Richard Hanson explains the facts behind proprietary estoppel
In the recent case of Yaxley v Gotts (Court of Appeal 24th June 1999) it was concluded, so it seems, that the doctrine of proprietary estoppel has survived the formality imposed by section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 ("the Act") upon contracts involving land. Therefore, some informal arrangements are still enforceable. Before we look at the case it is worth reminding ourselves of section 2 and of the doctrine of proprietary estoppel.
Section 2 of the Act
The relevant parts of section 2 provide as follows:
"(1) a contract for the sale or other disposition in land can only be made in writing and only by incorporating all the terms which the parties have expressly agreed in one document or, where contracts are being exchanged, in each.
(5) …and nothing in this section affects the creation or operation of resulting, implied or constructive trusts."
What is proprietary estoppel?
Put simply, it is where A owns land and encourages (either expressly or by "watching on") B to act to his detriment in relation to that land on the understanding that B will gain some right over A's land and it would be unconscionable to allow A to rely on his strict legal rights. This will arise where the formalities to obtain an interest in land are not satisfied or no written contract exists.
The facts
Mr Yaxley, a builder, became aware of a property for sale which needed some refurbishment. He did not have the money to buy it and approached Mr Brownie Gotts (a friend for whom he did work) for a loan. Brownie suggested that he would buy the property, that Mr Yaxley would refurbish it and act as managing agent when the flats were later let, and in return Mr Yaxley would own the ground floor flats. In fact, the property was purchased in the name of Alan Gotts, Brownie's son, in 1991. Mr Yaxley did the refurbishment works and the flats were all let by 1992. It was estimated that the cost of the refurbishment works carried out by Mr Yaxley amounted to about £10,000. Mr Yaxley collected the rents each week and delivered them to Alan (whom he later discovered owned the property). Every six months or so, Alan would settle the accounts of rent and pay Mr Yaxley his share representing the rent of the ground floor flats. This arrangement continued until 1995 when Mr Yaxley and the Gotts fell out and Alan terminated Mr Yaxley's role as managing agent and refused him access to the property.
As a result of this Mr Yaxley commenced proceedings against the Gotts for a declaration that as a result of the doctrine of proprietary estoppel he owned the ground floor (comprising two flats) and was thus entitled to an order that these flats be conveyed to him. The Judge at first instance held that Mr Yaxley had the benefit of this doctrine and therefore Alan Gotts must transfer the ground floor flats to him or pay him the value of those flats
The Court of Appeal decision
The Gotts only raised the argument that no proprietary estoppel could exist due to the effect of section 2 of the Act, in the Court of Appeal.
Counsel for Gotts argued, amongst other things, that the doctrine of proprietary estoppel had not survived section 2 of the Act because it was not referred to in the saving provision at sub-section (5).
Lord Justices Robert Walker and Clarke in the Court of Appeal came to the conclusion that in this case the facts gave rise to both a constructive trust and proprietary estoppel in favour of Mr Yaxley. In their opinion the two doctrines when applied to the facts were indistinguishable. Based on these two judgements it would appear that to the extent proprietary estoppel overlaps with constructive trusts it has not been abolished by the Act. However, Lord Justice Beldam appears to go further and suggests that the whole doctrine of proprietary estoppel is untouched by the Act even though it is not expressly referred to in section 2(5) of the Act.
Conclusion
There is a huge overlap between the doctrines of proprietary estoppel and constructive trusts. It appears clear from the case of Yaxley, that to the extent that these doctrines overlap then the lack of formality imposed by section 2 will not make the arrangement void. There is also a good case that proprietary estoppel in its entirety has been untouched by the Act.
The case is a useful demonstration of how an informal arrangement between two individuals in relation to land belonging to a third party can, in certain circumstances, bind that third party.
The Gotts have not, as far as we are aware, appealed to the House of Lords.
