Land Contracts & Formalities PDF

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Land Law Land Contracts & Formalities

Land contracts: where they fit in to land transfers Typically, the parties conclude a contract to buy/sell land as the first legal/formal stage of the process of buying/selling land 1. Once signed contracts have been ‘exchanged’ – - Both parties are then legally bound; but - The contract does not pass the legal interest in land being sold/transferred (that Is the second stage ‘completion’); but - If there is a refusal to complete the contract – possibility court may grant discretionary equitable remedy of specific performance; and - Seller/vendor holds the legal title on trust for purchaser – so purchaser gets an equitable interest in land (estate contract) 2. Completion of purchase – Transfer/Creation of legal estate formally (by deed) - Transfer of money. 3. Registration of title: s 4 or 27 LRA 2002 (in 2018 this will be a requirement even if the title being sold in Ian’s Plaice is unregistered/title deeds) - Whether the land is registered or unregistered should be known.

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Land Contracts 

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We are focusing only on the first stage the contract to sell land or an interest in land (Registration of title comes in Semester B) - this is a usual stage to a disposition of land (sale transaction) in both unregistered and registered land - But it is usual and not essential to enter a contract Phil contracts to buy Ian’s Plaice – negotiation of terms And then Ian and Phil’s contract must satisfy all the standard rules about forming any contract – agreement (offer/acceptance, consideration, intention to create legal relations) BUT ALSO …land contracts require prescribed formality

Land Contracts – Formality Requirements 

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What is formality? - Ritual we have to go through: detailed and everything must be agreed to. - In general, something external/additional to the transaction which makes it effective – non-compliance may have legal consequences (validity/unenforceable) - So, for instance, I and P’s land contract needs to be written Other transactions may require different formalities – such as deeds (s 52 LPA 1925) Registration

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Why have special rules about the formalities of agreements to sell land? Why not allow I and P to create an oral (i.e. informal) contract to sell Ian’s Plaice? - There are specific types of instructions for the type of contracts in land law.

Land contracts: why have formality rules?   

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Functional/Labelling: Rights to land are invisible – by recording them in writing (formality) makes them visible to third parties (like prospective purchasers of land) Cautionary: Sale of land is a complex transaction with a valuable and immovable asset. Arguably formality minimises the risk of accidental contracts (Standard terms cut down scope for legal error); and may protect the weaker party Evidential: Of terms and the fact that parties entered into transaction. Reduces prospect of fraud and/or perjury – including people trying to enforce unfounded claims to oral agreements – but is that prevalent today? (Writing supports the work of the Land Registry in registering changes in ownership of land in conformity with the Land Registration Act 2002) See: Electronic Execution of Documents (Law Com 386), para 2.11 https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage11jsxou24uy7q/uploads/2019/09/Electronic-Execution-Report.pdf - Law commission lays out clearly what the existing law is and what it thinks the issues with the law that stands – they do this in a lot of detail and you can see what they think. - E.g. technical difficulties; electronic signatures. Helpful link.

Formality requirements – key historical/statutory milestones  Requiring formalities for land contracts has a long history.  Key statutes:  Statute of Frauds 1677  Section 40 of the Law of Property Act 1925 (1925 Act)

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Part performance could include a deposit because you have partially acted upon the contract. This is no longer the case unless you can provide evidence that there is no contract.

 Law of Property (Miscellaneous Provisions) Act 1989, s 2 (1989 Act) 

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To be a valid land contract s 2 in effect requires it must be - in writing; - contain all the agreed terms (Minimum content/obligations = parties; property; consideration Rossiter v Miller (1878) 3 App Cas 1124) - signed by both parties Can be either: Single document Or: Exchange of contracts – two identical documents – one signed by purchaser (buyer) and one by vendor (seller) and then exchanged (one signed by each party) - Solicitors would negotiate on behalf of the parties and once the parties are satisfied, the solicitors would exchange the signed contracts on a specific day and time and then it becomes a binding contract.

From s40 LPA 1925 to s2 of the 1989 Act The formality rules in s 40 were more relaxed/flexible: How? - Written evidence of contract enough - including contracts based on chain of correspondence between parties - Or even oral contracts supported by acts of part performance referable to existence of a contract or a contract about land  Promoted fairness but at the cost of degree of uncertainty? - Expensive litigation parties claiming/denying oral contract - Increased uncertainty – over what did or did not count as part performance  Steadman v Steadman (1976) - husband’s payment of £100 maintenance arrears referable to oral contract by which ex-wife agreed to transfers her property interest in house.  Prompted Law Reform proposals: Law Commission, Formalities for Contracts for Sale etc of Land (1987) Cmd 164

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Land Law Section 2 of the 1989 Act: What is a signature? -

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Single paper (or identical papers) that express all the terms agreed by the parties involved; they must be signed.

Whose? May be by or on behalf of the parties: s 2(3) 1989 Act Ink/pen signature that shows intention to authenticate Typed or printed name in typed letter? Firstpost Homes v Johnson (1995), per Peter Gibson LJ - Obiter views suggesting a limited approach (not binding) - LJ thought a signature should be in pen and in ink. - 1989 Act replaces flexible interpretation found in ‘ancient baggage’ of case law on 1677 and 1925 Acts by giving signature a ‘…meaning which the ordinary man would understand….’ - But case is to be confined to its own special facts (about buyer’s address) - Out-dated: Law Com 386 – they shouldn’t exclude electronic signatures.

So, are Digital/E-signatures permitted? (Probably!)  No authoritative ratio on section 2  Golden Ocean Group v Salgaocar [2012] EWCA Civ 265 (email typed signature for guarantee under s 4 Statute of Frauds 1677)  Metha v J Pereira Fernandes SA [2006] EWCH 813  Ramsay v Love [2015] EWHC 65 (Ch), [7] (obiter: machine written signature)  Neocleous v Rees [2019] EWHC 2462 (solicitor’s name automatically added in footer of email) - Email signed off as king regards and solicitor’s name, organisation, contact details – automatically inputted. - Court: it fulfilled the requirements of s2; automatically inserted signature was good to show the intention of the solicitor to be bound by the law.  Electronic Execution of Documents (Law Com 386) - https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage11jsxou24uy7q/uploads/2019/09/Electronic-Execution-Report.pdf -

There must be evidence of intention for the signee, using any medium to sign, to be bounded by their signature.

Section 2 What are its policy objectives? - Maximise certainty – is there a tension with achieving fairness?  Unfairness could occur. - Less chance of land contracts arising accidentally  Less flexible than its predecessor s 40 LPA 1925  Failure to comply with s 2 means no valid contract exists. Rules therefore establish how land contracts must be created to be valid not just provide for when they will be enforceable (c.f. s 40 concerned enforceability rather than validity)  (although the 1989 repealed s 40(2) of the 1925 Act it did not explicitly abolish the doctrine of part performance) - But it now seems settled (after some judicial opinion to the contrary (e.g. Singh v Beggs (1996)), that one effect of s 2 making informal contracts void rather than just unenforceable is that part performance is inapplicable under the 1989 Act:  United Bank of Kuwait v Sahib (1997)  Yaxley v Gotts (2000) 

Statutory exceptions permitted by s 2(5) of the 1989 Act

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Contracts that do not need to comply with the formality rule in s 2 of the 1989 Act are contracts: - Short leases - 3 years or less – (see also s 54(2)(d) LPA 1925); and  Contracts for short leases can be made orally. - Made at public auction; and  If you have a mortgage and fail to pay, the bank takes it.  Easiest to sell house on a public auction – doesn’t require writing. - Regulated under Financial Services and Markets Act 2000 Express Incorporation into main contract of terms set out in a second document: s 2(2) (see later slide) - Doesn’t have to be signed but can be incorporated. - E.g. land registry. More significantly the need for a written contract does not affect the informal creation or operation of resulting, implied, constructive trusts: s 2(5) 1989 Act (more of this later)

Land contracts – what are they?  

The need for writing applies to a wide range of land contracts, not just contracts such as Phil’s contract to buy Ian’s estate in the cafe. From your reading find out a little about the way it applies to: - contracts for “other dispositions” of land – which includes mortgages, charges and leases (see s 2(6) and s 205(1)(ii) LPA 1925) - contracts relating to any “interest in land” – whether legal or equitable (e. g. an easement)  comply with s2 - Options to buy land – s 2 applies to agreement creating the option but not the notice which exercises it Hoffmann J in: Spiro v Glencrown Properties Ltd (1991)  Option to buy land – doesn’t mean you have to buy it, it’s only if you want to. You can exercise your option within the time period and the seller cannot sell to anyone else until time limit is over.  Notice doesn’t have to be in writing but the option does. - Equitable mortgages: Sahib (1997)  Doesn’t matter about the status of the mortgage, it must comply with LPA s2 because the bank provides this.

Section 2 of the LP (MP) A 1989  How strict is the s 2 requirement?  Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900, para [9], per Rimer LJ: “[i]ts effect is merciless. An appropriately signed document purporting to amount to a contract for the sale or other disposition of an interest in land will not in fact create a valid contract unless it includes all the expressly agreed terms of the sale or other disposition.” - If you don’t comply with s2, you do not have a valid contract. Judicial Response to S 2: Overview  

So the single document idea in s 2 of the 1989 Act appears to create a clear, simple requirement that land contracts must satisfy – all the terms in a signed document But over the 30 years since it was enacted how has it been interpreted by the courts? - Some signs of a strict interpretation, upholding the policy aspirations (e.g. certainty) - Some more relaxed approaches either contained in the terms of the 1989 Act itself and/or in its application by the courts

Land Law  Incorporation by reference  Collateral Contracts  Proprietary Estoppel - Some of these judicial developments reveal uncertainty in the operation of the statutory requirements Section 2: Strict interpretation- Omissions 

What if Phil argues that a term has been omitted from the written contract? - Idea of rectification of contract exists but is limited in scope: s 2(4). Only allows correction of omissions from the contract caused by a drafting mistake (so it is available only to set the record straight not to add any term omitted from the document: Oun v Ahmed (2008) - Variations in terms of written contract need to satisfy s 2: McCausland v Duncan Lawrie (1996) (letters changing date for completion stated in the written contract.) - Cannot create a land contract by piecing together correspondence between parties: Commission for New Towns v Cooper (1995); (c. f. Law Com (1987) No 164 [4.15])

S 2 and the Courts: Some less strict approaches to its application But there are examples of a more relaxed approach to the formality requirements on some matters: 1. Can a string of emails satisfy s 2? Maybe:  Green (liquidators of Stealth Construction Ltd) v Ireland [2011] EWHC 1305 (Ch)  Golden Ocean Group Ltd v Salgaocar Mining Industries PVT Ltd [2012] (an enforceable contract for a guarantee in a chain of emails: s4 of Statute of Frauds 1677) - But does this mean parties might create/unintended accidental land contract (see McCausland v Duncan Laurie)? 

2. Agreements settling trivial boundary demarcation disputes can be informal/oral:  Joyce v Rigolli (2004), Arden LJ (But perhaps this exception is not limited to trivial pieces of land? Yeates v Line [2012] EWHC 3085) But there are examples of a more relaxed approach to the formality requirements on some matters: 3. 1989 Act expressly provides that a valid land contract can sometimes exist by reading two linked documents together as one – incorporation by reference = incorporation of a second document by a reference made to it in the first: s 2(2) - Main contract signed by parties expressly pinpoints a second/subsidiary document - Will the courts go further and imply such an incorporation?  Firstpost Homes v Johnson (1995) Peter Gibson LJ (obiter) (Only if the primary document/main contract (letter) rather than the second/subsidiary document (plan) is signed by both parties) 

S 2 Collateral Contracts and Proprietary Estoppel There are two further ways in which the strict requirements of s 2 have been tested in the courts: 1. Collateral Contracts 2. Proprietary Estoppel

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Land Law S 2 and the Courts (Collateral Contracts)   

Ian’s formal contract with Phil is followed by oral agreement to sell the café’s neon sign. Can Ian later claim there is no valid contract that complies with s 2 of the 1989 Act because a term is missing – formal contract does not mention the sale of the neon sign? Or, could it be argued that this missing term about the neon sign is a separate (but related) to contract that does not need to comply with section 2’s formality requirement?

Idea is that parties have a “composite bargain” comprising two separate contracts: 1. Land contract of sale of Ian’s estate in Ian’s Plaice (that must satisfy s 2); and 2. A linked, but separate, contract for the sale of the neon sign (“collateral contract”) which can be oral/informal because it is not a ‘land contract’ within s 2 of the 1989 Act This raises tricky questions of construction – when is a contract saved from the strictness of s 2 because the court views a missing term as a ‘collateral contract’?  Grossman v Hopper (2001) Staughton and Chadwick LJJ  What is the relevant test? - Ask: is performance of the land contract meant to be conditional on the informal/missing term –  if yes, then it cannot be contained in a separate contract, it should be included in the land contract which must comply with section 2  If no, land contract is valid, and the missing term is a separate/collateral contract 

 North Eastern Properties Ltd v Coleman [2010] EWCA Civ 277 [54] (per Briggs J) “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.” Does the collateral contract route/exception undermine the strictness/certainty of the basic formality rule in s 2?  For one judicial view on this see: North Eastern Properties Ltd v Coleman [2010] EWCA Civ 277 [54] (per Briggs J): “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.”  But what if the parties don’t include a term to make it plain? 

 Record v Bell (1991)

Land Law Formal sale contract + vendor’s informal warranty of good title  Tootal Clothing v Guinea Properties Management Ltd (1992) Formal Contract for lease + landlord’s informal promise to pay for shop fitting works (but note Scott LJ’s obiter view is criticised in Keay)  North Eastern Properties Ltd v Coleman (2010) Formal Contract + informal promise to pay the purchaser a discount/finder’s fee (argument failed essentially because contract contained “entire agreement clause”)  Keay v Morris Homes (2012) Formal Contract to sell development land + informal promise to build medical centre Effect of Non-Compliance with s2 

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Invalidity: there is no contract – - Compare the effect of s 40 of the LPA 1925 by which a non-compliant (oral) contract was only unenforceable – Ian and Phil could therefore still choose to carry out its terms Irrelevant if Ian and Phil complete the contract (or change the register) Tootal Clothing v Guinea Properties Management Ltd (1992) Scott LJ If there isn’t a valid contract is there scope for a party to claim a non-contractual remedy?

Section 2: Contracts and Proprietary Estoppel – A snapshot of proprietary estoppel 

Ian orally promises Phil a lease of the upstairs flat if P renovates the property. - No valid contract in writing? - So void under section 2 of the 1989 Act. - But what if Phil claims he is entitled to a lease via constructive trust and/or related equitable idea of proprietary estoppel? - Section 2(5) - constructive trust exception – so if they had an informal understanding and P acts to his detriment - But what about an alternative claim to proprietary estoppel – does that fall foul of s 2?

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Essential features for establishing a claim to property rights based upon equitable doctrine of proprietary estoppel - Representation of property rights made to claimant by landowner - Reliance by claimant - Detriment suffered by claimant

 Lord Walker Thorner v Major (2009) [29]  If claim succeeds nature of the remedy awarded is discretionary – wide range of outcomes possible (not necessarily awarding interest in land) Section 2: Contracts and Proprietary Estoppel  Can s 2 be pleaded to defeat a claim by proprietary estoppel? - Equitable doctrine of part performance abolished – but scope for proprietary estoppel?  Law Com No 164 (1987), para 4.13 - Proprietary estoppel not explicitly mentioned in 1989 Act as exception to need for writing in s 2 - But remember s 2(5)(c): ‘…and nothing in this section affects the creation or operation of resulting, implied or constructive trusts.’

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But if there are similarities/overlap between application of constructive trusts and...