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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.
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 ...
(5) ... nothing in this section affects the creation or operation of resulting, implied or constructive trusts."
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.
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 Post Yeomans - Can proprietary estoppel in fact be used to get over a s2 defect?
Oral agreement for lease
Section 2(5) – exception to general requirement for writing
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.
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.
Proprietary estoppel
See the pages on Proprietary estoppel and in particular the page on Post Yeomans.
Sale and rentback schemes
Enforceability of contractual terms – s 2 of 1989 Act
Scrowther v Watermill Properties
[2009] EW Misc 6 (EWCC)
Newcastle County Court
Summary
Part of an equity release scheme which involved a sale and rentback was void as it failed to comply with s2 Law of Property (Miscellaneous Provisions) Act 1989 (http://www.opsi.gov.uk/acts/acts1989/ukpga_19890034_en_1)
Facts
The claimant ("C"), who was in arrears with her mortgage and had suffered a possession order, entered into an equity release scheme with a separate provider which involved (1) the immediate payment to her of 75% of market value, which was to be used to discharged the existing mortgage; (2) an assured shorthold tenancy agreement for an initial period of 6 months at a rent calculated at 5.7% of the purchaser price (£593.00 per month); and (3) the payment by the purchaser of a "rentback bonus" payable in certain events out of the balance of the purchase price retained by W (£31,250).
C subsequently defaulted in payment of rent and the defendant ("D") obtained an order for possession. C claimed repayment of the balance of the purchase price - £31,250. D refused to pay it, relying on a collateral contract. C raised a number of challenges, including that any such contract was void as a result of s2 Law of Property (Miscellaneous Provisions) Act 1989.
Held
The sale had proceeded in accordance with a standard form contract incorporating the Law Society Standard Conditions of Sale, and a standard form of Assured Shorthold Tenancy Agreement. However, the collateral agreement in respect of the rentback bonus was dealt with in a number of separate sources, both orally and in writing, none of which complied with the requirement of s2 of the 1989 Act (requiring a contract for the sale or other disposition of an interest in land to be in writing, incorporating all the terms expressly agreed, and signed by the parties).
The collateral agreement was central to the whole scheme. The retention of £31,250 involved a reduction in price and was inconsistent with the contract of sale. The collateral agreement was thus within s 2 and was void. C was therefore entitled to the return of £31,250.
[The judge also expressed the view that the failure to pay the rentback bonus may not have been a genuine pre-estimate of W’s loss in the event of a breach by C of her tenancy agreement, but ultimately declined to express a concluded view on it].
The judge gave permission to appeal.
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