A contract concerning a disposition of land does not need to comply with section 2 where it effects an immediate disposition.
In the recent case of Rollerteam Ltd v Riley, the Court of Appeal had to decide whether a settlement agreement needed to comply with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989. The settlement agreement had been drawn up to end what the judge described as 'bitter family litigation'. One of the parties to the settlement agreement had signed it, but was now claiming that it was invalid for failure to comply with section 2.
Readers will be aware that section 2 is of supreme importance to everyone involved in the sale, purchase and letting of property. It provides that a contract for the sale or other disposition of an interest in land can only be made in writing and only by incorporating all the terms that the parties have expressly agreed in one document or, where contracts are exchanged, in each. In addition the contract, or the exchanged parts of it, must be signed by each party.
The purpose of section 2 is to ensure that intending sellers and buyers of land do not inadvertently enter into a contract to sell or acquire a property. This is such a major transaction that Parliament has decided that particular formalities are needed. If those formalities are not complied with, there is no contract at all.
The settlement agreement in question was intended to settle four different pieces of litigation. It appears from the Court of Appeal's judgment that although there was a concluded agreement, there was no one document that satisfied section 2. One party (A) was to pay sums of money to B and C, and, in exchange, B was to execute deeds of trust over two separate properties in favour of A (or in favour of Rollerteam, a company with which A was associated). B executed the two deeds of trust and handed them over, and A paid over part of the money. However, A then refused to pay the balance, claiming that the settlement agreement did not comply with section 2 and so created no obligations at all.
The Court of Appeal had to consider whether section 2 applied to the settlement agreement, or whether section 2 was not relevant because the contract was not a 'a contract for the sale or other disposition of an interest in land'.
Contracts for disposition and contracts of disposition
The Court of Appeal held that section 2 did not apply to the settlement agreement at all. It applies only to a contract that anticipates further action being taken in the future. Where the contract is complete in itself, section 2 is not relevant. A lease is an example of such a contract. A lease is a contract, but the Court of Appeal had confirmed as recently as 2011 in Helden v Strathmore Ltd that section 2 does not apply to a lease because it is a document that effects an immediate disposal of an interest in land, as opposed to creating a contract for the disposition of an interest in land in the future.
So in this case, the Court of Appeal held that the two declarations of trust that had been executed by B and C were complete in themselves. Nothing further remained to be done under them, and so section 2 was not relevant to them. As the court said, they were 'contracts of disposition', not 'contracts for disposition'. Section 2 applies to the latter but not to the former.
Similarly, section 2 was not relevant to the settlement agreement itself, as this came into being once the declarations of trust had been executed. They were an integral part of the formation of the contract, in that the contract came into existence as soon as the deeds had been executed. But the contract did not envisage any further disposition being required, and so section 2 did not apply to it. Accordingly it was valid, and A had to comply with its terms.
This is a very helpful analysis of the scope of section 2. In particular, it is a reminder that section 2 does not apply to leases, although it will of course apply to an agreement to grant a lease in the future.