Contract for Sale

Contract Law

The basic rules of contract law apply to the formation, interpretation, fulfilment, and breach of contracts for the sale of land.  See generally the sections on contract law in relation to these issues.  A contract for the sale of land must be evidenced in writing signed by the person against whom it is to be enforced.  There are exceptions to the requirements for writing, where the equitable principles of part performance or estoppel apply

In the vast majority of cases, there will be no doubt about the existence of a contract.  The seller’s solicitor usually prepares a draft contract.   This will naturally favour the seller and maybe the subject of negotiations with the buyer’s solicitor.  Amendments may be agreed.  Ultimately an agreed form of contract is produced.

In Ireland, the convention is that the buyer signs the contract and a duplicate first and sends it to the seller.  Once the seller signs that same contract document, there is a binding contract.  One copy is then returned by the seller’s solicitor to the buyer’s solicitor and the duplicate copy is retained. At this point, each party will have a contract signed by the other, so that there is a mutually enforceable contract.

There have been disputes when one or other party claims there is a contract and the other person rejects this claim  This generally happens in the rising or falling markets. Disputes in relation to the existence or non-existence of a contract are more likely to arise, where parties have agreed, privately to buy and sell real property.

Issues of contract formation may arise where alterations have been made to the form of contract, between the time it is signed by the buyer and by the seller.  The general principle is that if variations are made in terms of the contract so that the same document is not signed by both the buyer and seller, there is no contract.  However, the parties may proceed as if there is a contract in which event there may be an implied contract, on terms which a court may deduce.

Writing

If there is a note in writing, no matter how simple, and even if not intended as a contract, signed by the parties which set out the basic terms and conditions of sale, there may be a binding contract. If a contract exists in accordance with general principles of offer, acceptance, and consideration, then the signed note may suffice to make it enforceable.

The current legislation on the requirement for writing in a contract for the sale of real property dates from 2009.  However, in broad terms, it re-enacts legislation which dates back to the late 17th century, the so-called Statute of Frauds (Ireland) 1695. The current and previous legislation does not require that the contract itself be in writing.  There must be evidence of its key terms in writing, signed by the party against whom it is to be enforced.  This differs from the position in England and Wales since 1989, which there requires that the contract itself be in writing.

It is not the case that a verbal contract for the sale of land is invalid. Once the other conditions for the formation of a contract exist, there would be a contract.  The requirement for writing relates to the enforcement of the contract, not its validity.  The restriction is on enforcement by legal action.  It may be enforced in other ways such as by forfeiture of a deposit.

A party may waive the requirement for writing on the part of the other party. If, for example, certain terms and conditions in his interest are not included in the written record (“memorandum”) of the contract, he may waive the benefit of them, provided it is the term that is for his exclusive benefits and enforces the remaining terms are recorded in writing.

The requirement for a signed note in writing relates to a contract for the sale of real property.  This includes any interest in land including an agreement for the grant of easements, a lease or the surrender of a lease.  Licenses which are permissions to use land and which do not create an interest in land, need not be in writing.

Matters to be in Writing

The written note or memorandum must contain the key terms of contracts.  It must be signed by the party against whom it is to be enforced or his authorised agent.  The agent must have the authority to enter a contract. This is not usually the case with a solicitor or estate agent.

The written note need not be intended as a contract document.  It may be in any form to whatsoever.  Any signed document setting out the below key terms of sale is likely to suffice.  There have been many cases where a note sufficient to cause a contract for the sale of land to be enforceable has been inadvertently created.

The signed note must contain the key details of sale namely, the parties, the property, price, and other critical terms. The parties will generally be identifiable by name but may be identified in other terms.  The words “I”, “you”, “we” et cetera may suffice. The property must be described in sufficient detail to establish what exactly is in the sale. It need not be precise. In the case of ambiguity, verbal evidence may be admitted.

The price must be indicated.  If not specifically mentioned, there must be some method of ascertaining the value.  A price which is to be agreed is insufficiently certain.  A price to be fixed by an objective third party valuation is likely to be sufficiently certain. Any other key provisions must be inserted.  What other provisions are sufficiently critical, will depend on the circumstances

The requirement is equally applicable to agreements for the grant of the lease.  In addition, it is a requirement that leases for a year or more must be in writing.  However, an agreement for a lease, which need only be evidenced in writing, may be effectively equivalent to a lease.

The memorandum or note need not be a single document.  It may be a number of documents where there is sufficient cross-reference.  At least one must be signed and must make express or implied reference to the other documents. Correspondence between the parties or their agents may constitute a sufficient note or memorandum.

Signing

The note is required to be signed by the party against whom the legal action is taken.  The signature could include a stamp or other mark intended to authenticate a document.  The document can be signed by an authorised agent.  The agent need not himself be authorised in writing.

An auctioneer in a sale by auction usually has authority to sign the contract. He may sign both on behalf of the buyer and seller.  However in the sale by private treaty, the auctioneer generally does not have authority to sign or create a note sufficient to be enforceable. Other, such as solicitors may or may not have authority depending on the circumstances. The law of agency governs the position.

Part Performance

A contract for the sale of land may be enforced in the absence of a written memorandum, where the doctrine of part performance applies. The other party is effectively estopped from denying the requirement for a written memorandum.

Part performance is an equitable principle so that a remedy is not available as of right.  It is designed to prevent a party from relying on the requirement for writing, where this would be unconscionable. This is sometimes referred to as “equitable fraud”. This is not equivalent to fraud in the common law or criminal context.

The acts of part performance must be referable to the oral contract.  The acts of part performance by the party against whom enforcement action is taken may be proved by verbal evidence.  The requirement is usually satisfied where substantial steps have been taken in fulfilment and satisfaction of the contract by the other party.

For a long time, the payment of money by itself was not regarded as sufficient to constitute part performance.  However, the modern position is that there is no absolute rule that payment of money is insufficient to constitute part performance.

Entering Contract

In England and Wales, the standard practice is to exchange contracts.  Each of the buyer and seller simultaneously agrees by telephone and undertake to exchange the same form of contract. The precise time, to the minute, is noted on the contract and one of a number of standard formulae lay down by the Law Society may be used up.

In Ireland, the practice differs, as set out above. There may be a short interval in which one party could enforce because he has a memorandum signed by the other, but the other party cannot do so. The seller may use this short interval to enter a corresponding purchase contract.

This practice is not mandated by law and runs legal risks, including that the other party may withdraw prior to acceptance.  It may be contradicted by correspondence which asserts that no contract exists until exchange i.e. when the seller has sent the duplicate signed contract back to the buyer solicitor.

It is not necessary to register a sale/purchase contract.  However, if there is to be a long delay between contract and completion, the contract itself may be registered in the Registry of Deeds or the Land Registry.  In the Land Registry, the registration is indirect, by way of caution or inhibitions.

Pre-Conditions

There may be preconditions to the existence of the contract.  A party may be willing to commit to the purchase of property, subject, for example, to obtaining purchase finance, successful planning permission or a satisfactory survey. Questions may arise as to the extent of obligations that apply to the buyer, that arise prior to the condition being satisfied.  Generally, there is an implied obligation on the relevant party to undertake reasonable endeavours to achieve fulfilment of the condition.

A person contracting to buy subject to planning permission, finance et cetera cannot simply refuse to take any steps to seek to comply with the condition.  He may only exit the contract if he takes reasonable steps to achieve the condition.  The wording of the contract will be important in determining the extent to which for the courts will imply in such obligations.

The expression of “subject to contract” is commonly used in correspondence prior to the contract to deny the existence of a contract.  In cases approximately 30 to 40 years ago, the court found that there could be a note or memorandum of an enforceable contract in some cases, notwithstanding the use of this expression.

However, since then,  the courts have reaffirmed the general understanding that the term “subject to contract” is intended to be entirely incompatible with the existence of the contract.  The expression “subject to contract” and/or “contract denied” is commonly placed on correspondence by the estate agents and solicitors pre-contract to make it clear that there is no contract.

Sometimes it is provided in the body of correspondence that there is to be no contract until formal signing and exchange and the party to the correspondence has no authority to create a contract or memorandum of a contract.

Contract Issues

An option to purchase is a right to buy a property at a future date by giving notice of the exercise to the options.  A sale/purchase contract for the property comes into existence at that point in time.  Until that point, the seller agrees to leave his offer to sell open.  Generally, the terms of the option must be strictly complied with.

Where a contract for the sale of land is signed, the seller becomes a trustee for the buyer and the buyer obtains a beneficial interest in the property.  Prior to the 2009 Act, the equitable interest was limited to the deposit paid. The 2009 Act confirms that the entire beneficial interest passes to the buyer on the entry into an enforceable contract. It may revest in the seller on the buyer’s default.

The significance of the beneficial interest is that the buyer’s rights hold good against certain third parties including for example persons seeking to register a later mortgage or judgment mortgage against the seller’s interest in the property.

Post Contract Position I

From the date of the contract, the seller’s interest in the land is regarded as entitlement to monies and the buyer’s interest is to the property itself.  This follows the equitable principle that equity regards what ought to be done as done.  The matter is significant in various contexts including for example if one or other party dies.

In the buyer’s case his interest is in the property survives,t subject to the obligation to pay the price.  Similarly, the seller’s rights are to the proceed of sale which may be significant in terms of how the wording and terms of his will apply on the relevant date.

The seller is entitled to retain possession until the completion when the purchase monies are paid.  He is entitled to the rents and profits of the land up to completion.  If the sale does not complete due to the seller’s default, he must account to the buyer for the rents and income which he has been received or would have received both for his defaults.

After completion, the buyer must pay interest on the balance of the purchase price if the non-completion is due to his default and not that of the seller. The position is governed by the standard conditions. It is usually necessary to establish the entitlement to interest by way of court proceedings.

Post-Contract Position II

The seller is obliged to maintain the property pending completion for the benefit of the buyers.  Normal wear and tear are excepted.  However, he is liable for damages caused or permitted deterioration of the property. He may be obliged to carry out repairs.

He must maintain the property against trespassers.  In the case of agriculture property, it must be kept in a proper state of cultivation.  In the case of an investment property, he may be obliged to consult with the buyer in relation to the management of the property and dealing with tenants.

The death or bankruptcy of a party prior to the sale does not avoid the contract.  The representatives or trustees in bankruptcy may enforce the contract.

Lien

The seller has a lien for the unpaid purchase price.  He has the right to possession until the debt is paid if not the right to sell.  He may, however, discharge the contract for breach. If the seller has parted with possession he retains an equitable lien.

This is a charge which entitles the seller to apply to the court for an order for sale.  It subsists automatically without registration.  It may also arise, for example, where the monies are paid by instalments.

The seller may be estopped from claiming the lien if he gives a deed with a receipt for the full purchase money to the buyer. A purchaser has a lien for purchase money paid including a deposit and cost in relation to an abortive sales.

References and Sources

Primary Texts

Law society of Ireland: Conveyancing 9th Ed Brennan et al.

Investigating Unregistered Title- Magee 2012

Irish Conveyancing Law- Wylie & Woods 4th Ed 2019

Irish Conveyancing Precedents- Laffoy

Irish Conveyancing Statutes – Wylie 2020 6th Edition:

eConveyancing and Title Registration quantity

Complex Conveyancing Law Society PPG Hession 2nd Edition

 

Registration of Deeds and Title in Ireland – Deeney 2014

UK Textbooks

Conveyaning Handbook 28th Ed. Silverman et. al (annual)

A Guide to Conveyancing Residential Property by Alan Stewart

A Practical Approach to Conveyancing (22nd ED) Robert Abbey and Mark Richards

A Practical Approach to Commercial Conveyancing and Property 5th Ed Robert Abbey