Development Agreements: Get Them In Writing

The Recent Judgment Delivered By The House Of Lords In

Yeoman's Row Management Limited v Cobbe 1 Is Set To

Have A Significant Effect On Commercial Development

Agreements.

The facts of the case are fairly simple. Mr Cobbe (an

experienced property developer) orally agreed with a director of

Yeoman's Row Management Limited that he would apply for

planning permission, at his own expense, to knock down a block of

flats in Knightsbridge owned by the management company and build a

terrace of six houses in its place. The oral agreement provided

that on the grant of planning permission and subsequently the

obtaining of vacant possession, Mr Cobbe would buy the flats from

the management company for an upfront fee of £12 million.

Once the development of the six houses was complete, Mr Cobbe would

pay the management company 50% of any gross proceeds of sale in

excess of £24 million.

On the grant of planning permission, the management company

sought to vary the terms of the agreement. It demanded an increased

up-front fee of £20 million and offered a 40% share of any

gross proceeds of sale in excess of £40 million. Essentially,

Mr Cobbe refused the revised terms and sought to enforce the

original agreement.

Section 2 of the Law of Property (Miscellaneous Provisions) Act

1989 ('the Act') is clear and well established in that it

renders oral agreements for the sale of land void. However, over

the years, the courts of equity have managed to muddy the waters

and create considerable uncertainty within commercial negotiations

due to their willingness to stretch the doctrine of proprietary

estoppel in order to compensate injured parties who have been

wronged under an informal agreement. This has mainly been

facilitated by the "Pallant v Morgan equity" which relies

on the unaffected equity of the constructive trust. Section 2(1) of

the Act provides that section 2 does not affect constructive trusts

and in the case of Oates v Stimson this principle was used by the

Court of Appeal to justify the enforcement of an oral contract

which clearly fell foul of section 2 of the Act. In this case the

legal title and mortgage for a house were in the joint names of two

men. One man could no longer afford to pay the mortgage and

accordingly moved out. The man who remained in the house continued

to pay the mortgage under an alleged oral contract which provided

for the legal estate to be transferred to him. Despite a trust

already existing due to the joint legal ownership, the court

nevertheless focussed on the finding of a constructive trust and

went on to decide that it would be unconscionable not to...