« Home

Home » Law » Land Law » Clarke & Greer: Land Law Directions » Student resources » Advanced topics » Chapter 03

Clarke & Greer: Land Law Directions

Chapter 03

Extra material on Law of Property Miscellaneous Provisions Act 1989 s. 2

As explained in the text, LP(MP)A 1989 s.2 replaced LPA 1925 s.40. Under the old provision, the contract for the sale of land could be evidenced in writing as opposed to made in writing. In addition, contracts not supported by writing at all were still enforceable under the old law if there had been ‘part performance’. This allowed informal, oral contracts to be enforced provided that there was some act of part performance directly referable to the contract. For example, in Steadman v Steadman [1976] AC 536, the payment of the husband of £100 arrears of maintenance to his wife was sufficient part performance to enable him to enforce an oral contract that the wife should transfer to him the matrimonial home. The House of Lords, by a majority, held that, on the balance of probabilities, he had made the maintenance payment in reliance on a contract which included the transfer of the house.

The law was changed as the result of the report by the Law Commission, Law Commission, Formalities for Contracts for Sale etc of Land (1987) Cm 164. This made it clear that the purpose of the new law is to make contracts for the sale or disposition of land unenforceable if the parties do not comply with the formality requirements.

The main question that has arisen in respect of the new law under LP(MP)A 1989 s.2 is whether and to what extent the courts will enforce informal contracts under this section.

The most common types of transactions to which LP(MP)A 1989 s.2 applies are:

We will discuss the law mainly in terms of contracts to sell freehold land, but do not forget that it applies more widely.

Contracts falling outside LP(MP)A 1989 s.2

The section itself contains a number of exceptions:
LP(MP)A 1989 s.2(5)
This section does not apply in relation to—
(a) a contract to grant such a lease as is mentioned in section 54(2) of the Law of Property Act 1925 (short leases);
(b) a contract made in the course of a public auction; or
[(c) a contract regulated under the Financial Services and Markets Act 2000 , other than a regulated mortgage contract [, a regulated home reversion plan or a regulated home purchase plan] ; ]
and nothing in this section affects the creation or operation of resulting, implied, or constructive trusts.
The first two are straightforward:

However, it is the final part of the subsection, the exception for resulting implied or constructive trusts, which has led to most case law. In particular, there has been debate about whether proprietary estoppel can be used to save an informal transaction which does not comply with this section, although it is not specifically mentioned in s.2(5). Yaxley v Gotts [199] All ER (D) 671 seemed to indicate that this was possible, by finding that the proprietary estoppel gave rise to a constructive trust. However the recent case of Cobbe v Yeoman’s Row Management Ltd. [2008] UKHL 55 shows that this is not always possible:

In this case, the claimant was a property developer who spent large sums of money in obtaining planning permission for the development of property belonging to the defendant. He was relying on an ‘in principle’ oral agreement that he could buy the property from the defendant, develop it, and then they would both get further sums from the sale of the units developed. However, once planning permission had been granted, the defendant went back on his agreement and refused to sell the property to the claimant after all. Since there was no written contract complying with LP(MP)A 1989 s.2(1), no claim could be brought to enforce the contract. Therefore, the claimant brought an action claiming that there was a proprietary estoppel in his favour, or that alternatively there was a constructive trust, both of which would have given him a proprietary interest in the property. He also made claims based on restitution and unjust enrichment, as well as a claim to a quantum meruit.

The House of Lords, reversing the Court of Appeal ([2006] EWCA Civ 1139), held that there were no grounds for holding that there was either a proprietary estoppel or a constructive trust. There was no proprietary estoppel because there was no certain interest in land which it was expected would be transferred; there were to be further negotiations on the exact terms of the agreement. The claimant, an experienced property developer, knew that the agreement was binding ‘in honour’ only. There was no constructive trust because the defendant withdrawing unconscionably from the agreement was not enough to found such a trust. The property had been owned by the defendant long before the agreement was reached.

The claimant was entitled to damages based on unjust enrichment and quantum meruit for the sums he had spent, but not to an interest in the property.

Documents forming part of the contract.
Apart from the specific exceptions in s.2(5), the courts have also had to decide whether particular documents or contracts form part of ‘a contract for the sale or other disposition of an interest in land’.

Particular difficulties have arisen when there is one main contractual document which contains the main terms, but a later exchange of letters between the parties. The section provides that the writing must incorporate ‘all the terms which the parties have expressly agreed in one document, or where contracts are exchanged, in each’.

The essential terms for a valid contract to sell land (Rossiter v Miller (1878) 3 App Cas 1124 at 1143, 1148):

Other terms, such as the completion date, are not essential because they can be implied the contract by law.

It is possible for more than one document if:

An example of the third option is shown in the case of Record v Bell [1991] 1 W.L.R. 853. A main contract had been drawn up in the usual manner of two copies, one signed by each party, and were with the respective solicitors awaiting exchange. The vendor’s solicitor wrote a separate letter to the purchaser’s solicitor on the day of exchange explaining that they had not been able to get hold of official copies off the register of title in time, but suggesting that exchange go ahead on the basis that the official copy would show that the vendor was indeed the registered proprietor. This was accepted by the purchaser’s solicitor, who enclosed a letter to a similar effect with his copy of the contract.

The official copy of the register did indeed show that the vendor was the registered proprietor, but on the day set for completion, the purchaser did not pay the sums due under the contract. It turned out that he had financial difficulties, and was looking for a way out of the contract. One of his claims was that the contract did not comply with s.2 of the 1989 Act.

The judge held that the letters did not form part of the contract for the sale of land, as they were not incorporated into the main contract documents. However, he held that the contract for sale was binding, and that the vendor was entitled to specific performance. The letter from the vendor’s solicitor was an offer of warranty that the vendor was the registered proprietor with good title, and this was accepted by the purchaser, so that there was a collateral contract to this effect. This collateral contract was outside the contract for the sale of the land, and thus outside the provisions of LP(MP)A 1989 s.2.

This case shows that there can be agreements about the land which do not form part of the contract of sale, and therefore do not need to comply with LP(MP)A 1989 s.2.

Another example is where an option (a binding right) to purchase land in the future is granted. It has been held that this is a contract to sell land, and must fulfill the requirements of s.2. However, a letter exercising such an option is not required to be signed by the vendor, as it is a unilateral act, and therefore does not have to comply with LP(MP)A 1989 s.2- Spiro v Glencrown Properties Ltd [1991] Ch. 537.

In Joyce v Rigolli [2004] EWCA Civ 79 it was held by the Court of Appeal that LP(MP)A 1989 s.2does not apply to settlements of boundary disputes where there may be a very small transfer of land from one party to the other. The court therefore enforced an oral boundary agreement between the parties.

This is bound to be an area fraught with difficulties. It throws up a major dilemma in land law – certainty versus fairness. The formality requirements for contracts in LP(MP)A 1989 s.2 are designed to provide certainty, so that people know when they have made a binding contract and exactly what they have agreed. However, there will always be situations where one party takes unfair advantage of another, or where parties who do not know the law make informal agreements. The law has to seek to strike a balance between certainty in the law in general, and justice in individual cases.

Articles on this area of the law:

Editor’s Notebook, ‘The reach of proprietary estoppel: A matter of debate’, [2009] Conv. 85-89 [A good summary of the case law on LP(MP)A 1989 s.2].

T. Etherton, ‘Constructive trusts and proprietary estoppel: the search for clarity and principle’ [2009] Conv. 104-126 [The second half of this article considers the case of Cobbe v Yeoman’s Row].

Amy Goymour ‘Cobbling together claims where a contract fails to materialise’ [2009] CLJ 37 [A case note on Cobbe v Yeoman’s Row].

Pawlowski, M ‘Oral Agreements: Estoppel, Constructive Trusts and Restitution’ (2008) 12 L and T Rev 163

Chambers, K ‘Property supplement: Yeoman's scope’ (2008) 158 NLJ 1629