Pitt v PHH Asset Management Ltd
Court of Appeal
Citations:  1 WLR 327;  4 All ER 961; (1994) 68 P & CR 269;  40 EG 149;  EG 127 (CS); (1993) 143 NLJ 1187;  NPC 120A.
The claimant sent the defendant an offer to buy the property for £200,000, which the defendant accepted. The defendant then received a higher offer from a third-party, and withdrew the acceptance he made to the claimant. The claimant threatened to sue, though they later acknowledged that they would not have succeeded in any claim because the defendant’s agreement to sell was ‘subject to contract’. However, any action would have caused the defendant considerable inconvenience.
To convince the claimant not to sue, the parties agreed that the defendant would only consider the claimant’s offer to buy a particular house, and no one else’s. This is known as a ‘lock-out’ agreement. The agreement stated that this would be an enforceable agreement as long as the claimant exchanged contract within two weeks of the defendant sending him a draft contract. The claimant duly offered to exchange contracts, but the defendant refused unless the claimant raised his offer to match the third-party offer he had previously received. After the claimant refused, the defendant sold the property to the third-party.
The claimant sued for breach of the lock-out agreement, arguing that it was a collateral contract. The defendant contended that there was no contract, due to the following defects:
- The agreement was subject to contract;
- The claimant had not provided consideration for the agreement; and
- The lock-out agreement was a contract for the sale of land and so void for failure to comply with formalities under the Law of Property (Miscellaneous Provisions) Act 1989.
- Was the agreement subject to contract?
- Had the claimant provided consideration?
- Are lock-out agreements contracts for the sale of land?
The Court of Appeal held in favour of the claimant. On each of the points:
- The agreement subsisted separately to the sale negotiations, and each of its essential terms had been agreed on. Since there were no further matters to negotiate, the agreement was complete and not subject to contract.
- The claimant’s agreement not to sue was valid consideration. Even though the claimant would not have succeeded, the defendant gained the benefit of avoiding the inconvenience of a legal action.
- The lock-out agreement was not an agreement to dispose of an interest in land, so the formality requirements did not apply.
The defendant was therefore liable to pay damages for breach of contract.
This Case is Authority For…
Lock-out contracts are not agreements to dispose of an interest in land. This is because they do not bind the defendant to dispose of any interest.