Contracting without a contract
Contracting without a contract
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 was enacted to provide clarity as to the circumstances in which a contract for the sale of land could be created.
In simple terms a contract for the sale of land can only be made in writing and by incorporating all of the terms agreed between the parties in one document. An informal discussion between two parties, or for that matter, a disjointed exchange of correspondence can’t create an obligation upon a party to sell or buy a bit of land. Or can it?
In tandem with the statutory provisions of Section 2, the principles of proprietary estoppel apply so that a claim (which may include a requirement to transfer land) may arise where three principles are established:
- A representation or assurance was made to a claimant;
- The claimant relies upon that representation or assurance; and
- The claimant suffers a detriment in consequence of relying upon the representation or assurance.
Where in any given situation these principles are satisfied the court will, if it considers that fairness demands, apply a remedy to address any unfairness.
These principles were considered in the recent case of Howe -v- Gossop. The claimant had transferred part of their property to the respondent. In the transfer the claimant granted a right of way to the respondent over a road on the understanding that the respondent agreed to resurface that road. The claimant agreed that if the work was done to their satisfaction they would pay the respondent a sum of money.
After the resurfacing works had been completed, the claimant proposed to transfer two additional pieces of land to the respondent instead of paying the sum of money which had been agreed.
The respondent verbally agreed to the proposal and immediately started carrying out some work to the additional land.
The claimant subsequently denied the agreement was legally binding and issued a claim for possession and trespass in relation to the additional land which was now occupied by the respondent.
It seemed to be agreed by all the parties that Section 2 hadn’t been complied with. The requirements for proprietary estoppel had, however, been satisfied (there being a representation, reliance and detriment).
Given the restrictive way in which Section 2 is drafted (in its commendable desire to create clarity) it seems particularly striking that whilst part of the additional land was clearly identified, part of it wasn’t nor was the use to which the additional land could be put. In spite of what might be construed as a lack of certainty, the court considered (both in the first instance and subsequently in the High Court) that the principles of proprietary estoppel having been satisfied, it would be inequitable to dispossess the respondent of the additional land.
Proprietary estoppel is sometimes seen as a means of achieving a fair result notwithstanding the otherwise rigid legal principles which would otherwise ordinarily apply. This recent case (and those preceding it) serve as a reminder of the importance of:
- documenting carefully any discussions or arrangements with a third party;
- heading any correspondence “subject to contract”; and
- being absolutely clear as to what is intended at all times in relation to landholding.
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