The Court of Appeal has, once again, had to consider the position of parties that embarked on negotiations for the grant of a lease, which was not executed, although the documents had, for the most part, been agreed: see Haq v Island Homes Housing Association Ltd [2011] EWCA Civ 805; [2011] PLSCS 189.
The tenant held a business lease of premises, which were owned by the local authority, and was expecting to enter into a new lease of a larger area for a term of 60 years at a discounted rent. Contrary to what was originally intended, the tenant was allowed to construct an extension on adjoining land and to start trading from the premises before entering into an agreement for the grant of a lease that satisfied the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
The Court of Appeal has, once again, had to consider the position of parties that embarked on negotiations for the grant of a lease, which was not executed, although the documents had, for the most part, been agreed: see Haq v Island Homes Housing Association Ltd [2011] EWCA Civ 805; [2011] PLSCS 189.
The tenant held a business lease of premises, which were owned by the local authority, and was expecting to enter into a new lease of a larger area for a term of 60 years at a discounted rent. Contrary to what was originally intended, the tenant was allowed to construct an extension on adjoining land and to start trading from the premises before entering into an agreement for the grant of a lease that satisfied the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
The subsequent owner of the freehold reversion offered the tenant a new business lease of the extended premises under the Landlord and Tenant Act 1954. It accepted that the tenant’s work should be disregarded when assessing the new rent, but was not prepared to grant a lease for more than 15 years. On the expiry of that lease, the improvements undertaken by the tenant would be too far in the past to be disregarded when calculating the rent payable on any subsequent renewal. The tenant tried to enforce the arrangements discussed with the local authority on the basis that a proprietary estoppel arose in her favour.
The court criticised the mishandling of what should have been a routine conveyancing transaction. It agreed that the local authority had behaved badly, but ruled that the basic requirements for proprietary estoppel had not been met. The parties had agreed that their negotiations were “subject to contract”. Consequently, they were each entitled to withdraw at any time before the documents were signed and dated, because this is what the “subject to contract” label means.
The local authority had agreed that the tenant could start work, but did not agree to dispense with all the legal documentation, and nothing had happened to make it unconscionable for the reversioner to rely on its strict legal rights. Consequently, the tenant was entitled to her statutory rights to a renewal tenancy and nothing more.
The decision appears to be in line with Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] 3 EGLR 31; [2008] 35 EG 142, which highlights the dangers of investing in land while subject to contract negotiations to buy or rent are ongoing. However, the Court of Appeal did not refer to it.
The court ruled that if negotiations are proceeding explicitly on a subject to contract basis, one party cannot change its status – and that any agreement to do so must be bilateral. It did not indicate how it would have dealt with a claim based on proprietary estoppel had the parties mutually agreed to change the status of their negotiations – although, in Cobbe, the House of Lords doubted whether the doctrine of proprietary estoppel could be used to circumvent the requirements of section 2.
Allyson Colby is a property law consultant
