Pitt v PHH Asset Management

A vendor and prospective purchaser may make an independently enforceable lock-out agreement during subject-to-contract negotiations. The essential obligation is negative: for a specified period, the vendor must not negotiate with or consider offers from others. The agreement gives the purchaser an exclusive opportunity to complete a sale, but does not itself bind the vendor to sell or provide a contract. A purchaser’s abandonment of obstructive threats and undertaking to proceed within a fixed period may constitute sufficient consideration. Because a lock-out agreement is not a contract for the sale of an interest in land and creates no option or interest in land, section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 does not apply.

The defendant appealed from Judge Brandt’s decision on an agreed preliminary issue. The issue was whether the parties had entered into a contractual relationship on 3 October 1991.

After competing offers for a property, the defendant agreed to continue with the claimant’s offer of £200,000, subject to exchange within 14 days of receiving draft contracts, and agreed not to consider further offers. The draft was later withdrawn when the defendant sought to proceed with a higher offer. The defendant argued that the arrangement remained subject to contract, lacked consideration, and was an agreement for the sale of land unenforceable under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.

1. Appeal dismissed. Peter Gibson J gave the first judgment, with which Mann LJ and Sir Thomas Bingham MR agreed. The agreement made on 3 October 1991 was a binding lock-out agreement.
2. The crucial question was whether the agreement could subsist as a binding contract independently of the continuing subject-to-contract negotiations. The defendant gave the claimant a clear opportunity to exchange contracts within 14 days of receiving the draft and undertook not to consider further offers. There was nothing further to agree in that negative undertaking, so it was not itself subject to contract.
3. The agreement was supported by consideration. The claimant’s threats to seek an injunction and to cause difficulty with the competing bidder had nuisance value, and the defendant was freed from those potential difficulties. The claimant also promised to proceed without delay beyond the agreed two-week period. Those matters together constituted valuable consideration.
4. The agreement did not bind the defendant to sell the property, negotiate exclusively with the claimant, or even proffer a contract. It created only an exclusive opportunity for a limited period. Once the defendant provided the draft contract, however, it was bound by the lock-out agreement for the 14-day period.
5. The arrangement was not a contract for the sale of an interest in land or an option. No sale terms had been agreed and no interest in the land had been created. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 therefore had no application. The court applied the principle stated in Walford v Miles [1992] 2 AC 128. Appeal dismissed with costs; leave to appeal to the House of Lords refused.

• Court of Appeal: The appeal was dismissed with costs. The court held that the October agreement was an enforceable lock-out agreement: [1993] EWCA Civ 1.
• Lower court: Judge Brandt decided the agreed preliminary issue in favour of the claimant, holding that a contractual relationship had been created and giving judgment for damages to be assessed.