Acquisition and transfer of estates and interests - The tran...

Learning Outcomes

This article outlines the legal requirements and practical implications of land transfer contracts under s 2 LP(MP)A 1989 and related doctrines, including:

• Triggering conditions for s 2 LP(MP)A 1989 and recognised exceptions (parol leases under s 54(2) LPA 1925; resulting/implied/constructive trusts under s 2(5))
• The “one document or exchange of counterparts” rule, the “all expressly agreed terms” rule, and the signature rule (including agent authority) in typical sale, option, and easement contracts
• Incorporation of standard conditions of sale and external terms, and the effect of “subject to contract” wording
• Equitable estate contracts and specific performance, and recognition of equitable leases or other equitable property rights under the rule in Walsh v Lonsdale where deed or registration has failed
• Compliance of material variations with s 2, the limited scope for rectification, and the ineffectiveness of the abolished doctrine of part performance
• Lock-in and lock-out agreements and side arrangements falling outside s 2
• Deed formalities under s 1 LP(MP)A 1989, principal exceptions (including s 54(2) LPA 1925), and linkage with registration under the LRA 2002 for completion at law
• Protection of estate contracts, options and other equitable rights in registered and unregistered land and consequences of failing to protect (Land Charges, notices, overriding interests)
• Remedies on breach (specific performance, injunction, damages, forfeiture or return of deposit under s 49(2) LPA 1925) and equitable defences (e.g. clean hands)

SQE1 Syllabus

For SQE1, you are required to understand the legal framework governing contracts for the sale or other disposition of interests in land, with a focus on the following syllabus points:

• the requirements of section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989) for contracts disposing of interests in land
• the creation of equitable interests (estate contracts) through valid land contracts and their protection
• the consequences of failing to comply with the required formalities, including the limited exceptions preserved by s 2(5) LP(MP)A 1989
• the relationship between a valid contract, completion by deed, and (for registered land) registration under the LRA 2002
• how equity may recognise an interest despite failed legal formalities (e.g. the rule in Walsh v Lonsdale)
• the parol lease exception in s 54(2) LPA 1925 and other exceptions to the need for a deed
• the protection and priority of estate contracts, options and other equitable interests in registered and unregistered land

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which piece of legislation sets out the main formality requirements for a contract for the sale of land in England and Wales?
   1. Law of Property Act 1925, s 52
   2. Land Registration Act 2002, s 27
   3. Law of Property (Miscellaneous Provisions) Act 1989, s 2
   4. Trusts of Land and Appointment of Trustees Act 1996, s 14
2. Which of the following is NOT a requirement under s 2 LP(MP)A 1989 for a valid land contract?
   1. The contract must be in writing.
   2. The contract must be signed by or on behalf of each party.
   3. The contract must be executed as a deed.
   4. The contract must incorporate all the terms expressly agreed in one document (or two if exchanged).
3. A buyer and seller orally agree all terms for the sale of a house. The buyer pays a deposit. Is there a binding contract?
   1. Yes, because the payment of the deposit constitutes part performance.
   2. Yes, because all terms have been agreed orally.
   3. No, because the agreement is not in writing and signed.
   4. No, because the agreement must be witnessed.
4. What type of interest does a purchaser acquire upon entering into a valid and specifically enforceable contract for the sale of land?
   1. A legal interest.
   2. An overriding interest.
   3. A personal right only.
   4. An equitable interest (estate contract).

Introduction

The process of transferring ownership or creating interests in land typically involves two key stages: the contract stage and the completion stage. This article focuses on the contract stage, examining the legal requirements for creating a binding agreement for the disposition of an interest in land. Understanding these requirements is fundamental, as the contract itself can create significant rights and obligations before the legal title is formally transferred.

The primary legislation governing these contracts is section 2 of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989). This section imposes strict formality requirements aimed at achieving certainty and preventing disputes.

The Contract for the Sale or Disposition of Land

Before a legal estate (like a freehold or leasehold) or a legal interest (like a legal easement or mortgage) can be transferred or created, the parties usually enter into a contract. This agreement outlines the terms of the deal, including the property details, price, and completion date.

Key Term: Contract for the sale of land
An agreement where one party agrees to sell and the other agrees to buy an estate or interest in land, subject to specific terms and conditions. It precedes the formal transfer (completion).

Formalities under Section 2 LP(MP)A 1989

Section 2 LP(MP)A 1989 mandates specific formalities for contracts involving the sale or other disposition of an interest in land. Failure to comply generally renders the contract void.

The requirements under s 2 LP(MP)A 1989 are:

• The contract must be in writing. Oral agreements for the sale of land are not binding. Writing can be electronic and signatures can be electronic if they demonstrate an intention to authenticate the document. Email chains can satisfy the writing and signature requirements where they contain or incorporate all the expressly agreed terms and each party signs (for example, by typing their name) the final agreed terms.
• It must contain all the expressly agreed terms. All terms the parties have explicitly agreed upon must be incorporated into the written document (or documents, if contracts are exchanged). This “all terms” requirement is construed strictly: if a term is part of the bargain, it must appear in the signed document(s) or be clearly incorporated by reference (e.g. Standard Conditions of Sale). A later attempt to add or vary a material term must itself comply with s 2.
• It must be signed by or on behalf of each party. Signature by an agent is permitted, but the agent must have authority in writing to sign on behalf of the principal. The requirement is usually satisfied where the parties sign matching counterpart contracts on exchange or where the final agreed document is signed by both parties.

These formalities apply to contracts to grant or dispose of estates and most legal interests in land (such as contracts for easements or mortgages). They also apply to options to purchase and rights of pre-emption, which are estate contracts. Section 2 does not apply to contracts for short leases that themselves do not require a deed by virtue of s 54(2) LPA 1925, and it does not affect the creation or operation of resulting, implied, or constructive trusts (s 2(5)).

“Subject to contract” language indicates that the parties do not intend to be bound until a compliant written contract is executed and exchanged (or otherwise concluded in accordance with s 2).

Worked Example 1.1

Ahmed agrees orally with Beth to sell her his freehold house for £300,000, with completion set for four weeks later. They shake hands on the deal. Beth pays Ahmed a £1,000 holding deposit. The next day, Ahmed receives a higher offer from Charles and tells Beth the deal is off. Can Beth enforce the agreement against Ahmed?

Answer:
No. The agreement was purely oral. A contract for the sale of land must comply with s 2 LP(MP)A 1989, meaning it must be in writing, contain all terms, and be signed by both parties. As these requirements were not met, there is no valid contract for Beth to enforce. The payment of a deposit does not cure the lack of required formality.

Incorporation of Terms

The requirement that all expressly agreed terms are incorporated in the written document is strict. If the written contract refers to another document containing terms (e.g., standard conditions of sale), that document must also be sufficiently identified and incorporated. Plans, schedules and written replies to enquiries can be incorporated where clearly identified as part of the bargain.

Where parties make a material variation to a compliant contract (such as changing the completion date, price, property extent, or a key special condition), the variation agreement must also comply with s 2 in writing and be signed by or on behalf of each party. Minor administrative arrangements (such as apportionments calculated under incorporated conditions) usually do not require a separate s 2-compliant variation.

Key Term: Section 2 LP(MP)A 1989
The statutory provision requiring contracts for the sale or other disposition of an interest in land to be made in writing, incorporating all expressly agreed terms, and signed by or on behalf of each party.

Signature and agents

Each party must sign the contract or a counterpart. Signature can be wet-ink or electronic, provided it is intended to authenticate the document. Where a party signs through an agent (for example, a solicitor), s 2 requires the agent to have written authority to sign. Authority can be contained in a retainer or separate written instruction.

Worked Example 1.2

Fatima enters into a written contract, signed by both parties and containing all agreed terms, to buy Greenacre from George. Completion is set for six weeks later. Before completion, George receives a higher offer from Hattie and attempts to withdraw from the contract with Fatima. What is Fatima’s primary remedy?

Answer:
Fatima has an equitable interest in Greenacre (an estate contract) arising from the valid contract. Her primary remedy is specific performance. She can apply to the court for an order compelling George to complete the sale and transfer the legal title to her as agreed in the contract. Damages might be available but specific performance is the usual remedy for breach of a land contract due to the unique nature of land.

Worked Example 1.3

Leo agrees in writing (signed by both) to grant Maya a 10-year lease of a workshop. Maya moves in and pays rent, but they never execute a formal deed. Leo later tries to evict Maya, arguing there is no valid legal lease. Can Maya enforce the agreement?

Answer:
Yes, potentially. Although no legal lease was created due to the absence of a deed (required for leases over 3 years), the written agreement complies with s 2 LP(MP)A 1989. If Maya has acted equitably (has 'clean hands'), she can seek specific performance of the contract. Equity may treat the agreement as an equitable lease on the same terms as the intended legal lease (the rule in Walsh v Lonsdale). Leo would likely be prevented from evicting her based solely on the lack of a deed.

Variations to Contracts

Any subsequent agreement to vary a material term of a valid land contract must also comply with the formalities set out in s 2 LP(MP)A 1989 to be effective. An oral variation is generally ineffective and the original term stands unless the court orders rectification of the written contract to reflect a prior concluded agreement and common intention. Rectification is exceptional and requires convincing evidence of a common continuing intention that the document should record a particular term.

Exchange, counterparts, and modern practice

Land sale contracts are commonly concluded by solicitors exchanging signed, identical counterparts, following recognised Law Society formulae. The requirement for “one document or exchange of documents” is met where each party signs a counterpart containing all the agreed terms and the solicitors exchange, on behalf of their clients, agreements that are identical in content. In modern practice, exchange can be effected by telephone between solicitors in compliance with an agreed formula, and the signed counterparts are then dated.

Electronic communications can satisfy s 2 provided all terms are set out in a single composite written record and each party signs that composite record (or signed matching counterparts are exchanged), though care must be taken to ensure that the final signed emails or documents capture all terms, incorporate any referenced conditions, and demonstrate an intention to be bound.

Side agreements: lock-ins and lock-outs

Arrangements about negotiating conduct are treated differently. An agreement to negotiate in good faith (a “lock-in”) is generally unenforceable due to uncertainty. A “lock-out” (an agreement not to negotiate or exchange with anyone else for a specified period) can be enforceable if it is certain and supported by consideration. A lock-out does not dispose of an interest in land and therefore falls outside s 2. It binds only according to its express terms and cannot be used to compel a sale.

Worked Example 1.4

Owner and Buyer sign a short “exclusivity” agreement under which Owner promises not to negotiate with any other buyer for 14 days in return for £1,000. During the 14 days the owner accepts a higher offer and refuses to proceed with Buyer. Is the exclusivity agreement enforceable?

Answer:
Likely yes. A lock-out agreement with a clear exclusivity period and consideration is enforceable and falls outside s 2 because it is not a contract to dispose of an interest in land. The Buyer may recover damages measured by loss caused by the breach of exclusivity, not the profit of the bargain of the main sale contract.

Consequences of a Valid Contract: The Estate Contract

When a contract complies with s 2 LP(MP)A 1989, it creates more than just personal rights between the parties. Equity recognises that the purchaser acquires a proprietary interest in the land from the moment the contract is made. This interest is known as an estate contract.

Key Term: Estate contract
An equitable interest in land acquired by a purchaser upon entering into a valid contract for the sale or disposition of land. It gives the purchaser the right to compel the transfer of the legal estate, subject to specific performance.

Once an estate contract arises, the vendor holds the legal estate subject to the purchaser’s equitable rights and the contract terms. Equity may regard the vendor as holding on a constructive trust for the purchaser, subject to the vendor’s right to the purchase money and the contractual terms. The purchaser typically has an insurable interest from exchange.

The estate contract is an equitable interest because the purchaser has the right to the equitable remedy of specific performance to compel the seller to complete. Specific performance remains discretionary and may be refused where, for example, the claimant is in breach or damages are adequate.

Key Term: Specific performance
An equitable remedy compelling a party to perform their contractual obligations. In land contracts, it can force the seller to transfer the property or the buyer to complete the purchase. It is granted at the court's discretion.

Protection and priority of estate contracts

• Registered land: an estate contract should be protected by a notice on the charges register of the servient title to bind successors taking for value. If not protected, a registrable disposition for value completed by registration may take free under the LRA 2002 priority rules, unless the estate contract has gained overriding status by virtue of actual occupation (which is rare for a pure contract right).
• Unregistered land: an estate contract must be protected by registration as a Class C(iv) Land Charge against the estate owner’s name. If it is not registered before completion of a sale for money or money’s worth, the buyer takes free regardless of actual knowledge.

Worked Example 1.5

Buyer enters into a compliant written contract to purchase Blackacre from Seller. Buyer does not enter a notice on the registered title. Seller later sells and completes with Purchaser X for market value, who is registered as proprietor. Can Buyer enforce against X?

Answer:
Generally no. In registered land, a registrable disposition for value which is completed by registration will usually take free of unprotected equitable interests. Because the estate contract was not protected by a notice and does not automatically override, X will take free, and Buyer’s recourse will be against Seller in damages.

Equitable Interests Arising from Informal Arrangements

While s 2 LP(MP)A 1989 imposes strict formality requirements for contracts, equity may sometimes recognise rights even where formalities are lacking, particularly through resulting trusts, constructive trusts, or proprietary estoppel. These concepts are complex but important.

Key Term: Equitable interest
A proprietary right in land recognised and enforced by equity, often arising where legal formalities are incomplete or where fairness demands it (e.g. interests under a trust, restrictive covenants, estate contracts).

Section 2(5) expressly preserves the creation and operation of resulting, implied and constructive trusts. Common scenarios include co-ownership disputes where contribution and common intention may lead to a constructive trust, or where a party relies to their detriment on an assurance of an interest in land. Proprietary estoppel is not a contract but can found a court order creating or confirming an interest where it would be unconscionable to deny it.

However, proprietary estoppel and constructive trust doctrines are not used to bypass s 2 where the entire claim is, in truth, an attempt to enforce an incomplete bargain for sale between commercial parties who intentionally avoided committing to writing. Courts scrutinise the facts to ensure there is a true equity outside s 2 rather than a disguised land contract.

Equitable Leases and the Rule in Walsh v Lonsdale

A significant instance where equity may recognise an interest despite failed legal formalities relates to leases. If parties enter into a specifically enforceable contract to grant a legal lease (complying with s 2 LP(MP)A 1989) but fail to execute the required deed to create the legal lease, equity may treat the contract as creating an equitable lease on the same terms. This is known as the rule in Walsh v Lonsdale.

As with other equitable rights, an equitable lease should be protected to bind a buyer or subsequent landlord. In registered land, a notice on the charges register is usually required; in unregistered land, a Class C(iv) Land Charge or actual occupation may be relevant depending on circumstances. An equitable tenant in actual occupation may claim overriding status if the factual occupation is obvious on inspection or known to the purchaser.

Worked Example 1.6

Landlord and Tenant sign a compliant written agreement for a 15-year term at an annual rent. Tenant takes possession but the parties never execute a deed. The freehold is later sold to Buyer. The agreement is unprotected on the register. Is Tenant bound to leave?

Answer:
Tenant has an equitable lease by virtue of the specifically enforceable agreement. If Tenant is in obvious actual occupation at the time of Buyer’s purchase, the equitable lease may override as an interest of a person in actual occupation, binding Buyer. If occupation is not obvious and Buyer has no actual knowledge, lack of a notice may mean Buyer takes free. The analysis is fact-sensitive.

The Role of Deeds in Transfer

While the contract creates equitable rights, the actual transfer of a legal estate (completion) generally requires a deed. Section 52(1) LPA 1925 states that all conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.

Key Term: Deed
A formal written legal document that is signed, witnessed, and delivered, used to transfer ownership of or create interests in land. Required by s 52 LPA 1925 for most legal dispositions.

The requirements for a valid deed are set out in s 1 LP(MP)A 1989. The document must be clear on its face that it is intended to be a deed, and be validly executed and delivered:

• Individuals: sign in the presence of a witness who attests the signature; and deliver the deed (intention to be bound).
• Companies: execution under s 44 Companies Act 2006 (e.g. two authorised signatories, or one director in the presence of a witness), followed by delivery.

Electronic signatures are generally recognised for contracts, and HMLR now accepts certain forms of e-signatures for registrable dispositions under detailed guidance. For deeds, the witnessing requirement remains: the witness must attest the signatory’s signature.

Completion by deed is not the end for registered land: legal title passes only on completion of registration of the registrable disposition under s 27 LRA 2002. Until registration, the transferee holds only an equitable interest.

Exceptions to the Need for a Deed

The most significant exception relates to short leases. Under s 54(2) LPA 1925, a legal lease can be created without a deed (or even orally) if it:

• Takes effect in possession (the tenant takes possession immediately).
• Is for a term not exceeding three years (including periodic tenancies).
• Is at the best rent reasonably obtainable (market rent).
• Does not involve payment of a fine or premium (a lump sum payment upfront).

Other exceptions include certain assents by personal representatives, some surrenders by operation of law, and some statutory dispositions.

Key Term: Parol lease
A legal lease created orally or by simple written agreement (not by deed) under the exception in s 54(2) LPA 1925, valid only if for three years or less, taking effect in possession at market rent without a premium.

Worked Example 1.7

Owner agrees orally to let a shop to Trader for two years at a market rent payable monthly. Trader takes possession immediately and pays the first month’s rent. Is there a valid legal lease?

Answer:
Yes. The arrangement falls within s 54(2) LPA 1925: an immediate lease in possession for no more than three years at best rent without a premium. No deed is required. The lease is legal and will bind a purchaser as a legal lease.

Standard terms, deposit, and remedies

Residential and commercial sale contracts typically incorporate Standard Conditions of Sale (or the commercial Standard Commercial Property Conditions). These provide a framework on matters such as title investigation, apportionments, insurance, and completion mechanics, and often the deposit provisions. Incorporation must be clear in the signed document.

A 10% deposit is common but a lesser deposit is possible. The deposit is normally forfeitable if the buyer repudiates, though the court retains a discretion under s 49(2) LPA 1925 to order repayment if just. The seller’s primary remedy for the buyer’s failure to complete is specific performance, failing which damages will be assessed under orthodox contractual principles (including mitigation).

Worked Example 1.8

Buyer pays a 5% deposit under a compliant contract. Buyer later refuses to complete without justification. Seller rescinds and retains the deposit. Buyer seeks return of the deposit under s 49(2) LPA 1925. What is the likely outcome?

Answer:
The court has a discretion to order return of the deposit if just, but it is commonly exercised in the seller’s favour where the buyer is in repudiatory breach without good reason. Unless there are exceptional circumstances, retention of the deposit is likely to be upheld.

Contracts for Interests other than Sales

Section 2 applies to many contracts beyond outright sales:

• Contracts to grant or reserve easements and profits (usually by deed at completion, but the prior contract must satisfy s 2).
• Contracts to grant mortgages or charges over land (completion by deed and, in registered land, by registration).
• Options to purchase and rights of pre-emption, which are estate contracts requiring s 2 compliance. In registered land, protect by notice; in unregistered land, register as a Land Charge (usually Class C(iv) for options; pre-emption rights may also require protection and their status is now proprietary in registered land).

Where completion fails (no deed or registration), a specifically enforceable contract can create an equivalent equitable right if specific performance would be granted (subject to equitable defences).

Worked Example 1.9

Owner grants an option to Buyer, set out in a signed written document containing all terms, exercisable within 6 months. The option is not protected. Owner sells to Purchaser X for full value. Buyer seeks to enforce the option against X.

Answer:
In registered land, if no notice was entered and X bought for value and was registered, X will usually take free of the unprotected option. In unregistered land, an option is a Class C(iv) Land Charge; if not registered before completion of X’s purchase for money or money’s worth, X takes free. Protection is critical for options.

When s 2 does not apply and when equity helps

Not every arrangement engaging land requires a s 2-compliant contract:

• Parol leases within s 54(2) LPA 1925 can be created orally.
• Non-dispositive agreements, such as lock-outs and confidentiality agreements, fall outside s 2.
• s 2(5) preserves resulting, implied and constructive trusts. For example, a constructive trust may arise in a domestic context where the common intention and detrimental reliance requirements are satisfied, despite the absence of a compliant land contract.

However, the abolished doctrine of part performance cannot save a non-compliant contract for the sale or disposition of an interest in land: a compliant written contract is required to create contract rights in such cases. Equity’s assistance through trusts or estoppel depends on a distinct equity, not a mere attempt to bypass s 2.

Worked Example 1.10

A and B orally agree all terms for A to sell Whiteacre to B. In reliance, B pays A a substantial sum and carries out improvements with A’s knowledge. A then refuses to proceed. Can B enforce the sale contract?

Answer:
Not as a contract for sale: s 2 requires a compliant written contract and the old doctrine of part performance is not available. Depending on the facts, B may have an alternative equity (e.g. a constructive trust or proprietary estoppel) if the requirements are met, but the court will examine whether there is a genuine equity outside the contractual bargain.

Completion and registration: putting legal title on the purchaser

A s 2-compliant contract gives the purchaser an equitable interest only. To acquire the legal estate:

• unregistered land: completion by a valid deed transfers the legal estate; the buyer then deduces title and (usually) applies for first registration within the statutory period if the transfer triggers compulsory first registration.
• registered land: completion by deed alone does not transfer the legal estate. The transfer must be completed by registration of the disposition (such as a transfer, grant of a long lease, or first legal mortgage) under s 27 LRA 2002. Priority is secured by an appropriate priority search. Until registration completes, the buyer holds only an equitable interest.

Understanding this sequence—contract (equitable rights), completion by deed, and registration—ensures clarity about when legal title changes hands and how to protect interim rights.

Key Point Checklist

This article has covered the following key knowledge points:

• Contracts for the sale or disposition of an interest in land must comply with the strict formality requirements of s 2 LP(MP)A 1989 (in writing, all terms included, signed by both parties).
• Signature can be electronic, and agents can sign if authorised in writing; each party must sign the composite document(s) containing all expressly agreed terms.
• Failure to comply with s 2 generally renders the contract void; the doctrine of part performance does not rescue non-compliant land contracts.
• Certain arrangements fall outside s 2: parol leases under s 54(2) LPA 1925, lock-out agreements, and resulting/implied/constructive trusts preserved by s 2(5).
• A valid contract complying with s 2 creates an equitable interest for the purchaser (an estate contract), enforceable by specific performance.
• Variations to land contracts that alter material terms must also comply with s 2 to be effective; rectification is exceptional.
• Transfer of a legal estate typically requires a deed (s 52 LPA 1925), meeting the requirements of s 1 LP(MP)A 1989; companies follow s 44 CA 2006.
• Completion in registered land requires registration of registrable dispositions under s 27 LRA 2002 to pass legal title.
• Equity may recognise rights despite failed legal formalities, e.g., through constructive trusts (s 2(5) LP(MP)A 1989) or the rule in Walsh v Lonsdale creating equitable leases from specifically enforceable contracts.
• Short leases (≤ 3 years, in possession, best rent, no premium) are an exception and can be created legally without a deed (parol leases under s 54(2) LPA 1925).
• Estate contracts, options and other equitable rights must be protected to bind successors: by notice in registered land, or by registering an appropriate Land Charge in unregistered land; failure to protect usually results in loss of priority.

Key Terms and Concepts

• Contract for the sale of land
• Section 2 LP(MP)A 1989
• Estate contract
• Specific performance
• Equitable interest
• Deed
• Parol lease