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How to Ensure only the Final Agreed Terms are Legally Binding

“Subject to Contract” and Converting Informal Communications into a Formal Contract

There will often be a situation where the parties communicate back and forth (perhaps by email) many times. Whether that results in a binding agreement, at what point it is binding or what is ultimately agreed may not be clear. This serious lack of clarity might well arise where the communications are detailed and complex because parties are negotiating about what exactly is to be provided including various technical or practical issues, when it is to be provided and at what price, and they are also negotiating all of the legal and commercial terms that are to be agreed.

Where it is likely that there will be such complexity, it is best to address the situation by stating at the outset that all communications will be deemed to be “subject to contract” and by using appropriate legal wording to the effect that a binding contract will only be formed if and when the parties unconditionally and expressly agree on what is to form the content of the contract. (Advice about the legal wording that should be used is beyond the scope of these information pages.).

This will mean that the parties need to agree at the outset on a method whereby they will agree the final content of their contract. A possible way to achieve this is for one party to send a letter or email to the other at the appropriate time stating that it appears that there is now nothing further to negotiate and so it is putting forward in this letter or email the proposed definitive and complete content of the proposed agreement, it invites the other party to accept that content unconditionally, and that upon such acceptance by the other there will be a binding contract, i.e. it will no longer be “subject to contract”.

A legally safe and appropriate means of putting forward the whole of the proposed content of the agreement in such a letter or email might be to state in the letter or email that “only the following will be part of the agreement between the parties”. The email or letter can then set out a list of items that clearly identify those documents previously sent by one party to the other which are to form part of the contract. The list will not necessarily include all previous communications between the parties: one or more of them may have been superseded by later exchanges. Where two or more documents previously sent are not consistent with each other, it might be better to omit them from the list, to create a new clear and consistent document in their place, and then include it in the list instead.

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