Pathway to Relief & Anor v Shvan Abbas Ali & Anor

An oral agreement for the sale of land which does not comply with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 is ineffective. Proprietary estoppel cannot be used to enforce such an agreement where the claimant’s expectation is essentially contractual: namely, an expectation that a formal contract will later be made. The doctrine requires an expectation of a proprietary interest in land, rather than merely an expectation of acquiring contractual rights. The same limitation applies to a constructive trust where the claim seeks to make an incomplete, non-compliant agreement binding. A lease may be surrendered by returning the keys where the parties intended thereby to end the landlord-and-tenant relationship. A deposit paid under an ineffective contract was returnable, subject to rent due under the associated lease.

The claimants sought specific performance or equivalent relief concerning the proposed purchase of the Farcroft Hotel in Birmingham. The purchase terms had been agreed orally, but no written contract complying with section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 was executed. The claimants also sought rectification of a lease, damages for alleged breaches of the purchase agreement and lease, and recovery of a £150,000 deposit.

The defendants counterclaimed for rent and damages for works carried out at the hotel. The central issues were whether proprietary estoppel or constructive trust could overcome the statutory writing requirement, whether the lease remained in existence after the keys were returned, and what sums were recoverable.

1. Purchase agreement. Section 2(1) of the Law of Property (Miscellaneous Provisions) Act 1989 required the contract for the sale of the hotel to be made in writing and to contain all expressly agreed terms. The oral agreement was therefore ineffective. The deposit deeds did not satisfy the statutory requirement and omitted essential terms, including the purchaser’s identity, completion date and deposit arrangements.
2. Proprietary estoppel and constructive trust. The claim was essentially contractual. The claimants expected a formal contract which would give them time to raise the purchase price, rather than an immediate proprietary interest in the hotel. That was the wrong kind of expectation for proprietary estoppel. The estoppel claim therefore could not be used to enforce the ineffective oral agreement. The constructive trust claim added nothing and failed for the same reason. In any event, neither claimant was shown to have been the intended purchaser, and the proposed purchaser was uncertain.
3. Lease. The keys were returned unconditionally on 29 June 2021, with the intention of ending the relationship. The lease was therefore surrendered. Rectification could serve no useful purpose and was refused. The court noted that, had it been necessary, the common intention would have been that the Pathway Company was the tenant.
4. Damages and counterclaim. No damages for breach of the purchase agreement could be recovered because there was no valid contract. The lease-breach claim also failed because the fence did not in fact exclude the claimants and the lease was later surrendered. Works carried out at the hotel were undertaken with the landlord’s consent, so the counterclaim for damage under the lease failed. Rent of £15,000 was payable for 1 April to 29 June 2021 and could be deducted from the deposit.
5. The defendants were required to return the balance of the £150,000 deposit to the Community, with the parties to seek agreement on the appropriate recipient.