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Yeomans Row Management Ltd v Cobbe

03 November 2006

Courts can sometimes ‘interfere’ in cases where they feel that to apply strict legal rights would be unfair or unjust, explains one of commercial property lawyers.

Most people’s view about property deals is that they have to be set down in writing. While we would not dream of advising otherwise, a recent case shows that even without a written agreement, all may not be lost.

In Yeomans Row Management Ltd V Cobbe, a developer was awarded a half share of the increase in value of a property after planning permission was granted.

Yeomans owned a block of flats. The developer James Cobbe spent time and money obtaining planning permission to redevelop the property, relying on a verbal agreement that Yeomans would sell it to him once planning permission had been obtained.

This was the essence of what was agreed. At his own expense, Cobbe would apply for planning permission to demolish the flats and build six townhouses.

When consent was granted and vacant possession obtained, Yeomans would sell the property to Cobbe for £12m. When the development was completed, Cobbe would pay Yeomans an overage payment of 50% of any gross sale proceeds of the houses in excess of £24m. The longstop date by which planning consent was to be obtained was unclear. There were no formal heads of terms and no solicitors were instructed.

Obtaining planning consent cost Cobbe up to £200,000 and the day after it was granted, Yeomans contacted him, trying to renegotiate the price. They claimed that the verbal agreement had lapsed, as planning permission had not been obtained by the alleged longstop date.

Cobbe issued proceedings, claiming an interest in the property (or the proceeds of its sale). He argued that he should be granted relief reflecting the enhanced value of the property now that planning permission had been granted.

Yeomans denied there was any legally enforceable agreement and argued that Cobbe had undertaken the expenses at his own risk. They claimed the negotiations were ‘subject to contract’ and were never intended to be legally binding.

The High Court held that Cobbe had an equity by virtue of proprietary estoppel and was entitled to a lien on the property for half of the increase in its value due to the grant of the planning permission.

The courts applied a remedy known as ‘proprietary estoppel’, a means by which property rights may be affected or created. Simply put, it allows courts to interfere in cases where they feel that to apply strict legal rights would be unfair or unjust.

After a lengthy court battle, Cobbe won an award amounting to well over £5m. This may be considered generous since he had to neither risk any capital nor carry out any development. However, the Court of Appeal (who upheld the earlier High Court decision) decided that it was not disproportionate to the detriment he had suffered and considered that there was no other remedy that was fair and workable in the circumstances.

One of our lawyers commented: “Proprietary estoppel is a discretionary remedy available to the courts but it tends to be used rarely. The case is interesting in that it shows it is possible for courts to err on the side of generosity. However it is certainly not a cure-all: generally speaking claims are hard to prove and unless very substantial sums are at stake, the cost of pursuing a claim would be prohibitive. The case doesn’t cause us to change our advice that agreements should be properly documented.”

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

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Nigel Whittaker BA (Hons)
Partner
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