities under it. The lessor, or his representative, is not required to sign the document, since his willful provision of it signifies that he agrees with its content. The lessor or his representative will, however, often sign a rental agreement to further validate it.

  6. PainSmith says:

    Thank you for your comment. If you would like advise please contact us via our website.

  7. PainSmith says:

    The procedure in the states should not be compared to the procedure here.

  8. AUD Nwosu says:

    As an Agent, a letter of offer of tenancy was offered to a prospective tenant stating the obligations of both parties with a clause stating that the tenancy starts on the date payment is made. The letter required the prospective tenant to produce a tenancy agreement first in draft before the final copy for engrossment . It was stated that it was subject to contract. The rent was paid . The draft of payment was sent to the Landlord. The Landlord rejected the draft on the premise that he would no longer let the property to several tenants and he would prefer a sin gle tenant to occupy the property. The prospective tenant was informed . Instead of taking their bank draft they moved in without authorization. Is there a contract ?

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