You broke your promise! Estoppel in the commercial property context

Promises are not always legally binding. A binding contract must have a clear offer, clear acceptance, consideration (i.e. something of value, or the promise of something of value, passing between the parties), and intention to create legal relations. Certain types of property contracts (for example the sale of a building or the grant of a lease) have additional requirements.

If you are the victim of a broken promise, and there is no valid contract, you may be able to rely on the principle of estoppel. If estoppel applies, either the promise-breaker will be prevented from going back on their promise, or you will be entitled to a remedy such as financial compensation.

There are many different types of estoppel, but most of them have the following requirements:

• The promise-breaker must have made you a clear, unequivocal promise.
• You rely on that promise to your detriment.
• It is unjust for the promise-breaker to break their promise.

Estoppel arguments are often raised in the residential property context. For example, the legal owner of a house might promise a friend that they will get a share in the house. In reliance on that promise, the friend might spend thousands of pounds building an extension to the house. If the promise was sufficiently clear and unequivocal, there is a good chance that the principle of estoppel will apply, and the friend will get a remedy. This type of estoppel is known as proprietary estoppel, because the friend is claiming a right in a specific piece of land rather than (say) money or some other benefit. Proprietary estoppel is a relatively unusual type of estoppel, in that it can be used as a cause of action (a “sword”) rather than merely a defence to a claim (a “shield”).

In the commercial property context, involving experienced businesspeople or companies, it is very difficult to raise a proprietary estoppel argument. For example, in the case of Cobbe v Yeoman’s Row Management Ltd [2008] UKHL 55, an informal deal had been reached between a property developer (Mr Cobbe) and a property owner (YR). Among other things, it was agreed that Mr Cobbe would obtain planning permission on the property, and then the property would be transferred to Mr Cobbe at a specified price. Mr Cobbe relied on this informal deal by spending a lot of money on obtaining planning permission. YR then tried to go back on the deal.

Mr Cobbe tried to argue that he had obtained a share in YR’s property pursuant to the principle of proprietary estoppel. His claim failed. The House of Lords held that no estoppel had arisen. Mr Cobbe was an experienced businessperson. He would have known that the informal deal could not give rise to a legally binding contract or interest in land. Mr Cobbe was entitled to payment for his services in obtaining the planning permission, but nothing more.

Although proprietary estoppel arises rarely in the commercial property context, other types of estoppel can be easier to establish. For example, a tenant of commercial property may be able to avoid the consequences of a defective break notice if their landlord indicates that they will not dispute the notice’s validity. This type of estoppel is known as estoppel by representation: it prevents a party from contradicting a previous representation by seeking to prove a contrary position at a later date.

By way of illustration, in MW Trustees Limited, Robert Posel, Pamela Posel v Telular Corporation [2011] EWHC 104 (Ch), a commercial tenant wanted to end their lease early. So, they emailed a break notice to the landlord’s agent. There was a clause in the lease which stated that the break notice had to be served by special delivery post or by hand. Nevertheless, the landlord’s agent responded to the tenant saying “We accept the attached letter and can confirm we are happy for you to break the Lease”.

The landlord tried to argue that the break notice had no effect. This argument failed. The landlord’s agent had not merely acknowledged receipt of the break notice; they had indicated clearly that the landlord would not dispute the validity of the notice. The tenant had relied on that indication by not attempting to serve a new break notice. So, the tenant had terminated the lease successfully.

Summary

Estoppel is not an easy argument to run. It is highly fact specific, and has a habit of leading to expensive, drawn-out litigation.

If you are the victim of a broken promise, estoppel could be a lifeline for you. However, it is much better to never have to rely on it.

Top tips for businesspeople/ companies

• Record your legal arrangements in written contracts and written amendments recording the precise terms agreed
• Take care to comply with break notice provisions, and exercise caution when acknowledging receipt of break notices
• Be alive to mistakes of fact/ law that may have arisen between you and the other party to a transaction (e.g. between you and your landlord/ tenant)
• Seek independent legal advice whenever you are in any doubt as to your position.

For more information about the topics covered in this article, please contact Stephanie Butler via [email protected].