Subject to Contract: it is what it is, unless clearly abandoned
It is normal practice for businesses to mark communications ‘subject to contract’ in the course of negotiations. But the fact that a piece of correspondence is marked as such does not automatically mean it always has the legal protection of being ‘subject to contract’ (STC).
This is because its legal meaning and implications are not always properly understood. In this case, the High Court emphasised the significance of ‘STC’ in contractual negotiations. All those involved in commercial negotiations should note the ruling and ensure they are familiar with the principle of STC and its limitations.
What does ‘subject to contract’ mean?
‘Subject to contract’ indicates that the parties do not intend to be legally bound by the terms until a formal contract is executed. STC is a common law term and not defined in statute. It is routine to include it across a range of negotiations, heads of terms and so on.
Where a dispute arises, one factor is the actual intentions of the parties. For example, if a document is labelled STC, but the parties’ conduct, words and/or communications indicate a contrary intention, there may well not be a binding contract in existence.
What’s the background?
In Baltimore Wharf LLP v Ballymore Properties [2026] EWHC 312, the parties were involved in a £2m dispute following the collapse of a nursery roof. Several weeks of negotiations took place and legal proceedings had been stayed to enable negotiations to continue.
The defendant’s solicitors had circulated, in August 2024, a draft settlement agreement marked on each page ‘subject to contract’. The draft settlement required the agreement to be formally executed by all parties.
The defendants later asked all parties by email to confirm whether the terms were agreed. The claimant’s solicitors promptly gave their confirmation, subject to specific amendments.
A final version was circulated in September 2024, which was not marked STC. The defendant signed, but the claimant said they needed more time to review it ahead of executing the agreement.
In November 2024, the defendant informed the claimant that they had concluded a legally binding settlement agreement, even though not everyone had signed it. The claimant argued that no such binding agreement existed until all parties had executed it, because negotiations had been conducted STC.
At issue was whether a settlement had been reached, or whether it was still STC until it had been formally executed by all parties.
The High Court agreed with the claimant’s position, which had been set out clearly in a letter from its solicitors to the defendant’s solicitors:
“By issuing a travelling draft bearing these words [STC] your client was communicating unambiguously to the other parties that no binding Settlement Agreement would come into effect unless and until the document was formally executed."
STC
The High Court made clear, as a matter of principle, that once a negotiation includes a STC reservation, “that conditionality remains unless all parties expressly agree it has been removed or such agreement is to be necessarily implied” - including by conduct.
Here, there was nothing to show that the “clear continued use of the subject to contract words in the travelling draft Settlement Agreements was being abandoned by the Claimant or, for that matter, by the other parties”.
At some point after 24 September, the claimant had a change of mind and decided not to sign the executed version of the Settlement Agreement. It was not too late to do so; and the agreement remained STC.
What does this mean?
The ruling reiterates the settled principle – that an agreement as to terms is not the same as agreeing to be bound by a legally binding contract.
The contract is only binding on the parties once it has been formally executed, unless the parties clearly agree – expressly or by their conduct - to remove the protection of STC.
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