The House of Lords’ ruling in the recent case of Yeoman’s Row Management Limited and another v. Cobbe [2008] All ER (D) 419 has restricted the legal remedies available for those situations where a property deal is abandoned by one party before contracts are signed.

The Facts
In 1998 Mr and Mrs Lisle-Mainwaring (“LM”) used a company known as Yeoman’s Row Management Limited (of which they were shareholders and directors) to purchase the freehold of a block of flats (“the Property”).

In 2001 Mr and Mrs LM entered into negotiations to develop the Property with Mr Cobbe, a property developer. These discussions culminated in an oral agreement between Mrs LM and Mr Cobbe at the end of 2002, in which they agreed a number of terms for the development, one of which concerning the amount Mr Cobbe was to contribute as part of the deal. Mrs LM then tried to change this amount but Mr Cobbe refused to agree.

The Claim
Mr Cobbe’s initial claim was for specific performance of the agreement by Mrs LM and damages, but this was abandoned due to the provisions of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (“section 2”) which provides that any disposition of an interest in land must be in writing, by deed. However, Mr Cobbe then amended his claim to seek remedies for relief on the basis of a constructive trust and proprietory estoppel.

At first instance and in the Court of Appeal Mr Cobbe was successful. The case then reached the House of Lords.

The basis for remedies
The House of Lords then overturned the previous judgments and considered the following as basis for remedies:

         (i)proprietory estoppel
It was held that this was not a basis open to Mr Cobbe as the agreement did not comply with section 2and the remedy known as proprietory estoppel (which arises in situations where one party makes a promise that they subsequently try to withdraw from) did not fall within the exceptions set out in section 2.

        (ii)constructive trust
It was held that whilst there is an express exception from section 2 for constructive trusts, in this case, the Property was not a joint venture property and the interest which Mr Cobbe was going to obtain as a result of the agreement would have been in accordance with a subsequent formal written agreement, which was yet to be entered into. This was therefore not a basis for remedy in terms of the Property or any part of it being held by Mrs LM on trust for Mr Cobbe as a beneficiary.

       (iii)unjust enrichment
It was held that the value of the Property had increased by the grant of the planning permission obtained by Mr Cobbe as part of his work under the agreement and that Mrs LM had benefitted from this without having to pay for it. However, the Court held that the development potential of the Property was not created by the planning permission but merely unlocked by it and so a remedy on this basis was also ruled out.

       (iv)quantum meruit
It was held that Mr Cobbe should be compensated for his services in applying for and securing the planning permission as he had acted in anticipation of the development contract. However, the Court highlighted that there should be no double accounting with regard to the fees of the planning consultants which Mr Cobbe employed so that he could not recover anything more than he deserved for his own time that he had spent on this work.

       (v)repudiation of a promise
Mr Cobbe was promised, in the oral agreement, certain benefits as a result of his work and so he would be compensated for his work because Mrs LM’s actions had in effect broken that promise, but this would be the same as his claim for a quantum meruit.

       (vi)the tort of deceit.
This was considered although Mr Cobbe had not made a claim for it. It was held that unless a representation had become a term of the contract, the victim of a dishonest representation could not be compensated for this; here there had been no such representation.

Conclusion
Having considered all of the basis for remedies, the Court rejected the proprietory claims made by Mr Cobbe, finding that Mr Cobbe only had the ability to seek a Quantum Meruit payment for his services in obtaining the planning permission, to include the repayment to him of the expenses reasonably incurred by him in making the planning application and obtaining the grant.

This case further confirmed that unless the terms of an agreement have been agreed and formalised in a document complying with the provisions of section, the remedies available for breach of that agreement will be extremely limited. Parties should therefore be discouraged from acting in expectation of any formal agreement before that has been reduced to writing by the formal signing and exchange of contracts. Practically, they would be well advised to seek legal advice at the outset of any agreement being made orally so that such an agreement can be formalised in writing, its terms are made certain and binding on both parties and so neither party will subsequently be in a position to change their position to the detriment of the other as a result.