Get More TLC: #25: Subject to contract?

In your quote or estimate or proposal, do you say it is ‘subject to contract? Would you have an email footer saying ‘Any offers made in an email or attachments are subject to contract’? Do you even really know what this phrase means?

Image saying that £110bn is spent every year on projects and 1/3 projects start without a contract in place

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When I started as a lawyer, I used to find lots of process documents were marked ‘subject to contract’ – including invoices(!) As I explain to my workshop participants, if you’re still not sure you have a contract when you are sending an invoice, your contract process is in deep trouble. 

The data continues to show that 1/3 of UK construction projects start without a contract in place. English law has few strict formalities meaning a contract can occur based on the acts or conduct of the parties.

And so every year the courts hear cases just to determine whether there was a contract between two organisations – a judge even admitted that this question is probably the most frequent issue raised in the construction industry. You shouldn’t really be starting work without a contract of any sort… although you wouldn’t be the first! For a million-dollar lesson you could learn from, check out this post.

Subject to contract is intended to be used only when you want to prevent a contract arising before all the relevant terms are agreed. If you are still discussing or negotiating your contract, then it may prevent a contract occurring prematurely. But it won’t work if:

  • you add it to a wide variety of pre-contract and post-contract documents from brochures to invoices
  • you don’t have processes that ensure you get clear contracts signed
  • you start work without getting your terms finally agreed (starting work can be acceptance of their terms).

The problem with ‘subject to contract’ is that it could mean either:

  1. until there is a signed (or sealed) formal contract between us, we have no contractual obligations to each other ie a contract is a condition precedent to liability, or
  2. we expect a formal contract but in the meantime we will work on whatever basis we agree ie the phrase is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through.

It’s all a bit like the ambiguity in bi-monthly! And for the real nerds, this post includes the ‘textbook answer’ from Megarry & Wade’s Real Property

Where’s the worst place for ‘subject to contract’?