Thinking of Dispensing With Legal Advice on a House Sale? Think Again!

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Home-made contracts, particularly for the sale of land, are a singularly bad idea and can lead to costs that dwarf the modest sums needed to secure proper professional advice. Exactly that happened in one case in which a house purchase contract was so inexpertly drafted as to cast grave doubt on its validity.

The owner of the property negotiated with his neighbours with a view to selling it to a company owned by one of them. A contract was drafted by one of the neighbours, who was not a lawyer, and was signed following an informal meeting. On the face of it, the contract provided that the company would pay a deposit of £3,000 before purchasing the house for £145,000. The contract stated that the sale would be finalised as soon as the legal and banking formalities were completed.

After the seller sought to withdraw from the deal, the company registered a unilateral notice at the Land Registry in order to protect its interest in the property. The dispute was in due course referred to the First-tier Tribunal (FTT) after the seller applied to cancel that notice.

In ruling on the matter, the FTT noted that the contract did not define exactly what legal and banking formalities needed to be satisfied before the sale would be completed. It also did not attempt to impose any time limit for completion or any obligation on the company to exercise due diligence in pursuing completion within a reasonable time. In those circumstances, the FTT directed cancellation of the notice on the basis that the contract was so uncertain in its effect as to be void.

In upholding the company’s challenge to that ruling, the Upper Tribunal noted that text message and email contact between the seller and his neighbours made it plain that there had been an intention to enter into a legally binding agreement. It was, in the circumstances, legally and practically possible to imply terms into the contract that gave sensible effect to that intention.

The absence of a definition of legal and banking formalities was not fatal in that the phrase could be read as referring to steps required to put in place finance for the purchase and to undertake the normal conveyancing process. Given the background and the wording of the contract, it was also possible to imply into it an obligation to complete those formalities and to achieve completion as soon as reasonably practicable. The validity of the contract having been upheld, the company had a subsisting interest in the property and the unilateral notice would not be discharged.

Source: Private Client Library Content