A cautionary tale in creating binding contracts for the sale of land.
The Court of Appeal has provided some useful commentary on Section 2(1) of The Law of Property (Miscellaneous Provisions) Act 1989 and when it will not apply to contracts for the sale of land.
Section 2 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 terms which the parties have expressly agreed in one document or, where contracts are exchanged, in each. The document incorporating the terms must be signed by or on behalf of each party to the contract.
In the case of Rollerteam Limited (1) John Aidiniantz (2) v Linda Riley (1) and Jennifer Decoteau (2) (2016) the parties had been involved in a long running family dispute between Mr Aidiniantz and his half-sisters which had resulted in no less than four sets of court proceedings. Over lunch on the 8 April 2013 the parties agreed to a settlement in principle of the proceedings. Immediately after the lunch, Mr Aidiniantz sent an e-mail to his solicitors recording the basis of the “proposed agreement”, which included that one of his half-sisters, Ms Riley, would execute a declaration of trust over two London properties in his favour. In return for the beneficial ownership of those properties, Mr Aidiniantz would make payments of £1 million to each of his half-sisters.
On 11 April 2013 there was a formal document signing meeting where The declarations of trust were executed and Mr Aidiniantz paid one of his half-sisters £300,000 out of the £2 million which he was obliged to pay. It was agreed that a further £700,000 was to be paid as soon as possible with a further £1 million to be paid in the summer of 2014. After having obtained the benefit of the declarations of trust, Mr Aidiniantz then argued some time later that the settlement agreement did not comply with Section 2 and so was not enforceable. Therefore, he was not obliged to pay the remaining £1.7 million to his half-sisters.
The matter was decided against him by the High Court and he appealed the decision to the Court of Appeal.
The Court of Appeal's decision
The Court of Appeal held that Section 2 did not apply to the agreement reached between the parties because it only applies to contracts for the future sale or other dispositions of an interest in land and not to a contract which actually disposes of an interest. The Court found that the discussions over lunch on 8 April 2013 and the subsequent e-mails did not represent a concluded contract. There was therefore no point at which the Defendants took on a future obligation to dispose of their interest in properties. Instead the Court found that a concluded settlement agreement was entered into when the Defendants executed the declarations of trust on 11 April 2013. The act of executing the declarations was an acceptance of the Claimant’s offer made on 8 April 2013 and constituted the consideration necessary to form a binding contract. Accordingly, because the agreement was one which itself included an immediate disposition of interests in land (and was not a contract for a disposition of those interests at any time in the future) it did not need to comply with Section 2.
The case is a useful reminder of when Section 2 will apply and the potential pitfalls of failing to comply with its provisions.
Section 2 will be relevant to option agreements and contracts for sale under pre-emption agreements and so care should be taken to ensure that its provisions are complied with in respect of those documents.
Conversely, it may be that some documents which are not intended to be legally binding could unwittingly constitute a binding contract where they satisfy Section 2. Care should be taken in such circumstances and although it is not always a fool proof strategy, documents should be marked “subject to contract” to demonstrate that the parties do not intend to create a binding agreement. This is especially relevant where Heads of Terms are being drafted or a settlement of a dispute is being documented which involves a future sale or other disposition of an interest in land.