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 agreed in one document, or, where contracts are exchanged, in each document, as provided by Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“section 2”).
The Court of Appeal considered this in the case of Keay v Morris Homes7 and the circumstances surrounding an alleged oral agreement and whether section 2 applied.
Mr and Mrs Keays had entered into an agreement to sell some land in Birmingham to the developer, Morris Homes. The agreement was conditional on Morris Homes obtaining planning permission for the construction of a medical centre on part of the land. It also provided that on completion, Morris Homes was to enter into an agreement to grant a 125 year lease of the medical centre back to the Keays.
Morris Homes had difficulty in negotiating the planning permission with Birmingham City Council and the parties subsequently entered into a supplemental agreement in writing, which varied the original agreement by reducing the price that Morris Homes was to pay for the land.
Following this, the Keays alleged that at the same time as the supplemental agreement was entered into, it was also verbally agreed between them and Morris Homes, that Morris Homes would carry out building works on the Keays’ land, in return for the price reduction. However, this was not mentioned in the supplemental agreement.
Completion took place. The land was transferred to Morris Homes and the parties entered into the agreement for lease back.
Morris Homes failed to carry out the works and the Keays brought proceedings for damages in excess of £2 million.
The Keays argued that the obligation to carry out the works was a separate, free-standing enforceable agreement, rather than a term of the supplemental agreement and therefore there was no need to satisfy section 2 and it was on the oral agreement that they now based their claim.
As part of their argument the Keays said that once completion had taken place of the original contract then it was open to them that any non land terms (such as their building works) could be enforced outside of the main contract or any supplemental agreement.
At first instance (the decision followed a summary judgment application at which there was no oral evidence), the Court held in favour of the Keays and Morris Homes appealed. There were two issues which the Court of Appeal had to consider:
- Was the oral agreement a term of the supplemental agreement? and, if it was;
- Had section 2 been satisfied?
The first issue was a question of fact and one which could only be determined at trial following consideration of all the evidence. If the parties had made this oral agreement then they were either seeking to vary the original sale contract and the term should have been recorded (along with the other terms) into the supplemental agreement or they had entered into a new, free-standing agreement.
The second issue assumes that the obligation to carry out the works was a term of the supplemental agreement and then the Court needed to decide whether section 2 (which has to be satisfied) was in fact satisfied.
The Court of Appeal rejected the notion that performance of some terms of a void contract can turn it into a valid contract. The correct approach is that completion of the “land elements” of the contract will not then validate the non-land elements. The omission of the oral agreement from the written supplemental agreement rendered the supplemental agreement void, and so the original sale agreement was left unchanged. At most, the oral obligation was a proposed term of the contract that was not in this event incorporated into any valid contract and was therefore not capable of being enforced independently by the parties.
The matter was re-submitted for trial. The Court of Appeal decision is a useful reminder to parties that land transactions should record all of the terms relating to the sale agreement in accordance with section 2 to avoid such difficulties.