Subject to Contract in UK Law

What it means is that (a) neither party intends to be bound either in law or in equity unless and until a formal contract is made; and (b) that each party reserves the right to withdraw until such time as a binding contract is made. It follows, therefore, that in negotiating on that basis both Generator and Lidl took the commercial risk that one or other of them might back out of the proposed transaction. In short, a “subject to contract” agreement is no agreement at all.

The recorded intentions as to the joint venture implicitly proceeded on the basis that no concluded agreement had been reached and contemplated that such an agreement might never be reached.

But it is not, in my judgment, necessary that the note or memorandum should acknowledge the existence of a contract.

Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations.

Thus, in the Galliard Homes case Lindsay J, giving the only substantive judgment in the Court of Appeal, which also comprised Evans and Schiemann LJJ, at page 236 quoted with approval the statement in Megarry & Wade, The Law of Real Property, 5 th ed (1984) at pages 568-9 that it is possible for an agreement 'subject to contract' or 'subject to written contract' to become legally binding if the parties later agree to waive that condition, for they are in effect making a firm contract by reference to the terms of the earlier agreement.

In Chillingworth v. Esche (1924) 1 Chancery 114 Lord Justice Sargant said: I do not say that the phrase makes the contract containing it necessarily and whatever the context a conditional contract. But they are words appropriate for introducing a condition, and it would require a very strong and exceptional case for this clear prima facie meaning to be displaced"

Even the use of the expression "subject to contract" would not, however, necessarily preclude proprietary estoppel if the claimant established that the defendant had subsequently made a representation and had encouraged on the part of the claimant a belief or expectation that he would not withdraw from the "subject to contract" agreement or rely on the "subject to contract" qualification: see A-G of Hong Kong v. Humphreys Estate [1987] 1 AC 114 at 127H-128B.