Informal contracts to buy land – are they binding?

This issue was clarified recently by the Supreme Court of Queensland*. M sent an offer on letterhead dated 8 April 2008 to Acme Real Estate offering to purchase B’s 20 acre Forest Glen property. The letter requested the agent put the following “unconditional final offer” to B:-

• Purchase price $3 million
• $500,000 non-refundable deposit released when vendor signs contract
• contract will be unconditional in the form of a Put & Call
• settlement 12 months from date of contract

If the vendor accepts, please have him sign this letter as “accepted” and we will instruct lawyers to prepare contracts.
The following day M’s managing director signed his “acceptance” on the letter.

B refused to proceed with the sale and M sued, arguing that the signed letter was a valid and binding contract. The Court considered all the circumstances and decided that although the parties had not reached finality in agreeing on all terms, they had agreed there would be no departure or addition to the terms they had agreed to. The fact that some of the agreed terms were conditional upon the execution of a formal contract did not detract from the conclusion that there was a valid and enforceable contract.

M also contended that some of the terms were vague and uncertain. The Court ruled that each of the terms were capable of being given practical meaning and there was no inconsistency or uncertainty.

His Honour ordered that the parties execute a Put & Call contract for the land on the terms specified.

Note: Accepting terms contained in a “letter of offer” always needs careful consideration. It is prudent to seek legal advice before signing or to at least include a provision such as the following:

“There is no binding agreement between the parties until formal contract terms prepared by the party’s lawyers have been agreed and signed”

Carter Capner Law’s QLD Conveyancing Clause Library contains appropriate special conditions for inclusion in offer letters in these situations. You can access the library via LawSpace.

*Moffat Property Development Group Pty Ltd v Hebron Park Pty Ltd (2008) QSC 177

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