Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires contracts for the sale or disposition of interests in land to be in writing, otherwise a contract will be void. Accordingly, a gentleman’s agreement, whereby parties jointly develop a site owned by only one of them and divide the profits between them, is not legally watertight and cannot be relied upon.
Is there any way round these requirements? Property interests arising under constructive trusts are exceptions from the requirements of writing. Increasingly, therefore, developers are resorting to the doctrine of proprietary estoppel to establish the existence of a constructive trust in their favour. Equity can then intervene where a promisee acts to its detriment in reliance upon oral promises from which the promisor unconscionably seeks to resile.
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 requires contracts for the sale or disposition of interests in land to be in writing, otherwise a contract will be void. Accordingly, a gentleman’s agreement, whereby parties jointly develop a site owned by only one of them and divide the profits between them, is not legally watertight and cannot be relied upon. Is there any way round these requirements? Property interests arising under constructive trusts are exceptions from the requirements of writing. Increasingly, therefore, developers are resorting to the doctrine of proprietary estoppel to establish the existence of a constructive trust in their favour. Equity can then intervene where a promisee acts to its detriment in reliance upon oral promises from which the promisor unconscionably seeks to resile. The decision in Lloyd v Sutcliffe [2007] EWCA Civ 153 is unusual because it concerned a joint-venture agreement that was in writing. The agreement dealt primarily with a development that did not proceed, and contained fleeting references to the acquisition of another site, which turned into a project that was estimated to realise residential sales of £2.2m. The joint-venture agreement did not include any profit-sharing provision for the project. This was still under discussion and had not been agreed when the relationship foundered. In the case, the court had to consider whether the “entire agreement” clause in the joint-venture agreement prohibited the developer from relying upon extraneous evidence to establish the existence of a proprietary estoppel in his favour. The Court of Appeal decided that the clause was irrelevant. It superseded “any previous agreement between the parties in relation to the matters dealt with herein”. The joint-venture agreement did not deal with the profit-sharing arrangements for the project, and so the “entire agreement” clause was not engaged or, if it was, it prevented reliance only upon any “previous” understandings between the parties. It did not preclude reliance on subsequent words and conduct, both of which established that an estoppel had arisen. The decision breaks new ground for another reason. The Court of Appeal accepted that it could not flit whimsically between enforcing the equity against the property, which was owned by a company, and also enforcing the equity against the personal property of a company director. However, the circumstances in this case were such that the company director was also fixed with liability for the estoppel. He had incorporated the company and controlled it; he had arranged for the property to be transferred to the company; and he was its sole director and spokesman. He had handled all the negotiations and had never made it clear to the developer that he was acting only for the company – and not for himself. The director will therefore be liable to the developer if and to the extent that the company is unable to satisfy the equity because the director causes any of the profits from the development to become vested in himself. Allyson Colby is a property law consultant
