#2058 - Ways To Get Round The Formality Requirements - Land Law

Ways to get round the formality requirements

Constructive Trusts

Needs the acceptance of an obligation

• An oral promise by a transferee to hold on trust for the transferor

  • An express oral trust in favour of B cannot be enforced under LPA 1925 s.53(1)(b)

  • Bannister v Bannister [1948]: D sold two cottages to C on the oral undertaking by C to let her stay in one of the cottages as long as she liked rent free. The price of 250 paid by C was at least 150 below the contemporary value of the cottages. D had been living in one of the cottages rent free since the date of sale. C gave D notice to quit, with which she refused to comply.

    • But it can be enforced as a constructive trust –

      • The equitable principle on which a constructive trust is raised against a person who insists on the absolute character of a conveyance to himself

        • for the purpose of defeating a beneficial interest, which, according to the true bargain, was to belong to another,

          • is not confined to cases in which the conveyance itself was fraudulently obtained.

      • The fraud which brings the principle into play arises as soon as the absolute character of the conveyance is set up for the purpose of defeating the beneficial interest,

        • and that is the fraud to cover which the Statute of Frauds or the LPA 1925, cannot be called in aid in cases in which no written evidence of the bargain is available.

      • Because failure to enforce the trust would have led to a windfall profit on the part of T – who had the benefit of a reduced price in return for letting D stay

• Where A agrees with B to hold a right for X

  • Binions v Evans: X allowed D to remain in house rent free for life if kept garden tidy. X then sold the land to C, but expressly gave notice of the agreement in favour of D and lowered the price accordingly. C then gave notice to quit and attempted to take possession

    • Lord Denning: Bad for A to be able to get out of this.

      • Whenever the owner sells the land to a purchaser, and also stipulates that he shall take it "subject to" a contractual licence

        • Court of equity will impose on the purchaser a constructive trust in favour of beneficiary.

  • Lyus v Prowsa [1982]: C contracted with V for option to buy. V became insolvent, plot sold to D1 and then D2 with notice and promise to respect C’s interest. D2 tried to avoid giving effect to C’s interest.

    • Dillon LJ:

      • LRA does not affect the constructive trust – it can’t be used as a tool for fraud

        • Can’t allow D to plead that an interest he has agreed to respect and has notice of

          • cannot be given effect because it is not on the register.

    • Smith: Prowsa = narrower than Binions

  • Peffer v Rigg:

    • Graham J:

      • 3. New constructive trust should be imposed b/c D2’s fraudulent conduct – this approach avoids the general importation of good faith into LRA

• Where A agrees a transfer with B “subject to” a right of C

  • Two possible interpretations of “subject to”

    • Either arse covering on the part of B

      • McFarlane: Could mean that term exists to stop A suing B if a right of C is discovered

        • Meaning there was no intention to respect C’s right so no constructive trust arises

    • Or that A was indeed agreeing to respect C’s rights

      • Only here will a constructive trust arise

        • And this depends greatly on the facts of the case.

OR Actual notice of something which affects the conscience of a purchaser

• Ashburn Anstalt v Arnold [1989]:

  • Fox LJ:

    • The test is whether the owner of the property has so conducted himself

      • that it would be inequitable to allow him to deny the claimant an interest in the property.

      • However the court will not impose a constructive trust unless it is satisfied that the conscience of the estate owner is affected.

    • McFarlane: explanation = A ought to be made to enforce promise to respect X’s right where A has received some benefit in return for this.

Effect =

• Lyus v Prowsa

  • Where obligation has been accepted by the purchaser then seems only sensible to give effect to it

    • Whether in contract or in trust

Debate

• Results stand in opposition to Land Registration Principles

  • McFarlane: Means that purchasers can’t be entirely sure of what they’re getting if courts follow Binions or Ashburn

    • If a judge decides, rather subjectively, that you’ve acted badly, then you find rights you thought were okay to ignore being imposed on you

    • Equally, undermines the certainty of the Land Register

  • Battersby:

    • At the moment Land Registration has no ethical dimension – present rule provides temptation for judges to try and get round it

      • Clear that the problem arises from the unconscionable conduct of the person relying on the non-registration defence

      • But while we should avoid constructive notice being inserted into LRA 2002, the system would be just as efficient if proof of actual notice led to Lack of Registration Defence being withdrawn.

        • Problem of what actual knowledge is could be solved by careful drafting.

  • Moi: This does seem to undermine the Register being conclusive though. We should encourage parties to register their interests rather than giving them the ability to screw purchasers.

• Decisions just circumvent the statute

  • Thompson: Problem with situation at the moment is that courts are being inconsistent about which approach to take - rather than just saying that the statute can’t be relied on (Lyus)

    • the effect of a decision such as Peffer is to just circumvent the statute by imposing personal liability of the transferee

    • Problem = that imposing a trust from fraudulent conduct which is said to give rise to a new constructive trust comes actually just from the notice of the unregistered interest

      • Thus meaning the trust that is made void against the purchaser by LRA 2002

        • Is simply resurrected in a different guise but under the same facts

          • Thus defeating the very point of the statute!

    • Solution =

      • Statute should be given literal meaning

        • But protection accorded to those with overriding interests via actual occupation

        • And also to those with informal rights e.g. contractual licenses where purchaser has notice of this or license holder is in actual occupation.

      • This would be by adopting Lord Denning’s view in Errington v Errington and giving these licenses proprietary status

        • This could then be enforced by tort of breaching contract, which relies on actual knowledge alone.

  • Moi: Extending protection to contractual licenses undermines Land Registration that things should be on the register

    • Contractual licenses cannot actually be registered and are contractual – between two parties, not with the purchaser

    • Point is that parties agree to respect another’s right and then gain something from this but do not respect the right.

      • Actual notice should make no difference unless assurance given and benefit received – effectively giving 3^rd party element to estoppel.

Proprietary Estoppel

Requirements

1. C has a belief that he has some right or he will gain some right

• When C makes a mistake as to his rights

  • Crabb v Arun District Council [1976]: C sells off land to D, but attempts to reserve new right of way over land. D appears to accept and erects gates. However, after transfer, D tears down gates and demands payment, leaving C’s remaining land landlocked + useless.

    • Lord Denning: If X promises that he will not insist on his strict legal rights

      • Or his conduct is such that it leads another to believe that he will not act on his strict legal rights

        • And that belief is acted on

          • Then estoppel will arise

    • Lawton LJ: However informal the agreement, there was firm understanding

      • And D stood back while C acted on this understanding and landlocked the land he was intending to sell.

  • Thorner v Majors [2009]:

    • Lord Walker: The promise must be unambiguous and must appear to have been intended to be taken seriously.

      • Taken in its context, it must have been a promise which one might reasonably expect to be relied upon by person to whom it was made

  • Smith: is essential that C should believe that there is an interest or that O is committed to creating it

    • This will be very easy to prove where there is substantial detriment

• Where negotiations are incomplete

  • Smith: courts keen to avoid estoppel giving legal effect to non-binding negotiations

    • But C may be able to point beyond the negotiations to justify an expectation (per Crabb v Arun DC [1976])

  • Yeoman’s Row Management Ltd v Cobbe [2008]: C negotiates oral terms with D for property development. After planning permission granted, D withdraws. C = property developer and knew that promise = not legally enforceable.

    • Lord Scott:

      • Case here is different from Taylor Fashions as here there is no “certain interest in land” that has been encouraged

        • All that has been encouraged is that after planning permission was granted, C and D negotiate full terms,

          • which C justifiably thought would include the already agreed financial terms.

      • But, C as an experienced property developer, must have known that oral agreements for land are not at law enforceable

    • Lord Walker:

      • Main problem with this case is that C thought (and hoped) he would get a contract in order to get an interest

        • BUT an expected interest is only the same thing as a contracted interest if it can be relied upon

          • And clear that hopes in themselves are not enough to be relied on

  • Gillet v Holt [2002]: D promises over number of years + repeatedly that C will receive farm and farmhouse on death. D then falls out with C and changes will to effect different intention.

    • Walker LJ: It true that with Wills, a person...