Property development — Agreement in principle — Appellants to sell property to respondent if respondent obtaining planning permission for development — Appellants reneging once permission obtained — Availability of remedy in proprietary estoppel — Judge awarding lien over property — Appeal dismissed
The first appellant company was the registered proprietor of a block of flats. Acting through the second appellant, its sole director, it entered into an oral agreement in principle with the respondent property developer in respect of a joint enterprise to develop the property by demolishing the existing flats and building six town houses in their place. The respondent was to obtain planning permission for the development, after which the first appellant would sell the property to him with vacant possession for an immediate payment of £12m, plus an overage of 50% of the gross proceeds of sale of the completed houses in excess of £24m.
The respondent proceeded with the planning application. The day after the planning authority granted detailed permission, the appellants reneged on the agreement in principle and demanded a price of £20m for the sale of the freehold.
In proceedings against the appellants, the respondent accepted that the agreement in principle was not a legally enforceable contract, since it was not in writing and further terms remained to be negotiated. However, he claimed entitlement to an interest in the property or its proceeds of sale by proprietary estoppel, by virtue of the unconscionable conduct of the appellants in encouraging him to expend considerable time and money on the planning application in the expectation that they would abide by the agreement in principle. The judge allowed the respondent’s claim and granted him a lien over the property for payment of one-half of the increase in its value consequent upon the grant of planning permission.
On appeal, the appellants contended that a proprietary estoppel could not arise where: (i) there was a complex bargain consisting of mutual promises, and the respondent had not fully performed his side of the bargain, including the payment of the purchase price and carrying out of the development; (ii) the relevant promise was not of an immediate or future interest in the property, but was merely a promise of a contract whose terms remained uncertain; (iIi) the promise was subject to contract and either party was free to withdraw from it; and (iv) the effect would be to subvert the formality requirements for contracts for the sale or disposition of land as contained in section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
Held: The appeal was dismissed.
(1) The doctrine of estoppel did not require that the agreement or understanding relied upon should have been fully performed by the claimant. The focus was on the unconscionable conduct of the defendant and its effects; it was not the same thing as seeking to enforce an agreement. Moreover, the respondent had performed his side of the bargain so far as he was able. He was willing and able to perform his outstanding obligations but was prevented from doing so by the appellants.
(2) The assurance, arrangement or understanding relied upon to found an estoppel did not need to be sufficiently certain as to be an enforceable contractual obligation. There was no real difference in principle between a promise to give a contract and a promise to give an interest in property. The essence of proprietary estoppel was unconscionable conduct in inducing or encouraging another to believe that he would obtain an interest in, or right over, the defendant’s property. The particular means by which he would acquire that interest were irrelevant so long as the assurance made by the defendant was not too vague or uncertain to give rise to an expectation or to be made effective in practice. The appellants’ assurance in the instant case was not too vague.
(3) Although an agreement stated to be “subject to contract” reserved the right for either party to withdraw from the negotiations at any time prior to the exchange of formal contracts, the agreement in principle in the instant case had not been expressly stated to be subject to contract either by the use of that phrase or by any other language to the same effect.
(4) When enacting section 2 of the Act, parliament had contemplated the continued availability of proprietary estoppel. Its availability did not result in enforcing the agreement in principle, either directly or indirectly, so as to frustrate the purpose of section 2. Section 2 was irrelevant to the respondent’s action to enforce a cause of action for proprietary estoppel, which depended not upon the existence of a concluded agreement for sale, or enforcement of it, but upon the appellants’ inducement and encouragement of the respondent to obtain planning permission in the belief and expectation that he would get a binding contract for sale of the property for £12m plus overage.
Jonathan Seitler QC and Joanne Wicks (instructed by DLA Piper Rudnick Gray Carry LLP) appeared for the appellant; Thomas Ivory QC and Myriam Stacey (instructed by Bird & Bird) appeared for the respondent.
Sally Dobson, barrister
