Law Report: House vendor liable to purchaser over 'gazumping' deal: Pitt v PHH Asset Management Ltd. Court of Appeal (Sir Thomas Bingham, Master of the Rolls, Lord Justice Mann and Lord Justice Peter Gibson), 29 June 1993

A potential purchaser of property who, in order to protect himself against being 'gazumped', made an agreement by which the vendor gave a negative undertaking he would not deal with any other purchaser for a clear specified period was entitled to enforce the agreement and claim damages for breach of the agreement when the vendor broke it.

The Court of Appeal dismissed an appeal by the defendant, PHH Asset Management Ltd, from Judge Brandt's decision that the plaintiff, Timothy Pitt, was entitled to damages for breach of contract. The plaintiff was one of two contenders interested in purchasing a property put on the market by the defendant. The plaintiff made two offers which were initially accepted by the defendant's selling agent. The acceptances were withdrawn when the other contender made higher offers.

The plaintiff told the agent that he would seek an injunction to prevent the sale to the other contender and that if he told the other contender he was withdrawing any future offer would be lower in the absence of a rival. An agreement was then reached that the defendant would stay with the plaintiff's offer, subject to contract, and would not consider any further offers on the basis that contracts would be exchanged within two weeks of receipt of draft contracts. However before the end of the 14-day period the defendant increased the price and sold the property to the other contender.

The plaintiff sued for breach of the agreement. The judge rejected the defendant's arguments that the contract was unenforceable under section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 because the agreement was for the sale of an interest in land and that the plaintiff gave no consideration for the agreement.

R A Payne (Townsends, Swindon) for the defendant; D Pugh (Steed & Steed, Sudbury) for the plaintiff.

LORD JUSTICE PETER GIBSON said that the crucial question was whether what was agreed was a 'lock out agreement'. One had to look to what was agreed to see whether or not there was something that was capable of subsisting as a binding contract independently of the continuing negotiations for the sale of the land. There was no reason why the agreement, whereby the defendant was locking itself out from negotiating with other prospective purchasers for a limited period, should be considered to be subject to contract as the negotiations for the sale of the land were, there being nothing further to agree. The argument that the agreement was simply part of the continuing negotiations between the plaintiff and defendant was rejected.

The removal of the threat of an injunction and the threat of causing trouble with the other contender provided some consideration. The plaintiff's promise to get on by limiting himself to just two weeks if he was to exchange contracts was of some value to the defendant. Those three items constituted valuable consideration sufficient to support the lock out agreement.

There was no contract for the sale of land or any option for the sale of land. What was agreed was a lock out agreement, the negative element of which was a characteristic as identified in Walford v Miles (1992) AC 128. It was not incumbent on the defendant to proffer a contract but once it did, it was bound by the terms of the lock out agreement for the 14-day period that followed. The agreement was not a contract for the sale of any interest in land and therefore section 2 had no application. The appeal was dismissed.

LORD JUSTICE MANN agreed.

SIR THOMAS BINGHAM MR, agreeing, said that buying and selling a house was frequently a depressing and frustrating experience. A purchaser of property had one means of protection against unprincipled behaviour by a vendor: to make an independent agreement by which the vendor agreed for a clear specified period not to deal with anyone other than that purchaser. The effect was to give that purchaser a clear run for the period in question. The vendor did not agree to sell to that purchaser - that would be covered by section 2 - but gave a negative undertaking that he would not for the given period deal with anyone else.

That was what happened here. The vendor and purchaser made a 'lock out agreement'. That was a contract binding on both. The vendor broke it. He was liable to the prospective purchaser for damages to be assessed.

Law, page 28