Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 renders void a contract for the sale of land unless certain formalities are complied with. The justifications for requiring formalities in such contracts include the need for certainty, consumer protection and the uniqueness of land. Section 2 was not intended to have any effect on the doctrine of proprietary estoppel (see Yaxley v Gotts [1999] 2 EGLR 181) but, unlike resulting or constructive trusts, proprietary estoppel is not expressly excepted by section 2(5).
Consequently, a debate has raged as to whether a claim based on proprietary estoppel can succeed to give effect to the terms of an agreement for the disposition of an interest in land which does not comply with the formality requirements in section 2. One view is that a claimant who places detrimental reliance on an agreement which is void under section 2 in circumstances which would, but for section 2, give rise to an equity on the basis of proprietary estoppel should not be granted relief equivalent to specific performance for the void contract. The opposing view is that section 2 is aimed at problems in the formation of contracts for the sale of land, whereas the purpose of an estoppel is to remedy unconscionability in the assertion of strict legal rights and, accordingly, section 2 does not affect the operation of proprietary estoppel at all.
The case law
In Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55; [2008] PLSCS 227 Lord Scott said: “Proprietary estoppel does not have the benefit of this exception [in s.2(5)]. The question arises, therefore, whether a complete agreement for the acquisition of an interest in land that does not comply with the section 2 prescribed formalities but would be specifically enforceable if it did, can become enforceable via the route of proprietary estoppel… My present view, however, is that proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute has declared to be void. The proposition that an owner of land can be estopped from asserting that an agreement is void for want of compliance with the requirements of section 2 is, in my opinion, unacceptable. The assertion is no more than the statute provides. Equity can surely not contradict the statute.”
Although those observations were obiter, Lords Hoffmann, Brown and Mance agreed with Lord Scott’s speech.
In Cobbe, the relationship between the parties was entirely arm’s length and commercial and the person raising the estoppel was a highly experienced businessman. The parties could well have been expected to enter into a contract, but had consciously chosen not to do so. They had intentionally left their legal relationship to be negotiated and each of them knew that neither of them was legally bound. In those circumstances, it was held that a claim based on proprietary estoppel could not succeed.
In Thorner v Major [2009] UKHL 18; [2009] 2 EGLR 111, the House of Lords allowed a claim based on proprietary estoppel arising out of an informal agreement in relation to a family farm. Lord Neuberger’s view on Lord Scott’s dictum in Cobbe was that: “Section 2 may have presented Mr Cobbe with a problem, since he was seeking to invoke an estoppel to protect a right that was in a sense contractual in nature… and section 2 lays down formalities which are required for a valid ‘agreement’ relating to land. However, at least as at present advised, I do not consider that section 2 has any impact on a claim such as the present, which is a straightforward estoppel claim without any contractual connection.”
Lord Neuberger also emphasised the important distinction between “the commercial context” (eg Cobbe) and “the domestic or family context” (eg Thorner).
Speaking extra-judicially, in The Stuffing of Minerva’s Owl? Taxonomy and Taxidermy in Equity [2009] CLJ 537, Lord Neuberger went further: “I suggest that section 2 has nothing to do with the matter. In cases such as Crabb v Arun District Council [[1976] Ch 179] and Thorner v Major, the estoppel rests on the finding that it would be inequitable for [A] to insist on his strict legal rights. So the fact that, if there was a contract, it would be void is irrelevant: indeed the very reason for mounting the proprietary estoppel claim is that there is no enforceable contract.”
The circumstances in which section 2(5) does or does not apply were considered in detail in Herbert v Doyle [2010] EWCA Civ 1095; [2011] 1 EGLR 119. Arden LJ identified “a common thread” running through the speeches of Lord Scott and Lord Walker in Cobbe, namely that: “…if the parties intend to make a formal agreement setting out the terms on which one or more of the parties is to acquire an interest in property, or, if further terms for that acquisition remain to be agreed between them so that the interest in property is not clearly identified, or if the parties did not expect their agreement to be immediately binding, neither party can rely on constructive trust as a means of enforcing their original agreement. In other words, at least in those situations, if their agreement (which does not comply with section 2(1)) is incomplete, they cannot utilise the doctrine of proprietary estoppel or the doctrine of constructive trust to make their agreement binding on the other party by virtue of section 2(5) of the 1989 Act.”
In MP Kemp Ltd v Bullen Developments Ltd [2014] EWHC 2009 (Ch), Nugee J held that an estoppel could not overcome the problem arising under section 2(1). In Dudley Muslim Association v Dudley Metropolitan Borough Council [2015] EWCA Civ 1123; [2015] PLSCS 315, Lewison LJ expressly agreed with Nugee J’s analysis. It was avoided in Dowding and another v Matchmove Ltd [2016] EWCA Civ 1233; [2016] PLSCS 341 by a finding of constructive trust.
In Sahota v Prior and another [2019] EWHC 1418 (Ch); [2019] PLSCS 119, the claimant sought possession of a house after the expiry of a tenancy which had formed part of a sale and leaseback arrangement to release equity for the tenants. Falk J upheld the judge’s decision that a proprietary estoppel had arisen which enabled the tenants to stay in the property for life. Falk J said that Lord Scott’s dictum in Cobbe is to the effect that proprietary estoppel cannot be used to make an agreement enforceable which the statute has declared to be void. In that case, the tenants were not seeking to enforce an invalid agreement.
In Howe and another v Gossop and another [2021] EWHC 637 (Ch); [2021] PLSCS 57, the parties had orally agreed that the claimants would transfer land to the defendants in return for the waiver of an obligation to pay £7,000. The trial judge held that the defendants had established a proprietary estoppel, granted them an irrevocable licence for life and dismissed the claim for possession. On appeal, Snowden J said: “Section 2 is aimed at problems in the formation of contracts for sale of land, whereas the purpose of an estoppel is to remedy unconscionability in the assertion of strict legal rights.
“Accordingly, there is considerable doubt that section 2 is intended to affect the operation of proprietary estoppel at all, but even if it did, section 2 could only operate as a bar to the grant of equitable relief if and to the extent that such relief had the effect of enforcing, or otherwise giving effect to, the terms of a contract for the sale or other disposition of an interest in land that the statute renders invalid and unenforceable.”
Snowden J emphasised Lord Scott’s observation that “proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute has declared to be void”. On the facts of that case, what mattered was that the defendants were not attempting to enforce the agreement, the estoppel was a defence to the possession claim. The defendants were not seeking an order for the transfer of land; the relief claimed was a declaration that they were entitled to occupy the land under an irrevocable licence.
The latest case
In Thandi v Saggu [2023] EWHC 2631 (Ch); [2023] PLSCS 175, decided in October, the parties agreed that Tripatpal Saggu would purchase Kuljinder Thandi’s property for £270,000 with a £15,000 deposit to be paid on exchange of contracts. The agreement was recorded in a handwritten note and Saggu paid £5,000 towards the deposit. Both parties instructed solicitors to progress the sale, but contracts were not exchanged and the sale fell through.
Saggu claimed specific performance of the contract for sale; alternatively “restitution” for various sums including the £5,000 paid by Saggu to Thandi by way of deposit and reimbursement of legal costs on the aborted sale. Importantly, in the event that it was held that there was no valid contract, Saggu was not seeking an order for a transfer of Thandi’s property.
Mr Hugh Sims KC (sitting as a deputy judge) held that the contract was void by reason of section 2(1), but saw no reason why the court was precluded from granting Saggu equitable relief to prevent any unconscionability “simply because the parties intended a contract, which then failed through non-compliance under section 2(1)”. The relief granted, based on a finding of proprietary estoppel, was limited to the £5,000 deposit and half of the legal fees incurred in the aborted sale.
What conclusions can be drawn from these cases? There is no apparent difficulty in relying on proprietary estoppel to enforce an informal agreement in the “domestic or family context” but, where the transaction is “commercial” and the parties should have complied with the formality requirements, equity will not intervene. The law appears to be that, where the parties have entered into a contract which is void by reason of section 2(1), the agreement cannot be enforced under the guise of proprietary estoppel. Notwithstanding the recent contributions to the debate, it would be desirable for the matter to be settled once and for all by the Supreme Court.
Jonathan Upton is a barrister at Tanfield Chambers, specialising in disputes about land and property
