Using equitable remedies in property development
Real Estate update November 2008

Updated November 2008

The House of Lords has overturned a court decision to award a developer who had obtained planning permission a share of the increase in the value of the property.

Facts
Yeomans Row Management Limited owned a property ripe for development. In 2001 it entered into negotiations with Mr Cobbe, an experienced property developer, for the development of the property. An oral agreement was reached. At his expense, Mr Cobbe would apply for planning permission. Once granted, Yeoman's Row would sell the property to him for £12 million. After the new houses were built, Mr Cobbe would pay Yeoman's Row 50% of any gross sale proceeds over £24 million.

Mr Cobbe obtained planning permission but, dissatisfied with the terms of the deal, Yeoman's Row demanded changes and when Mr Cobbe would not agree, Yeoman's Row refused to sell. 

Proceedings
Mr Cobbe did not claim to have an enforceable contract. Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 provides that any contract for the disposition of an interest in land must be in writing, signed by both parties and containing all express terms. However, Section 2 does not apply to certain types of trust, so Mr Cobbe based his claim on several equitable remedies including 'proprietary estoppel' and a constructive trust. He argued that Yeoman's Row's conduct and the time and expenditure he had incurred in obtaining planning permission which had increased the value of the property, gave rise to an equitable interest in the property.

Mr Cobbe won both at the trial and in the Court of Appeal. The trial judge awarded Mr Cobbe one half of the increase in the value of the property brought about by the planning permission and the Court of Appeal agreed. However the House of Lords took a different view.

Decision
In their Lordships' view this was not a case of proprietary estoppel. For this to have happened Yeoman's Row must have encouraged Mr Cobbe to believe that it would grant him an interest in land if he obtained planning permission. However, Mr Cobbe's expectation was that the grant of planning permission would lead to a successful negotiation of the outstanding terms of a formal contract for sale. He was under no illusions that either party was free to discontinue negotiations without legal liability.

The House of Lords also found that no constructive trust arose. It is not uncommon for parties to purchase a property jointly with a view to achieving a shared objective - for example a joint development venture - and the court can impose a constructive trust to give effect to that common intention. However, in this case Yeoman's Row had bought the property some years before the negotiations began and while Yeoman's Row's behaviour may have been unconscionable, it did not give rise to a share of the property. Instead, Mr Cobbe was awarded £150,000 for the value of the services he had provided in obtaining planning permission, rather less than the £2 million he had won at trial.

Comment
Over recent years, there have been moves to use equitable remedies to overcome the harsh requirements of Section 2. In this decision, the House of Lords has confirmed that the court will take a strict approach to using these doctrines to overcome a failure to comply with the formal requirements for a contract. This greater certainty in the application of section 2 is sure to be welcomed by many.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at November 2008. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.