Gardner Leader

How Good Is Your Agreement?

Alastair Goggins, Partner at Gardner Leader LLP, takes a look at the pitfalls of unwritten agreements.

A recent case in the House of Lords of Yeoman’s Row Management Limited v. Cobbe told a familiar tale. The land owner had agreed to sell her property to the purchaser, but nothing was put in writing. Some terms were still to be agreed. The gist of the Agreement was that the purchaser, at his own expense, agreed to make an application for planning permission and if it were granted the owner would sell the land to the purchaser for an agreed up-front price. Once the purchaser had developed the land, at his own expense, he agreed to pay a further share of the profits to the owner. 

However, once the purchaser had obtained planning permission, the seller tried to re-negotiate the terms of the sale asking, in particular, for an increase in the purchase price. Not surprisingly, the purchaser did not want to pay any more for the property and brought a claim based on two main arguments - Proprietary Estoppel and Constructive Trust.

Estoppel is a legal doctrine that protects a party who may suffer detriment if the defendant has done or said something to induce an expectation. In this case, the purchaser, with the encouragement of the owner, spent a lot of time and money obtaining the planning permission and this was done with the owner’s fore-knowledge. The purchaser took these steps in light of the oral agreement and expected that, following the grant of planning permission, a formal written agreement for the sale of the property would be entered into by the parties incorporating the important financial terms that had already been agreed. Therefore, you may be forgiven for thinking that the purchaser ought to succeed in his claim. 

However, the Court was not in favour of the purchaser’s claim for Proprietary Estoppel. You may find this is surprising. Lord Forster said that when the purchaser made the planning application his expectation was, for proprietary estoppel purposes, the wrong sort of expectation. It was not an expectation that he would, if the planning application succeeded, become entitled to a certain interest in land. Instead, he expected that he and the owner would sit down and agree the outstanding contractual terms to be incorporated into the formal written agreement. This is different and distinct from having an expectation of a certain interest in land. 

It seems that the words ‘subject to contract’ and the fact that it was not set out in a single written agreement, were important factors in the decision.

The Court did not find much sympathy with the argument of Constructive Trust either. The purchaser argued that the owner had agreed to embark on a joint venture and was then retaining the land for his own benefit. He said the Court should regard the owner as holding the land on either constructive or implied trust for the other party to that venture.  

Unfortunately, in this case the purchaser failed to establish that a constructive trust existed. Lord Forster said that one of the most important aspects of this matter was that the property had been owned by the owner for many years before she was approached by the purchaser. The Court indicated that if the parties had discussed a joint venture and then the property was purchased, the final decision may well have been different. Moreover, the joint venture was too uncertain and too vague to be enforced.  

What can we learn from Yeoman’s Row Management Limited v. Cobbe?

Obtaining legal advice at the outset of any venture may well save not only time and expense, but disappointment in the end. The agreement that you negotiate with a joint venturer may not be as good as you think it is.

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