Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 imposes strict requirements that affect contracts for the sale or disposition of an interest land. Any such contracts must be made in writing, must incorporate all the terms that have been expressly agreed, and must be signed by or on behalf of the parties. It pays to observe these formalities; contracts that do not comply with the requirements are void.
The litigation in Tuscola (110) Ltd v The Y2K Company Ltd [2016] EWHC 1124 (Ch); [2016] PLSCS 149 followed long and tortuous negotiations for the provision of discharges in respect of two bridging loans. The borrower’s solicitors had given the lender an undertaking that, on receipt of funds from a named bank, it would redeem the loans from the proceeds of the drawdown requested by the borrower and, in anticipation of this being done, the lender had provided the borrower’s solicitors with undated DS1 forms, to be held to its order until such time as it released them.
Following payment of part of the amount due to the lender, the borrower claimed that it had become entitled to the DS1s. Had the negotiations between the parties resulted in an agreement to this effect? The answer to this question depended on the interpretation of the communications between the parties, on whether the parties had reached an enforceable agreement and, if so, on whether that agreement fell within the scope of section 2 of the 1989 Act.
The judge noted that the parties had dealt with the release of the borrower’s solicitors from their obligations to the lender, but not the release of the DS1s. The two were distinct – and the borrower’s solicitors held the DS1s as gratuitous bailees, without having given any undertakings in respect of them.
Furthermore, there was no enforceable agreement between the borrower and the lender because the parties were discussing part payment of a debt – and part payment of a debt does not provide consideration for a promise to forgo the balance: Pinnel’s case [1602]. In addition, if the parties had entered into an agreement for the discharge of the charges, the agreement was a contract for the disposition of an interest in land and, as such, fell within the scope of section 2.
The judge explained that a contract is a “contract for the disposition of an interest in land” if it is a contract to do something that will, when it is done, dispose of an interest in land. A “disposition” for the purposes of section 2 includes a release, and an “interest in land” means “any estate, interest or charge in or over land”: see section 2(6).
A Form DS1 does not only provide evidence of a discharge, as the borrower had tried to suggest. It actually operates to release the charge to which it relates, as well. As a result, when the DS1 forms were delivered to the borrower, the lender’s charges would cease to exist in equity. Therefore, the arrangements discussed by the parties were caught by section 2 and the borrower was not entitled to the DS1s.
Allyson Colby, property law consultant
