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.
Where there is a contract complying with section 2 of the 1989 Act, the following legal facts arise:
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:
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:
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.
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.
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.
Nicola is a dual qualified journalist and non-practising solicitor. She is a legal journalist, editor and author with more than 20 years' experience writing about the law.
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