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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.

January 2020

This update was published in Legal Alert - January 2020

Legal Alert is a monthly checklist from Atom Content Marketing highlighting new and pending laws, regulations, codes of practice and rulings that could have an impact on your business.

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.

Operative date

  • Now

Recommendation

  • 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 [2019] EWCA Civ 1864

Disclaimer: This article from Atom Content Marketing is for general guidance only, for businesses in the United Kingdom governed by the laws of England. Atom Content Marketing, expert contributors and ICAEW (as distributor) disclaim all liability for any errors or omissions.

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