Exchange of contracts – Agency – Land Registration
The Facts
Mr Aslam appealed a decision of the First-tier Tribunal that on 14 September 2018 he entered into a contract to sell his property, 189 Walton Road, Woking, to the respondent Mr Rehman. Mr Aslam and Mr Rehman were friends. Mr Aslam defaulted on the mortgage and the property was put up for sale at auction by the lender to take place in October 2018.
Mr Aslam and Mr Rehman met on 14 September 2018; Mr Rehman provided a contract in duplicate for the sale of the property by Mr Aslam to Mr Rehman; his evidence was that the contract and transfer were drawn up by Campbell Courtney & Cooney, solicitors. The FTT found that at the meeting on 14 September 2018 Mr Aslam and Mr Rehman each signed his own part. The FTT found as a fact that Mr Aslam signed his part of the agreement at the request of Mr Rehman and immediately handed it to Mr Rehman. The judge also found that Mr Rehman did not hand his copy or offered to deliver his copy to Mr Aslam, but that “the trust reposed in Mr Rehman by Mr Aslam at this point meant that Mr Rehman was acting as Mr Aslam's agent in respect of the impending sale”. The two parts were dated 14 September 2018, but the FTT made no finding as to when the two parts were dated. The contract provided for a deposit of 10% to be paid on exchange. Mr Aslam also signed a transfer of the property to Mr Rehman in Form TR1, which remained undated.
The FTT found that contracts were exchanged, but that no deposit was ever paid. The single issue for the Upper Tribunal was: did the judge's findings of fact justify his conclusion that exchange took place on 14 September 2018?
The Appeal
Elizabeth Cooke reminded herself of the dictum in Commission for New Towns v Cooper [1995] Ch 259 where Stuart-Smith LJ analysed the meaning of the expression “exchange of contracts”. She noted that at the time of execution neither party is bound by the terms of the document which he has executed, it being their mutual intention that neither will be bound until the executed parts are exchanged. The act of exchange is a formal delivery by each party of its part into the actual or constructive possession of the other with the intention that the parties will become actually bound when exchange occurs, but not before.
The Judge analysed the FTT's decision.She held that the key difficulty with the finding that exchange had taken place was that it is unexplained. Delivery is a formal act which the two parties must each carry out.The Judge noted that there was no finding of fact that when Mr Aslam handed his part of the contract to Mr Rehman his intention was to deliver it so as to exchange contracts; on the facts as found the Judge held that this may well not have been Mr Aslam's intention. His intention may have been to leave the undated half with Mr Rehman and authorise him to exchange contracts later; or it may have been to give his part of the contract to Mr Rehman but not to authorise exchange.She noted that the fact that A holds part of a contract to B's order need not happen as a result of delivery and does not mean that contracts have been exchanged.
The Upper Tribunal therefore set aside the FTT's decision that contacts were exchanged and substituted it with a decision that contracts were not exchanged.
Lesson Learnt
The case is a very good illustration of the reason why the law requires a formal delivery, whether physical, or attended by clear words that leave no-one in doubt that there has been an exchange. It is also an important reminder that when the FTT makes decisions which remain wanting for lack of details, explanations, or factual findings, to invite the FTT to review its decision –setting out which factual findings or explanations the FTT may wish to add to its decision to avoid it being overturned on appeal.
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