In the first of two articles, Matthew Bonye, Frances Edwards and Shanna Davison explain how to avoid pitfalls and safeguard your transactions through clear communication
It's safe to say parties want certainty in contractual terms, both in what the binding obligations are and when they are bound to them. As a result, heads of terms, agreements in principle and correspondence exchanged during negotiation are typically labelled as "subject to contract" to ensure hard commitments only apply when both parties are ready.
It sounds simple enough, but things are not always so clear. Differences in opinion between parties over whether a contract has been entered can result in costly disputes and avoiding them requires clear communication and a careful use of specific phrases and terms. Though a helpful caveat, "subject to contract" should be bolstered further by clarity between parties throughout their negotiations, as courts have a long history of determining whether a situation between parties is truly subject to contract.
This article was first published by EG on 9 Jan 2023.