Land Law: Formal Acquisition of Land

Formal Acquisition of Land

Land Conveyance

The sale, creation or disposition of a legal estate or interest in land typically happens in three stages:

  1. Contract: the buyer and seller enter a contract under normal contractual principles. The buyer is customarily required to pay an ‘exchange deposit’. If the contract is specifically enforceable (which it normally is), the buyer acquires rights in equity at this stage.
  2. Completion: the buyer pays the purchase money, takes the possession of the land, and the seller transfers the legal title.
  3. Registration: the buyer will not get valid legal title to the land until they register the disposition.

Contracting for the Disposition of Land

The Nature of the Contract

The contract might be a single agreed-upon document, or it might involve an exchange of contracts. An exchange of contracts was described by the court in Commission for the New Towns v Cooper [1995] 2 WLR 677 as follows:

‘Each party draws up or is given a document which incorporates all the terms which they have agreed, and which is intended to record their proposed contract…[and] to take effect as formal documents of title’. These documents are sometimes referred to as ‘parts’.

Each party signs his document expecting the other party is doing or will do the same. This is known as ‘execution’. However, the contract is not yet binding.

Contract Law - Shaking Hands Agreement

The parties ‘exchange’ the contract: this is ‘a formal delivery by each party of its part into the actual or constructive possession of the other with the intention that the parties will become actually bound when the exchange occurs, but not before’. This can be done in person or at a distance. Only after exchange does the contract come into being.

Once there is a specifically enforceable contract for a recognised property right, the seller comes under a legal duty to grant the buyer the relevant property right. This immediately grants the buyer an equitable interest.

The content of this interest depends on what the seller is bound to do. For example, if the seller is bound to grant the buyer a legal lease, then the buyer will immediately acquire an equitable lease.

Where the seller has agreed to transfer the freehold, he is immediately treated as holding the land on trust for the buyer: Lysaght v Edwards (1876) 2 Ch D 499. However, this is not a normal trust: it is subject to the seller having an equitable right to remain on and use the land until completion: Jerome v Kelly [2004] UKHL 25. This buyer also gains an ‘estate contract’, which cannot be overreached by later transactions: Law of Property Act 1925, s 2(3)(iv).

This is an application of the equitable maxim that ‘equity regards as done what ought to be done’: Walsh v Lonsdale (1882) LR 21 Ch D 9.

Formalities

A contract of for the sale or disposition of any interest in land (legal or equitable) must comply with the provisions of the Law of Property Miscellaneous Provisions Act 1989, or it will not be valid or enforceable. The same is true of any attempt to vary a contract: McCausland v Duncan Lawrie Ltd [1997] 1 WLR 38.

Section 2(1) states 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 which the parties have expressly agreed in one document or, where contracts are exchanged, in each.’

Terms can be incorporated within a contract either by setting them out explicitly, or setting them out in a separate document and then referring to that document in the contract (s.2(2)). However, the document in which the terms are contained must be signed by each party (s.2(3)).

A signature is any indication of one’s name or identity which is placed on the document with the intention of authenticating it: contrast Firstpost Homes Ltd v Johnson [1995] 1 WLR 1567 with Green v Ireland [2011] EWHC 1305.

Certain contracts connected with the sale of land do not fall under the Law of Property Miscellaneous Provisions Act 1989. This is because they are not contracts ‘for’ the sale or disposition of an interest in land.

  • ‘Lock-out’ agreements, where parties agree to only negotiate with each other for a period of time: Pitt v PHH Asset Management [1994] 1 WLR 327.
  • Compromise agreements for settling boundary disputes: Yeates v Line [2013] Ch 363.
  • Contracts immediately disposing of an interest in land, rather than promising to dispose of one in future, such as a declaration of trust: Rollerteam Ltd v Riley [2016] EWCA Civ 1291.
  • While the grant of an option must comply with s.2, the exercise of an option need not: Spiro v Glencrown Properties Ltd [1991] Ch 537.

Formalities also apply to the creation of new interests in land under the Law of Property Act 1925. Section 53(1) states that:

Resulting, Constructive and Implied Trusts vs Proprietary Estoppel

No formality requirements apply to the creation or operation of resulting, implied or constructive trusts: Law of Property Act 1925, s.53(2); Law of Property (Miscellaneous Provisions) Act 1989, s 2(5). As such, if an agreement which fails to comply with formalities meets the requirements for those trusts, the claimant can obtain an equitable interest in land. This allows them to effectively evade the formalities.

Proprietary estoppel often gives rise to a constructive trust, in which case no formalities are needed: Yaxley v Gotts [1999] EWCA Civ 3006. However, it can also lead to a variety of other remedies. It is contentious whether proprietary estoppel can be used to evade the statutory formalities requirements in these cases.

Lord Scott, speaking obiter in Cobbe v Yeoman’s Row Management Ltd [2008] 1 WLR 1752, stated that ‘proprietary estoppel cannot be prayed in aid in order to render enforceable an agreement that statute has declared to be void’. However, other judges have expressed contrary views: see Bean J in Whittaker v Kinnear [2011] EWHC 1479, Herbert v Doyle [2008] EWHC 1950 and Falk J in Sahota v Prior [2019] EWHC 1418.

Executed Contracts

Where a contract has been performed (executed), a party cannot challenge the validity of a transfer of land on the basis that the contract did not comply with formalities: Keay v Morris Homes (West Midlands) Ltd [2012] EWCA Civ 900. Non-performed (executory) aspects of the agreement cannot be enforced if the contract does not comply with formalities, however.

Completion

Legal Interests: Deed

Transfer of a legal property right must take place by deed: Law of Property Right 1925, s.52. There are some rare exceptions:

Short leases for less than 3 years term, taking effect in possession for market rent without premium (s.52(2)(a)).

Rights acquired by prescription under the common law rules and the Prescription Act 1832 (s.52(2)(b)).

The requirements of a deed are set out in s.1 of the Law of Property (Miscellaneous Provisions Act 1989. A deed must:

  1. Make clear on its face that it is a deed (the mere presence of a seal is not enough to meet this requirement: s.1(2A)).
  2. Be executed by the person(s) making the grant or a person(s) authorised to do so on that person’s behalf or in their name.
  3. Signed by the person(s) executing the deed in the presence of a witness who attests to the signature. The witness must be physically present with the signatory, even if the deed is being signed online.
  4. Be delivered as a deed.

There are several ways a deed can be delivered: Longman v Viscount Chelsea [1989] 58 P&CR 189.

Immediate, irrevocable delivery to the other party. This counts as delivery by deed immediately.

Delivery by escrow. This is irrevocable but does not come into immediate effect until some pre-stated condition is met. This only counts as delivery by deed once the condition is met.

Delivery to an agent to deliver to the other party when certain conditions are met. This is revocable. This only counts as delivery by deed once the conditions are met and the agent has delivered the deed to the other party.

Other Interests: Writing

The creation of other interests is also subject to formalities depending on the nature of the interest. s.53(1) of the Law of Property Act 1925 states:

Subject to the provision hereinafter contained with respect to the creation of interests in land by parol: –

(a) no interest in land can be created or disposed of except by writing signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law;

(b) a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;

(c) a disposition of an equitable interest or trust subsisting at the time of the disposition, must be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will.

Effect of Completion

Just because a contract for the disposition of land has been completed does not necessarily mean the buyer obtains the interest they contracted for. In many instances, an interest is not created or transferred until it has been registered on the Land Register. However, completion has the following, independent effects:

The buyer gains full equitable rights without limitation. It is controversial whether any estate contract is terminated at this point. Newey J in the High Court in Baker v Craggs [2017] Ch 295 thought it would be, but he was overruled by the Court of Appeal on a different point. This is relevant because an equitable interest can be overreached, while an estate contract cannot.

Once the interest has been registered, any mortgagee is treated as having rights against third-parties from the date of completion, not the date of registration.

Once the interest has been registered, the timing of completion is relevant to whether the new owner can assert priority over third-party interests and whether third-parties can claim overriding interests.