House of Lords overturns decision in Yeomans v Cobbe
In November 2006, we reported on a Court of Appeal decision that seemed to widen the scope for claimants to secure a substantial interest in property, even without a written agreement.
The case was Yeomans Row Management Ltd v Cobbe and the claim was based on the legal principle of ‘proprietary estoppel’. Now the House of Lords has overturned the decision.
The facts of the case were: Mr Cobbe verbally agreed to buy and redevelop a block of flats owned by Yeomans. At his own expense, Cobbe would apply for planning consent for the development. When granted, Yeomans would sell him the property for £12m and on completion of the work, Cobbe would make an overage payment of 50 per cent of any gross sale proceeds 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.
Cobbe spent about £200,000 in obtaining planning consent and held regular meetings with Yeomans to discuss progress. On the day after consent was granted, Yeomans told Cobbe that the verbal agreement had lapsed as consent had not been obtained by the alleged longstop date: they tried to renegotiate the price.
Cobbe issued proceedings, claiming an interest in the property (or the proceeds of its sale). The Court of Appeal upheld an earlier decision awarding Cobb a sum in excess of £5m. The House of Lords took a different view. Case law on proprietary estoppel shows that claimants’ expectations differ depending on their circumstances. In a commercial context, they are typically business people who have access to legal advice: they expect to get a contract.
Legal liability in discontinued negotiations
As both Cobb and Yeomans were experienced in the property world, they knew that there was no legally-binding contract and either party was free to discontinue negotiations without legal liability. Therefore Cobbe was not entitled to proprietary estoppel. Yeomans’ ‘unconscionable’ behaviour was not enough to justify Cobbe’s claim to have acquired a beneficial interest in the property.
Instead, the Lords said that Cobbe was entitled to a common-law remedy for unjust enrichment – Yeomans having been unjustly enriched by obtaining the value of Cobbe’s services without paying for them. Cobbe was entitled only to a sum that covered the cost of obtaining planning consent plus an appropriate fee for his services.
The moral of the story is, don’t make arrangements on the back of a fag packet or the shake of a hand: ensure that the terms of any agreement are properly documented and enforceable.
Partner Nigel Whittaker heads our commercial property department and acts for clients UK-wide.