Oral agreements for the sale of land are void: see section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Consequently, it has always been dangerous for buyers to invest time or money in land while “subject to contract” negotiations to buy the land are ongoing, or to rely upon oral agreements for sale.
None the less, the Court of Appeal decision in Cobbe v Yeoman’s Row Management Ltd [2006] EWCA Civ 1139; [2006] 3 EGLR 107 suggested that the courts might sometimes come to the assistance of a buyer who invests heavily in a project in reliance upon repeated promises to deal with the formalities at a later date. The Court of Appeal ruled that the landowner’s conduct had been unconscionable. It had encouraged the buyer to spend his own money to increase the value of its land in the belief that it would honour its promise to finalise the details of, and enter into, a contract for sale if planning consent were obtained.
Oral agreements for the sale of land are void: see section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. Consequently, it has always been dangerous for buyers to invest time or money in land while “subject to contract” negotiations to buy the land are ongoing, or to rely upon oral agreements for sale. None the less, the Court of Appeal decision in Cobbe v Yeoman’s Row Management Ltd [2006] EWCA Civ 1139; [2006] 3 EGLR 107 suggested that the courts might sometimes come to the assistance of a buyer who invests heavily in a project in reliance upon repeated promises to deal with the formalities at a later date. The Court of Appeal ruled that the landowner’s conduct had been unconscionable. It had encouraged the buyer to spend his own money to increase the value of its land in the belief that it would honour its promise to finalise the details of, and enter into, a contract for sale if planning consent were obtained. The court invoked section 2(5) of the 1989 Act, which excepts constructive trusts from the requirements laid down in section 2. It held that there was a proprietary estoppel and/or constructive trust in the buyer’s favour, even though he knew that the verbal agreement was not legally binding, and awarded the buyer damages in the sum of £2m. The House of Lords has overturned that judgment. It ruled that the decision had introduced considerable uncertainty into commercial negotiations by stretching the boundaries of the doctrine of proprietary estoppel too far: Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] PLSCS 227. The ruling clarifies the boundaries of the exceptions to section 2. The lords held that the verbal agreement between the parties was incomplete; consequently, estoppel did not arise. They also doubted whether the doctrine of proprietary estoppel could be used to circumvent the requirements of section 2. They also refused to impose a constructive trust on the property, on the grounds that the land had always been in the ownership of the landowner and had never been the subject of a joint venture agreement. However, the buyer did not walk away empty-handed. They held that he had a personal remedy against the landowner, which had been unjustly enriched by his efforts, and awarded him a quantum meruit payment, to include all his outgoings and a fee for his services at a rate appropriate to an experienced developer. The amount has yet to be quantified, but the buyer has been allowed to retain £150,000 from the damages, pending quantification of his claim. The decision reaffirms the importance of written contracts for the sale of land, and signals the courts’ reluctance to allow businessmen who run commercial risks to take advantage of proprietary remedies in order to sidestep section 2. However, it also sets the stage for future legal battles over quantum meruit claims to recompense buyers for speculative investment in land in reliance upon promises that are not fulfilled. Allyson Colby is a property law consultant
