When is a hand shake really enough?

Proprietary estoppel is a means by which property rights may be affected or created. It arises from the courts’ equitable jurisdiction to interfere in cases where the assertion of strict legal rights is found to be unconscionable.

Proprietary estoppel can arise where each of the following is established:

The landowner induces, encourages or allows the claimant to believe that it has or will have some right or benefit over the landowner’s land.

The claimant relies on this belief and in doing so acts to its detriment to the knowledge of the landowner.

The landowner then tries to take unconscionable advantage of the claimant by denying the claimant the right or benefit that it expected to have.

It is important that each of the above items is established, however, establishing them is no guarantee that the court will apply their equitable discretion on the facts of any given case before them. A constructive trust is a type of trust that arises through operation of law, regardless of the intentions of the parties. The courts will often use their equitable discretion to find such a trust to exist to prevent unjust enrichment, or where it would be unconscionable to allow a legal owner to retain beneficial ownership of property.

Proprietary estoppel was evidenced recently by the House of Lords in Yeomans Row Management Ltd v Cobbe [2008] UKHL 55. Cobbe orally agreed to buy and redevelop a block of flats (the property) owned by Yeomans Row Management Ltd (“Yeomans”). Cobbe and Yeomans agreed that Cobbe, at his own expense, would apply for planning permission for the demolition of the property and the erection of six townhouses. Once planning permission had been granted and vacant possession obtained, Yeomans would then sell the property to Cobbe for £12m. Once the development had been completed, Cobbe would also pay an overage payment of 50 percent of any gross sale proceeds of the houses in excess of £24m.

The long-stop date by which planning permission was to be obtained was unclear. Cobbe spent up to £200,000 on successfully obtaining planning permission and held regular meetings with Yeomans to discuss progress. On the day after planning permission was granted, Yeomans told Cobbe that the oral agreement had lapsed as planning permission had not been obtained by the alleged long-stop date, and sought to renegotiate the price.

Cobbe issued proceedings, claiming a constructive trust or proprietary estoppel. The High Court held that Cobbe had an equity by virtue of proprietary estoppel and was entitled to a lien on the property for half of the increase in its value due to the grant of planning permission. Yeomans appealed to the Court of Appeal but the appeal was dismissed, however, the House of Lords did allow the appeal of Yeomans but not without a remedy of sorts being provided to Cobbe.

The main issue was whether Cobbe was entitled to a proprietary remedy based on his expectations or a personal remedy. Case law on proprietary estoppel shows that a claimant’s expectations differ depending on whether the context is commercial or domestic: In a commercial context claimants are typically business people who have access to legal advice and expect a contract.

As both Cobbe and Yeomans were experienced in the property world, they knew that there was no legally binding contract and either party was free to discontinue negotiations without legal liability. Therefore, Cobbe was not entitled to a proprietary estoppel. The House of Lords held that it was not possible to impose a constructive trust in the circumstances of the case. Yeoman’s unconscionable behaviour was not enough to justify Cobbe’s claim to have acquired a beneficial interest in the property. It was also relevant that Yeomans had owned the property for some years before discussions began with Cobbe.

Instead, the House of Lords held that Cobbe was entitled to a common law remedy for unjust enrichment. Yeomans was unjustly enriched by obtaining the value of Cobbe’s services (the grant of planning permission obtained at Cobbe’s expense) Cobbe was entitled to a quantum meruit payment for his services in obtaining the planning permission. The House of Lords has clarified that courts need to take a strict approach to proprietary estoppel claims. This avoids the potential uncertainty that had threatened commercial negotiations following the decisions of the High Court and the Court of Appeal in this and similar cases.

In essence, always ensure that any agreement is properly documented and that you obtain proper legal advice upon the documentation itself.


Sam Freeman
For more information, contact Sam at Laceys Solicitors,
Tel: 01202 557 256 or visit laceyssolicitors.co.uk