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14th December 2010

Heads of Terms – beware of what you offer


14th December 2010

Heads of Terms – beware of what you offer

Correspondence whether pre or post contract (irrespective of the intentions of the parties) can, if care isn’t taken, result in the writer or recipient being caught out.

Before a legally binding contract or agreement is created a number of formalities must be observed.  Two key requirements are that there must be an offer by one party which is then accepted by the other.

This principle was recently considered by the Court of Appeal in the case of Crest Nicholson -v- Akaria Investments Limited.  The case concerned an exchange of correspondence in which the words “market rent” were mistakenly used instead of the words “target rent”. When applied in the context of the agreement which had been entered into between the parties, the effect of the correspondence (if it amounted to an offer and acceptance) would have been to require a considerably higher payment than would have been the case had the correct terminology (i.e. “target rent”) been used.

At first instance the High Court held that the correspondence constituted an offer and acceptance (and so bound the parties).

The Court of Appeal concluded that the correspondence needed to be viewed against the factual matrix of the dealings between the parties and the background of the contractual arrangements which the parties had entered into.  When seen in this context the Court of Appeal concluded that the reference to “market rent” was an obvious mistake and not one which the writer, or for that matter any reasonable recipient, would have intended to treat as being an offer open for acceptance.

The Crest Nicholson case is a victory for common sense (in that the intention of the parties was upheld rather than one being penalised for transposing terms). The case does however emphasise the care which needs to be taken when corresponding within the framework of existing contracts. It also highlights the importance of applying an appropriate headings to correspondence (whether subject to contract, without prejudice or otherwise) – see the blog “Property Contracts – ignore them at your peril” for more on this point.

If you require any further information or wish to discuss any of the issues raised by this blog, please email:  mark.withers@parissmith.co.uk.

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