Agreements to purchase land must be in writing.
P Francis v F Berndes Limited concerns whether a document complied with required statutory formalities to constitute a legally effective contract to sell land. It is a reminder that failure to comply may invalidate the contract.
Mr Francis claimed that, in December 2003, a Mr Hughes made an offer on behalf of himself and Francis to buy a freehold property from F Berndes Limited (the company) for £50,000. The offer was made in the course of a telephone conversation between Hughes and Mr Berndes, a director of the company. It was claimed that the offer was accepted by Berndes a few days later and an express verbal agreement was concluded.
A letter was produced on the company’s headed notepaper dated 7 January 2004, which appeared to be signed by Berndes, Francis and Hughes. The letter contained Berndes’ confirmation that the company was prepared to sell the property for £50,000, provided certain conditions were met (and acknowledging that this price was well below the market value for stated reasons). The letter’s purpose was to reduce the parties’ basic agreement to writing in a legally binding form.
Francis alleged that, in breach of the agreement, the company refused to complete the sale of the property to Francis and Hughes and, instead, sold it to a third party. Francis claimed damages of over £1 million for breach of the agreement, alleging that the property’s market value at the date of the claim was at least £1 million.
The question for the High Court was whether the agreement was legally binding. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 sets down what is required for the form of a contract to sell land. Essentially, it can only be made in writing, incorporating all the terms which the parties have expressly agreed and must be signed by all the parties.
The Court determined whether the term that Francis and Hughes were to buy the property was successfully incorporated in the letter. The term had to be set out in writing in the letter, but, for Francis, the insuperable difficulty was that the letter nowhere stated that he and Hughes were to be the purchasers.
Even though construed in the light of the surrounding circumstances, this was clearly what the parties agreed and the purpose of Francis and Hughes’ counter-signatures was to signify their acceptance of it, this did not alter the fact that no written record of this critical term could be found in the letter.
The letter was in form no more than a counter-signed offer and did not set out in writing the obligation to purchase the property undertaken by Francis and Hughes. Although the parties may actually have come to an agreement, the letter did not set out in writing all the express terms of that agreement.
The Court noted that this may be thought a highly technical distinction, which may produce injustice in cases where the nature of the missing term is obvious, once the document is construed in its factual context. However, a main purpose of the legislation was to produce certainty in relation to contracts to sell land and reduce as far as possible the need for extrinsic evidence to establish the contractual terms.
The parties were represented by solicitors with negotiations lasting at least a year. It was difficult to understand why the parties should have left something as important as the drawing up of a formal agreement to sell the property to be dealt with so informally and without the benefit of legal advice.
The Court, therefore, held that the letter did not constitute an effective contract to sell the property.
Francis also failed with a rectification claim, rectification not being available to make a document compliant with section 2 by inserting an express term which the parties agreed to exclude from the document. This would undermine the legislation’s policy. The Court, however, will allow Francis to apply for permission to raise a claim in restitution.