When is a contract to sell land not a contract for the sale of land under s 2 of the Law of Property (Miscellaneous Provisions) Act 1989? This was the dilemma which the Court of Appeal had to resolve recently in the case of Nweze v Nwoku. The case is an important one as the Court were required to consider precisely what contracts may be defined as contracts for the sale or other disposition of an interest in land in accordance with the Act.

The Law

S 2 of the Law of Property (Miscellaneous Provisions) Act requires 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.
• The terms may be incorporated either if they are set out in the contract, or by reference in the contract to another document.
• The contract incorporating the terms must be signed by or on behalf of each party to the contract ( but where contracts are exchanged it is not necessary for both parties to sign the same copy).

Contracts which do not comply with these requirements are void and unenforceable ( subject to certain exceptions.)

• Rosemary and Christian Nweze agreed to sell their cousin, Mr Nwoku, a property in Plumstead for the total sum of £135,000. It was agreed that Mr Nwoko would pay £100,000 on completion , and the balance within 6 months.
  

• The price was falsely shown in the contract as being £105,000 in order to reduce payment of stamp duty.
  

• Upon completion Mr Nwoko paid over £105,000 as per contract. The Nwezes then pressed for repayment of the remaining £30,000 plus reimbursement of the deposit which they had lent. to Mr Nwoko.
  

• Subsequently it was agreed at a family meeting that the property would be sold with vacant possession at the best price available, and after the discharge of the mortgage, the net proceeds would be paid to the Nwezes.
  

• The Nwezes instructed estate agents to put the property on the market. However, subsequently Mr Nwoko made it clear that he was not going to proceed with the sale, and withdrew authority from the agents.
  

• The Nwezes issued proceedings, seeking to enforce the original agreed price of £135,000. It was not until the second day of the trial that they sought, in the alternative, to enforce the subsequent compromise agreement.
  

 The Issues

 The lawyers instructed by Mr Nwoko argued that both the original oral contract and the subsequent compromise agreement were void for non compliance with S 2 of the Law of Property (Miscellaneous Provisions) Act 1989, because neither agreement was in writing or signed by the parties.

Counsel for the Nwezes argued that the compromise agreement was not caught by S2 because the agreement was not a contract for the sale of property or the disposition of any interest in the property, it was simply an agreement which obliged Mr Nwoko to enter into such a contract if a buyer could be found.

Arguments for Nwoko

1. It was argued on behalf of Mr Nwoko the language of S2 did not demonstrate that it was only intended to be concerned with contracts under which land was actually sold by A to B. The court’s attention was drawn to the Law Commission’s Report No164 which provided the background against which s2 was enacted. The purpose of the section was to prevent fraud, to protect the consumer and provide certainty. It was argued that the circumstances in this case, where a family dispute led to an oral agreement, were precisely those at which the section was aimed.

1. Furthermore, reliance was placed on the case of Jelson Ltd v Derby City Council [1999] 39 EG149 .This concerned an agreement between Jelson ,a developer, and Derby Council, which required Jelson to transfer part of a site for affordable housing to a Housing Association nominated by the council. No Housing Association was party to the agreement. The court reasoned that the agreement did compel Jelson to convey the property if certain conditions were met. It therefore decided that the contract provisions compelling Jelson to transfer the land were of no effect, because the agreement lacked the signature of the purchaser and so fell foul of S2.

• The Court decided that a full reading of the Law Commission report supported the Nwezes' position, because the report was clearly concerned with contracts or dispositions under which an interest in land was actually disposed of. The historical evidence generally indicated that S2 was concerned with contracts which result in a sale from A to B rather than a contract by which A & B agree to effect a sale to C. The requirement for writing in S2 was an exception to the rule in English law which recognises parole contracts as valid, and should not be construed more widely than necessary.
  

• The Court decided that the decision in the Jelson case was open to question as it was only the signature of the contracting parties that was required by S2. In any event they decided that Jelson could be distinguished on the facts. .Lord Justice Waller recognised that S2 may apply to a situation in which A and B make a contract under which B can call for property to be transferred to a nominated buyer, C. In that case the interest in land would be the actual subject of the contract. In this case however, the oral compromise did not create or dispose of any interest in land. Without marketing there could be no disposition as of the property , and the Nwezes could not be said to be gaining any legal or beneficial interest in the property pursuant to the compromise agreement.

The Court therefore dismissed the Appeal and upheld the order for specific performance of the compromise agreement.

Summary  

• S2 of The Law Of Property ( Miscellaneous Provisions)Act 1989 provides that contracts for sale or other disposition of an interest in land must be in writing and signed by both parties.
   

• An agreement between parties to sell land, where neither is the buyer, is not a contract for the sale of land within the meaning of the Law of Property ( Miscellaneous Provisions)Act 1989. Such a contract must have a seller and a buyer.
  

• A compromise agreement like that between Nweze and Nwoko may result in such a sale, but will not fall foul of S2 as it is not itself a contract for the sale or disposition of an interest in land.

Carmela Inguanta Partner, Head of Department 020 7544 5639 carmelai@sghlaw.com