Property Law uk

Maintained by Gary Webber

Writing - s2 of 1989 Act

This page deals with a number of matters that arise out of s2 of the Law the Law of Property (Miscellaneous Provisions) Act 1989. It deals with them under three headings:
  • Section 2 and its basic application.
  • Situations that are not governed by s2.
  • Constructive trusts and estoppel - s2(5)

Section 2

Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides as follows:
    "(1) A contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document, or where contracts are exchanged, in each.
    (2) The terms may be incorporated in a document either by being set out in it or by reference to some other document.
    (3) The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) must be signed by or on behalf of each party to the contract.
    ….
    (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) [“for a term not exceeding three years .. at the best ren which can be reasonably obtained without taking a fine”];
      (b) a contract made in the course of a public auction; …
    and nothing in this section affects the creation or operation of resulting, implied or constructive trusts.."
An agreement varying an existing sale contract must also comply with the section (Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900). The effect of s2 was spelt in that case by Rimer LJ:
    “… a document purporting to be a contract complying with section 2 will, if it does not include all the expressly agreed terms of the land transaction, not be a contract at all: it will be a nullity.....The only effect of non-compliance with section 2 is that, in default of such an outcome, neither side can sue the other for specific performance or for breach of the transaction purportedly incorporated in the written agreement. That is because there is no contract upon which such a claim can be founded.”
It is important to note that this section only applies to the contract to sell or dispose of land, not the actual transfer. Lord Neuberger MR said this:
    "Section 2 is concerned with contracts for the creation or sale of legal estates or interests in land, not with documents which actually create or transfer such estates or interests. So a contract to transfer a freehold or a lease in the future, a contract to grant a lease in the future, or a contract for a mortgage in the future, are all within the reach of the section, provided of course the ultimate subject matter is land. However, an actual transfer, conveyance or assignment, an actual lease, or an actual mortgage are not within the scope of section 2 at all." (Helden v Strathmore Ltd [2011] EWCA Civ 542, para 27)
And see ...

Rollerteam Limited v Aidiniantz
[2016] EWCA Civ 1291

Facts

An agreement was entered into between family members in order to settle bitter family litigation. The agreement included an obligation for the defendant to execute two declarations of trust over two London properties, and in return, the claimant was to make certain payments to the defendant. The declarations of trust were made, but the claimant failed to make the full payments on the grounds that the agreement was void for failure to comply with s2(1) of the Law of Property (Miscellaneous Provisions) Act 1989.

Decision

On appeal to the Court of Appeal, the decision of the High Court was upheld. An existing line of authority made it clear that section 2 applies only to executory contracts for the future sale or other disposition of an interest in land, and does not apply to a contract which itself effects such a disposition. Henderson LJ said:
    “…it is reasonably clear to my mind that the judge reached the right conclusion on the basis of the unusual facts which he found. Although the settlement agreement was based on the terms of the email of 8 April 2013, the judge found explicitly that no contract was concluded until 11 April. On the latter date, the execution of the two declarations of trust by [the defendant] was itself an integral part of the formation of the contract. The deeds were not executed by her pursuant to any prior binding obligation to do so, but rather they formed part of the consideration provided by [the defendant] for the obligations undertaken by [the claimant]. The contract was only formed once the deeds were signed by her. As a matter of legal analysis, the contract was formed by an exchange of promises made by [the claimant] for performance by [the defendant] in the shape of her execution of the two documents.”
The Court held that the agreement included an immediate disposition of interests in land and was not a contract for the disposition of those interests at a future time.


Situations outside s2

Oral agreement for lease

Looe Fuels Limited v Looe Harbour Commissioners
[2008] EWCA Civ 414

Summary

In this case an oral agreement for the grant of a lease was upheld because it was a short lease (s2(5)(a)).

Facts

The respondent provided a refuelling facility for fishing boats from a tank leased to it by the Commissioners, owners and operators of the port of Looe. The parties orally agreed that a lease of a new fuel tank, yet to be constructed, should be granted to the respondent, but the Commissioners subsequently changed their mind and decided to operate the new tank themselves. (Then, after litigation proved that they did not have the power to do this, they decided to grant a lease to a third party). The respondent therefore brought proceedings for specific performance of the alleged contract to grant the lease,

Decision

At first instance, the trial judge decided that there was an oral agreement for the Commissioners to grant a lease of the new tank to the respondent. He further decided that it did not matter that this agreement was not in writing, as s2(5)(a) of the Law of Property (Miscellaneous Provisions) Act 1989 contains an exception to the normal rule that agreements for the disposition of an interest in land must be in writing, in relation to an agreement for a three year lease at the best rent which can reasonably be obtained, which this agreement was. The appellants appealed to the Court of Appeal, which upheld the decision of the judge at first instance.


Oral compromise

Nweze v Nwoko
[2004] EWCA Civ 379.

An oral compromise of a dispute containing a term which stated that the property be sold with vacant possession at the best price available was not a contract for the sale or other disposition of an interest in land. It did not therefore need to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 because the agreement was not caught by section 2. The agreement amounted only to an agreement to enter into a contract and could not, therefore, amount to contract to sell or dispose of an interest in land.


Authority to sign

McLaughlin v Duffill
[2009] EWCA Civ 1627

Summary

The Court of Appeal has held that s2 of the 1989 Act does not require the authority to sign a contract, on behalf of a party to that contract, to be in writing.

Facts

An estate agent signed a sale contract on behalf of his seller client, and contracts were exchanged. Completion did not take place due to the seller’s default, and the buyer’s solicitors brought proceedings for specific performance of the sale. The seller argued that she had not authorised the agent to sign the contract on her behalf, and that the contract was therefore void because it did not comply with the requirements of s2 of the 1989 Act.

Decision

The Court of Appeal dismissed the seller’s appeal and ordered specific performance of the sale. There was no authority for the requirement that an agent signing a contract on behalf of the seller needed written authorisation to do so. The judge at first instance had already found that oral authority to sign the contract had been given by the seller to the agent.

Citation

The Chancellor, giving the judgment of the Court, said:
    “The fact is that there is nothing in section 2 to suggest that written authority is required to enable an agent to contract to buy or sell land. There is no reported case, whether in respect of section 40 of the Law of Property Act 1925 or section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, to suggest it. All the textbooks to which I have referred, namely Megarry & Wade, Chitty on Contracts and Bowstead on Agency, state unequivocally that written authority is not required.”
Comment

Before exchange, it is advisable to check whether the other party has signed the contract in person, or whether the signature is that of an agent on their behalf. If the signature is that of an agent, evidence should be obtained that the necessary authorisation for that agent’s signature was in fact given.


Term genuinely outside the contract for sale of the land

North Eastern Properties Ltd v Coleman
[2010] EWCA Civ 277

Facts

The vendor developer agreed to sell the purchaser 12 flats. The price was agreed with a 10% deduction off the list price. It was understood that the purchaser would be finding individual purchasers for each of the flats and it was understood that each flat would be sold on by way of assignment. The parties agreed that a discount of 8% would be passed onto the sub-purchaser and that the Purchaser would keep 2% on exchange of contacts on the sub-purchase as a “finder’s fee”. There was therefore a reference to the 8% deduction in each contract (which could then be assigned) but not the extra 2%. A separate invoice was to be sent to the vendor / developer by the purchaser in respect of the 2% “finder’s fee”. The agreement relating to the finder’s fee was contained in separate email correspondence.

Decision

The court held that the agreement relating to the finder’s fee was genuinely separate from the sale contracts. The latter therefore did not breach s2 and were binding. The fact that there was an entire agreement clause in the sale contracts re-inforced the decision to that effect. The case contains the following useful quotes from Lord Walker at paras 46, 54 and 57:
    “A party seeking to avoid a land contract under section 2 must identify a term which the parties have expressly agreed, which is not to be found in the single, or exchanged, signed document. It is not sufficient merely to show that the land contract formed part of a larger transaction which was subject to other expressly agreed terms which are absent from the land contract. The expressly agreed term must, if it is required by section 2 to be included in the single document, be a term of the sale of the land, rather than a term of some simultaneous contract (whether for the sale of a chattel or the provision of a service) which happens to take place at the same time as the land contract, and to form part of one commercial transaction. Section 2(1) does not prohibit parties from structuring a transaction, for example, for the sale of the whole of a company’s assets, in such a way that the land sale is dealt with in a different document from the sale of stock, work in progress or goodwill, unless the sale of the land is conditional upon the sale of the other assets.

    Nothing in section 2 of the 1989 Act is designed to prevent parties to a composite transaction which includes a land contract from structuring their bargain so that the land contract is genuinely separated from the rest of the transaction in the sense that its performance is not made conditional upon the performance of some other expressly agreed part of the bargain. Thus, in Chadwick LJ’s example in Grossman v. Hooper, parties may agree to the sale and purchase both of a house and of its curtains and carpets in a single composite transaction. Nonetheless it is open to them to agree either (a) that completion of the purchase of the house is dependent upon the sale of the carpets and curtains or (b) that it is not. They are free to separate the terms of a transaction of type (b) into two separate documents (one for the house and the other for the carpets and curtains) without falling foul of section 2. They may also agree to structure a transaction which includes the sale of two or more parcels of land by way of separate contracts for each, so that none of the land contracts is conditional upon the performance of any of the others.

    By contrast, the parties to a composite transaction are not free to separate into a separate document expressly agreed terms, for example as to the sale of chattels or the provision of services, if upon the true construction of the whole of the agreement, performance of the land sale is conditional upon the chattel sale or service provision. That would, albeit for reasons which seem to me to frustrate rather than serve the purposes for which the 1989 Act was passed, fall foul of section 2(1), however purposively construed. So would a series of separate contracts for the sale of separate parcels of land, if each was conditional upon the performance of the other.

    Since the splitting into separate contracts of parts of a composite transaction is inherently likely to give rise to uncertainties as to whether performance of the one is conditional upon performance of the other, the parties are free, and in my opinion should positively be encouraged, to make plain by express terms whether or not that conditionality exists. To do so serves rather than evades or frustrates the purposes of section 2, an important part of which is to encourage clarity rather than uncertainty in land transactions.

    An obvious way of providing expressly that performance of the terms of a separate contract are not to operate as a condition for the performance of the land contract where they form parts of a composite transaction, is for the parties to insert an appropriately worded entire agreement clause in the land contract."

Constructive Trusts

As stated above s2(5) says as follows:
    " … nothing in this section affects the creation or operation of resulting, implied or constructive trusts."

Business joint venture

Yaxley v Gotts
[1999] EWCA Civ 3006

Summary

This is an important case in which it was held that there is close relationship between proprietary estoppel and constructive trust such that where there is an estoppel there is likely to be such a trust.

Facts

The case concerned a builder who was promised that he would be the owner of a flat in a building in return for carrying out the work refurbishment on all the flats. The builder then carried out work to the property in reliance on that agreement.

Decision

It was held that it would be unconscionable to allow the building owner to keep the whole building free of the promised interest. Walker LJ:
    "the Judge did not make any finding as to the existence of a constructive trust. He was not asked to do so, because it was not then seen as an issue in the case. But on the findings of fact which the Judge did make it was not disputed that a proprietary estoppel arose, and that the appropriate remedy was the grant to Mr Yaxley, in satisfaction of his equitable entitlement, of a long leasehold interest, rent free, of the ground floor of the property. Those findings do in my judgment equally provide the basis for the conclusion that Mr Yaxley was entitled to such an interest under a constructive trust. The oral bargain which the Judge found to have been made between Mr Yaxley and Mr Brownie Gotts, and to have been adopted by Mr Alan Gotts, was definite enough to meet the test stated by Lord Bridge in Lloyds Bank v Rosset.

    To recapitulate briefly: the species of constructive trust based on 'common intention' is established by what Lord Bridge in Rosset called an "agreement, arrangement or understanding" actually reached between the parties, and relied on and acted on by the claimant. A constructive trust of that sort is closely akin to, if not indistinguishable from, proprietary estoppel. Equity enforces it because it would be unconscionable for the other party to disregard the claimant's rights. Section 2(5) expressly saves the creation and operation of a constructive trust."
The Court went on to hold that the finding of a proprietary estoppel gave rise to a constructive trust to which s2(5) of the 1989 Act then applied; ie the constructive trust overrode the need for writing in s2(1)).


Equitable charge

Kinane v Mackie-Conteh
[2005] EWCA 45

An agreement creating an equitable charge to secure a loan did not comply with s2(1) of the 1989 Act. Nor did s53(1)(c) of the Law of Property Act 1925 (which provides for disposition of equitable interests to be in writing and signed) save it because that provision only applies to subsisting equitable interests. However, the judge found that C was not prepared to advance the money until the security was in place. This gave rise to an estoppel and in the circumstances a constructive trust arose. Thus, the agreement was valid by virtue of s2(5) of the 1989 Act.

Thus, when the loan was not repaid C was able to obtain an order for sale over the property. Yaxley v Gotts applied. It did not matter that the representation upon which C relied was in the unenforceable security agreement itself. Arden LJ:
    "28. a party seeking to reply on proprietary estoppel as a basis for disapplying section 2(1) of the 1989 Act is not prevented from relying in support of his case on the agreement which section 2(1) would otherwise render invalid. Thus, the requirement that the defendant encouraged (or allowed) the claimant to believe that he would acquire an interest in land may (depending on the facts) consist in the defendant encouraging the claimant (by words or conduct) to believe that the agreement for the disposition of an interest in land (here a security interest) was valid and binding. Here, Mr Mackie-Conteh gave Mr Kinane that encouragement. Mr Kinane made it clear that he required security for his loan. Mr Mackie-Conteh responded by providing the security agreement and persuading him that, once he had got that letter (and the cheque for £15,000 had been banked), he should make the loan to Almack. By his conduct, Mr Mackie-Conteh thereby encouraged Mr Kinane to believe that the security agreement was valid and binding. He must stand by that conduct even if he himself misunderstood the effect of section 2(1) on the security agreement. Accordingly, the requirement for encouragement by Mr Mackie-Conteh of Mr Kinane in the erroneous belief that he would obtain a security interest over the property is satisfied.

    29 It is to be noted that, even on this scenario, reliance on the unenforceable agreement only takes the claimant part of the way: he must still prove all the other components of proprietary estoppel. In particular, the requirement that the defendant encouraged or permitted the claimant in his erroneous belief is not satisfied simply by the admission of the invalid agreement in evidence. In this sort of case, the claimant has to show that the defendant represented to the claimant, by his words or conduct, including conduct in the provision or delivery of the agreement, that the agreement created an enforceable obligation. The cause of action in proprietary estoppel is thus not founded on the unenforceable agreement but upon the defendant's conduct which, when viewed in all relevant respects, is unconscionable.

    31. Accordingly the issue here is whether the circumstances justify a finding of proprietary estoppel overlapping with constructive trust in the manner explained above. I have dealt with the question of encouragement above. Did Mr Kinane act in the belief that he had or would obtain a valid security? Did he act thereon to his detriment? The security agreement demonstrates an intention to create a security interest. Mr Kinane made it clear in his witness statement and when giving evidence that he was not prepared to make a loan without security. Having obtained the security agreement, he made a loan which, to his detriment, is now irrecoverable. In my judgment, the fact that he knew that the formal documentation had not been executed does not mean that proprietary estoppel cannot be established. The fact is that he drew no distinction between the security agreement and the formal document. He assumed that the security agreement was enforceable and thus he acted in the belief that he would be given a formal security. Thus I would reject Mr Jack's argument that it is fatal to Mr Kinane's case that the security agreement had not been executed. Likewise, in my judgment, it is immaterial that the reliance consisted in the single act of making the loan. That act had significant consequences on its own, and is thus of itself sufficient to give rise to proprietary estoppel."
Comment

See also the pages on Proprietary estoppel and in particular the page on Yeomans and s2.


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