A fundamental rule in English law is that any agreement to buy or sell land must be made in writing, incorporating all terms on which the parties have agreed. This means a verbal agreement to buy and sell land is not legally enforceable.
Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 states: “A contract for the sale 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 of the contract may be incorporated by setting them out in the original contract, or by reference to another document that contains those terms. The contract incorporating the terms must be signed by or on behalf of each party to the contract.
The effects of a valid contract
Where there is a contract complying with section 2 of the 1989 Act, the following legal facts arise:
- The seller becomes a trustee for the purchaser of the legal estate pending completion;
- The purchaser owns the beneficial interest in the land and property;
- The purchaser may protect their interest in the land by registering their interest. For instance, if the land is unregistered, the buyer can protect their interest by registering a Class C Land Charge against the property. In the case of registered land, if there is a longstop completion date the buyer can have a notice entered on official register at the Land Registry to protect their interest.
Remedies where a contract fails
Where the contract complies with section 2, but the agreement does not proceed to completion because one party has or is threatening to withdraw, the innocent party may:
- Sue for damages for breach of the contract;
- Apply for an order of specific performance of the contract (ie. force the sale to complete);
- Apply for an injunction to restrain a threatened breach of the contract;
- Rescind the contract (if it is possible for the parties to be returned to their original position).
When is a deed required?
Land law requires all transfers of land or the creation of interests in land, such as gifts or mortgages, to be made by way of legal deed, otherwise it is void as far as the legal estate is concerned. A document will be a deed if:
- It makes clear on the face of it that it is intended to be a deed;
- It is validly executed as a deed by all those required to sign it;
- It is validly executed as a deed by an individual if it is signed by the individual in the presence of a witness who attests to the signature, or at their direction and in their presence and the presence of two witnesses who each attest the signature, and it is delivered as a deed by them or a person authorised to do so on their behalf.
When is the transfer deed fully effective?
In registered land, the transfer deed is legally effected only when it is lodged at the Land Registry for registration on the official Registered Title of the property. If the transfer is of unregistered land, the transfer deed is effective immediately to vest the legal estate in the purchaser, but the transfer must be lodged for first registration of title with the Land Registry within 2 months (otherwise the seller will hold the legal estate on bare trust for the purchaser). However, the 2-month period can be extended with good reason.
Rights that are overreaching
A purchaser will take the property subject to the beneficial interests of anyone they knew or ought to have known about (under the doctrine of ‘notice’). A typical example is where the purchaser buys land subject to a trust, knowing that an individual has a life interest in the property and can remain in occupation until their death.
Overreaching is a process whereby the beneficiaries’ equitable interests are effectively dissolved and lifted from the land, and then attached to the purchase price. The purchaser then takes the land free from the beneficiaries’ equitable interests, whether or not he knew or ought to have known of them, and the beneficiary claims his entitlement from the money made through the selling of the property.
When does overreaching apply?
Overreaching is capable of applying only to the equitable interests listed in section 2 Law of Property Act 1925. These are generally those existing behind a trust and having a monetary value. Section 2(1) LPA 1925 provides that: “A conveyance to a purchaser of a legal estate in land shall overreach any equitable interest or power affecting that estate [and listed in the section] whether or not he has notice thereof.”
Generally speaking, for overreaching to be effective the purchaser (which includes a mortgagee) must pay the purchase money/mortgage loan to all of the trustees (at least two, or a trust corporation). Provided this is done, the purchaser/mortgagee takes free of any beneficial interests existing behind a trust. The beneficiaries’ equitable interests are then lifted from the land and automatically attached to the money paid by the purchaser (ie. to the proceeds of sale).
The beneficiaries’ claim is then against the trustees for a share of the money. Depending on the terms of the trust, the trustees will then either distribute the capital money among the beneficiaries or invest it to provide an income for them.
For its part, the purchaser takes the legal estate free of the beneficiaries’ interests, even if the purchaser has actual notice of those interests.