Introduction
It is fairly well established that to prevent the creation of legal relations parties use the term ‘subject to contract’ or a similar variation. The expression indicates that the parties are still negotiating and have not yet entered into a contract.
Is the term ‘Subject to Contract’ sufficient protection?
Unfortunately, “Subject to Contract” is not a guarantee that you will not find yourself in a legally binding contract. In commercial contracts, it is a question of fact whether a contract has been created. If the evidence fulfils the requirements of a contract, regardless of whether the terms are contained in emails, heads of terms, memoranda of understanding etc, you may find that you have a created a contract inadvertently.
Conclusion
Whilst the term “Subject to Contract” might help in showing the intent of the parties, any documents exchanged or signed which are not intended to be legally binding should explicitly state such.
You should also make sure that you don’t actually carry out any of the terms of the intended contract before it has been signed. The actions of the parties can also have the effect of inadvertently entering into a contract even though the parties have only exchanged emails or signed Heads of Terms etc.
Contact Richard Jenkins on 07837 762705 or Richard@clariclegal.co.uk for further advice or assistance.
This should not be relied upon for legal advice.