Oral land contracts and proprietary estoppel: Thandi v Saggu

The problem of oral land contracts and proprietary estoppel

England’s Law of Property (Miscellaneous Provisions) Act 1989 (‘LPMPA’) requires land contracts to be in writing and signed by both parties. Failure to comply results in the invalidity of the contract (LPMPA, s. 2(1)).

The LPMPA abolishes the doctrine of part performance since the doctrine presupposes the validity, but unenforceability, of oral land contracts. The LPMPA, s. 2(8) repeals section 40 of the Law of Property Act 1925 (‘LPA’) which rendered oral land contracts unenforceable but did not deny their existence as contracts. Also repealed then is section 40(2) of the LPA which provided for the continuing operation of part performance.

The LPMPA does, however, say that section 2 does not affect the creation or operation of resulting, implied or constructive trusts. This leaves some space for equity to give effect to oral land contracts (LPMPA, s. 2(5)). But where does this leave proprietary estoppel?

The courts worry that invoking proprietary estoppel in relation to oral land contracts undermines the LPMPA’s formalities requirements. So too, it might be said, does the use of the common intention constructive trust in relation to oral agreements relating to land. This, however, is expressly permitted by LPMPA s. 2(8). The lack of a similar saving provision for proprietary estoppel deepens the suspicion that its use in the land contract context should not be allowed.

Potential responses to the problem

The possible approaches to the use of proprietary estoppel in relation to land contracts seem to be:

Approach 1

To refuse to allow proprietary estoppel claims arising out of promises given in oral land contracts which ought to satisfy the LPMPA formalities rules. This would be the fullest recognition of a conflict between the formalities rules and the equitable doctrine. It would leave the common intention constructive trust as the principal ‘equitable safety valve’ to deal with cases where insistence on the LPMPA rules would be unconscionable.

Approach 2

To give free rein to proprietary estoppel claims even in the oral land contract context. The conflict between this and the formalities rules would be seen as an illusion: proprietary estoppel is seen as satisfying an equity that has arisen, rather than enforcing a contract.

Approach 3

To allow proprietary estoppel claims in relation to oral land contracts provided that the same facts could also give rise to a common intention constructive trust claim (which would seem to cover all, or the vast majority, of active encouragement cases) (Yaxley v Gotts).

The only problem with this is that it seems rather pointless. If a common intention constructive trust claim can succeed, what is the point of the proprietary estoppel claim? The answer to this may lie in the remedial discretion of the courts in proprietary estoppel.

Approach 4

To allow proprietary estoppel claims to succeed only where there is a ‘double assurance’ or ‘something more’ which estops promissor’s from pleading the formalities rules (Actionstrength; Cobbe; Kinane).

One problem here is that it is difficult to know what would amount to such a double assurance. Is the requirement satisfied by an oral assurance that is clearly intended to be immediately binding? But how is this different from the normal understanding of an assurance?

Approach 5

To allow proprietary estoppel claims to succeed where the claimant does not seek enforcement of the contract but is satisfied, for example, with a licence (Howe v Gossop).

This might, in effect, be a recognition of approach 2 above (that proprietary estoppel is not an enforcement of the contract).

If approach 5 is a version of approach 2, why not enforce the contract if that is what is needed to prevent unconscionability? If it is not a version of approach 2, it is not easy to understand the principle that justifies approach 5.

Thandi v Saggu

Thandi v Saggu ([2023] EWHC 2631) concerned a proprietary estoppel claim arising out of an oral agreement for the sale and purchase of land. The LPMPA formalities requirement was not satisfied.

The claimant relied on proprietary estoppel not to enforce the contract but to recover financial losses arising from the failure to enter into the contract. The oral contract, and the price payable under it, arose from an attempt to settle a separate commercial dispute.

The seller’s failure to go ahead with the transaction meant that her indebtedness arising from that dispute continued and that the buyer incurred wasted legal fees.

The proprietary estoppel claim succeeded. The judge, Hugh Sims KC sitting as a Deputy Judge of the High Court, took approach (2): proprietary estoppel was not being used to enforce a contract but to prevent unconscionability ([137]).

It seems, however, that he thought that this would have been a problem if the claimant had sought enforcement of the contract ([139]). As hinted above (point 5 in the previous section) I doubt the logic of this.

The relief granted was:

1. Recovery of the deposits paid to the seller; and
2. Reimbursement of the legal costs related to the aborted transaction (but not those incurred in relation to the broader commercial dispute).

The purchaser’s claim for relief in respect of the difference between the purchase price and the market value of the property failed because, on the facts of the case, it would have given the claimant more than he bargained for ([144]).

Michael Lower

Tags: contracts, formalities, Michael Lower, proprietary estoppel