Category Archives: Section 2 Law of Property (Miscellaneous Provisions) Act 1989

Promissory estoppel could not outflank statutory requirements for variation of land sale contracts

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (the 1989 Act) says:

“(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each

(5) … nothing in this section affects the creation or operation of resulting, implied or constructive trusts.”

In Dudley Muslim Association v Dudley Metropolitan Borough Council [2015] the starting point was that the Dudley Muslim Association (“DMA”) were under an obligation to re-transfer land to the Council in the event of non-completion of a Mosque development by a contractual deadline.

They alleged that the Council had made representations that they be allowed an extension of time beyond the Scheme getting planning permission and that this amounted to a variation of the contract or was the basis of a promissory estoppel.

The Court of Appeal held that an obligation to re-transfer land to the Council was a contract for the disposition of an interest in land and therefore caught by section 2 (1).

Although the obligation to re-transfer was in the nature of a covenant, it made no difference. It was an executory (and initially conditional) commitment to transfer the freehold to the Council in exchange for a specified sum of money. So the obligation to transfer was within the scope of section 2.

Any variation of a contract that falls within the scope of section 2 must itself comply with the required formalities of that section: McCausland v Duncan Lawrie Ltd [1997]. The DMA could not show that the correspondence from the Council alleged to be the source of the estoppel did comply.

McCausland left open the possibility that estoppel might get round the section, though it would be surprising if one could do by promissory estoppel what one could not do by informal contract.

An “estoppel by convention” arises where parties to a transaction act on an assumed state of facts or law, where that assumption is either shared by both, or, made by one party and acquiesced in by the other party. Here, so long as the assumption is communicated by each party to the other, then each is prevented, or estopped, from denying the assumed facts or law if it would be unjust to allow them to go back on the assumption. Godden v Merthyr Tydfil Housing Association (1997) subsequently held that an allegation of an estoppel by convention could not circumvent section 2.

A “proprietary estoppel” involves something being done by a person which that person believes will give him rights in or over land. For example, putting up a building or making improvements to the land. Here the landowner may be estopped from denying the right or title which that person has assumed to exist. Yaxley v Gotts [2000] held that a proprietary estoppel claim could be brought despite section 2 (1) because such a claim fell within the exception in section 2 (5). But the observations of Lord Scott in Cobbe v Yeoman’s Row Management Ltd [2008] later cast doubt on this:

“The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than the statute provides. Equity can surely not contradict the statute.”

Though the observations were made as an aside and were not essential to the decision, three other Law Lords in the case had agreed with Lord Scott’s speech.

In the present Dudley case, the Court of Appeal was prepared to assume, for the purposes of argument, that a claim in proprietary estoppel is capable of outflanking section 2. But only because it might fall within the express exception within subsection (5) which was itself part of section 2.

A “promissory estoppel” usually involves a promise, given by one party during the performance of a contract, not to hold the other party to the strict terms of the original contract.

Where, as here, a defence was raised based not on proprietary estoppel but on promissory estoppel there was no question of a constructive trust of land arising. Furthermore since the DMA already owned the land, there was no relevant property which was capable of being held on constructive trust for the DMA.

Unless a case fell within section 2 (5), to admit a defence based on promissory estoppel would be effectively to repeal the section by judicial legislation.

So, even if the DMA had been able to plead and prove a defence of promissory estoppel it would not have overcome the extension of time being void for non compliance with the formalities required under section 2 (1) of the 1989 Act.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Constructive trust used to validate verbal land contract

In Ghazaani v Rowshan [2015] Mr Rowshan owned a Leeds property. Dr Ghazaani relied on the doctrine of constructive trusts and/or proprietary estoppel and contended that Mr Rowshan held the Leeds property on constructive trust for him and should be compelled to transfer it to him.

There was an oral agreement under which Dr Ghazaani and Mr Rowshan agreed to exchange the Leeds property for a Tehran apartment together with an equality payment.

There was never any intention to enter into a formal written agreement. Dr Ghazaani and Mr Rowshan were quite content to proceed to completion on the basis of the oral agreement they had reached. At least by November 2011 all of the terms had been agreed between the parties. There were no further terms to be agreed between them.

Being an oral agreement normally Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 would make that agreement void – certainly as regards the Leeds property. It had been a matter of debate how far proprietary estoppel and constructive trusts could be used to get round the hardship and potential for injustice in this section.

In November 2011 Mr Rowshan granted Dr Ghazaani possession of the Leeds property and instructed a tenant of part of it to pay rent to Dr Ghazaani.

Between 2011 and 2012 Dr Ghazaani carried out significant alterations to the first floor of the Leeds property and had converted it into residential accommodation. Dr Ghazaani had spent £10,490 for the labour and a substantial amount was also spent on the materials. Dr Ghazaani retained possession of the first floor flat. He had 3 daughters and it had been occupied from time to time by two who were studying at Leeds University. The Transfer of the Tehran apartment to Mr Rowshan was made by a Transfer registered in November 2011. The 500 million IR equality money was paid to Mr Rowshan.

The High Court said Dr Ghazaani has made out his case for a constructive trust and/or proprietary estoppel and, in the exceptional circumstances, it would be unconscionable for Mr Rowshan to refuse to complete the Transfer of the Leeds property to Dr Ghazaani.

The parties should be put in the position they would have been if the contract had been concluded in November 2011.

So the court ordered Mr Rowshan to Transfer the Leeds property to Dr Ghazaani.

This blog has been posted out of general interest. It does not replace the need to get bespoke legal advice in individual cases.

Detrimental reliance meant informal land promise enforceable

Wherever a claimant acts in reliance on a promise to his detriment, the principal issues are generally whether: (i) the principle of promissory estoppel or proprietary estoppel applies; and (if the claim involves land), whether (ii) the claim is barred by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“the 1989 Act”), for a lack of the formalities required by the 1989 Act to support agreements for the sale of land.

The approach of the courts is to look at all the circumstances to decide how to achieve the minimum equity required to do justice, and to provide a remedy based either on the expectations of the parties, where the parties’ mutual understandings are obvious or some lesser remedy where those expectations are uncertain or extravagant or much greater than the detriment suffered by the claimant.

There are a wide range of reliefs available and it is not necessarily a case of providing compensation for either the detriment or the reliance or the expectation. The available discretion is wider than that and the remedy must be proportionate, taking into consideration the promise, and the benefit to the promisor and the detriment incurred by the claimant.

In Seward v Seward and another (2014) the claimant and his brother were the two sons of the defendants. Collectively, they owned and farmed 101 acres of land at Chudleigh, Devon.

The farm was then split between the claimant and his brother. The defendants retained some ownership.

It was later proposed to be sold for £830,000.

The claimant applied to court for a declaration that the defendants held the farm on trust for him absolutely.

The claimant had transferred to his brother his half share in another property that the brothers jointly owned, against the defendants’ promise that he would receive the whole of the farm after the first defendant’s death. The claimant was now enforcing that promise.

The defendants said they had never made the promise and that in any event the claimant had received from them gifts of land and financial support which would have satisfied any such promise.

The High Court said the claim fell within the doctrine of proprietary estoppel.

A representation had been made to the claimant and it would be unconscionable for the parents to go back on that representation. He had relied on that representation to his detriment by giving up half the jointly owned property in reliance on the promise that he would, in the future, receive a property worth a lot more. His detrimental reliance on that representation meant it could not be revoked.

Here the representations were as to future benefits and these might be affected by, and the promise conditional upon, unforeseen future events. But subject to that qualification, the remedy was to place on the land a remedial constructive trust. Equity was sufficiently flexible to allow this.

The remedy sought here was quite distinct from the enforcement of a contractual agreement, it was a promise, which was enforceable on the basis of a constructive trust founded on facts which had created a proprietary estoppel. Section 2 of the 1989 Act contained an express saving provision for constructive trusts so it was not a promise rendered void and unenforceable by that section.

The benefits actually received by the claimant had been insufficient to satisfy the equity which arose in his favour. Here the minimum equity required to do justice to the claimant was to award him the entire beneficial interest in the property.

The defendants were ordered to execute a declaration of trust of the property in favour of the claimant, but the defendants, and the survivor of them on death, were allowed to live there as long as they wished or required.

If the property needed to be sold, they would have to get the claimant’s agreement to it.

The claimant’s interest would then be transferred to any alternative accommodation which might be purchased and to the balance of any proceeds of sale.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.

Court implies duty on Seller to cooperate in property sale conveyancing

In the scenario where a defaulting Buyer has its deposit at risk on a flat purchase and arrives at a settlement agreement, to what extent is the Seller impicitly obliged to cooperate in the normal conveyancing process to meet the deadlines laid down in the settlement for one of the Buyers to buy an alternative flat off the Seller?

In Gateway Plaza Ltd v White [2014] the Buyer concerned had been given till 28 March 2012 to “exchange contracts” for the purchase of the alternative flat.

However the Seller’s large Leeds conveyancing solicitors sent the Buyer’s solicitors documentation still wrongly in the joint names of the Buyer and the other original buyer (who had by now dropped out of the purchase and then died) and for whatever reason did not provide the CML disclosure of incentives form required by the Buyer’s Mortgagees under the Council of Mortgage Lenders’ Rules. In consequence the purchase had still not been completed in May and the Seller alleged that the Buyer had failed to take the alternative flat purchase available to him under the settlement and so must suffer the full financial consequences of not going along with the alternative flat offer compromise.

The High Court had no difficulty inferring terms that it had been incumbent on the Seller to comply with the normal conveyancing process and requirements of the Buyer’s solicitors and of its lender to meet the deadline and to have done all the things normal Sellers’ solicitors would do including produce correctly drawn documents and a CML Certificate.

So it was the Seller, rather than the Buyer, who had failed to comply with the obligations, which were impliedly imposed on the Seller under the settlement agreement as soon has the Buyer had decided to take up the opportunity the settlement offered of the alternative flat.

This is no “rocket science”.

Applying one of the standard tests for implying legal terms, if at the settlement hearing a “reasonable bystander” had asked whether the Seller would cooperate with the conveyancing process the Seller would hardly have said “no”. The parties would have both said “of course”.

Different rules apply to court settlements like this though. Under normal land contracts its not safe to rely on implying terms as Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires all terms to be express and contained in the contract and (where applicable) other documents whose terms are properly incorporated by reference into the contract.

This blog has been posted out of general interest. It does not remove the need to get bespoke legal advice in individual cases.