Case law: Provisions in non-binding heads of terms left out of subsequent contract remained non-binding
Parties negotiating an agreement should ensure that provisions in non-binding ‘subject to contract’ heads of terms are incorporated into the final contract - or risk them remaining non-binding.
This update was published in Legal Alert - January 2020
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A company and an individual signed heads of terms that included a proposed profit sharing arrangement in relation to the sale of properties in a development. The heads of terms were stated to be subject to contract and without prejudice.
Most of the terms were later incorporated into a formal contract, but not the profit sharing arrangement.
One of the parties claimed it was legally entitled to profits under the arrangement. The other parties claimed that as part of the heads of terms, the arrangement was not binding.
The court agreed that the arrangement was not legally binding.
- Parties negotiating an agreement should ensure that provisions in non-binding ‘subject to contract’ heads of terms are incorporated into the subsequent legally binding contract or risk them remaining non-binding.
Case ref: Farrar & Anor v Rylatt & Ors  EWCA Civ 1864
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