knowledge | 17 May 2021 |
Text and Email Risk for Property Professionals
In Ireland, contracts for the sale of land don’t have to be in any particular form. If one party signs written evidence of the agreed terms, the other party can use that to enforce the contract. Crucially, even where one party doesn’t intend the correspondence to be binding, it can still result in a binding contract. In exceptional circumstances (for example, where someone has acted to their detriment based on another’s representation) written evidence of the agreed terms, may not even be required.
In a case in Massachusetts1, text messages between two estate agents, together with the exchanges between the parties themselves, were held to result in a binding contract for the sale of a commercial building. This begs the question, whether property professionals in Ireland would be similarly exposed to the same risk.
Creation of a Contract
The creation of a binding contract to sell land usually comes down to (1) the acceptance by one person of (2) an offer by another (3) to sell or grant an interest in certain land (4) for a certain sum. In Ireland, the eCommerce Act 2000 facilitates the creation of contracts electronically, where the essential terms of a contract are present. While deeds transferring or granting interests in land are not currently executed electronically, the eCommerce Act is clear that a contract agreeing to transfer or grant an interest in land can be and this is now routinely done. It therefore follows very clearly that any one acting in the sale or purchase of land, who summarises terms or refers to them in any form of correspondence, including text message, and possibly even a message using social media, could bind themselves, or the person for whom they act.
Mitigation of Risk
To protect against this and to ensure that a binding contract is not created, the person communicating must be very clear that this is not their intention. And crucially, this intention not to be bound must be consistently communicated not just in their correspondence but also in what they say and do otherwise. Actions can speak louder than words. If, despite what the parties are saying, the behaviour of one of them suggests that they consider themselves bound, this can lead the Courts to determine that a binding contract is in place. While we might be tempted to consider ourselves saved by simply heading all correspondence “subject to contract”, the 2016 High Court case of Prunty v Crowley2 is a good example of a contract for sale being enforced, despite those words being used.
In Prunty the plaintiff sought specific performance of a contract for the sale of land to the defendants. The plaintiff had already contracted to sell the same land to a third party and, at the request of the defendants, had abandoned its rights on foot of that previous contract. The defendants then later denied that they had committed to the purchase of the land. Among other reasons, they argued that the request of the plaintiff to abandon his rights against the third party was done by correspondence which was headed “subject to contract”. O’Malley J held, despite the fact that the correspondence was headed “subject to contract”, that it would be unconscionable to allow the defendants to deny the existence of a contract in the circumstances.
To Take Away
Informal texts are just as capable of giving rise to a binding contract as any other communication. The intention of the parties that a binding contract is not created until formal contracts are agreed and exchanged between the legal representatives for both parties should be made crystal clear in every communication. Using the heading “subject to contract/ contract denied” on communications is one indicator of that intention, but the intention does need to be consistently and clearly communicated. And as Prunty demonstrates, the behaviour of the parties in supporting that intention is also key.
- St John’s Holdings, LLC v Two Electronics, LLC
-  IEHC 293
This briefing is for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.