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Proprietary Estoppel: Be careful of what you promise your children
Victoria Greenwood • 8 September 2020
Proprietary estoppel cases are becoming ever more frequent, especially in the farming community. Below I take a look at principles of proprietary estoppel, I analyse a recent case and then consider how to avoid any claims. If a claim should arise, I explain how mediation might just be the solution for your client.
The typical farming proprietary estoppel case usually goes something like this:
- One of the children takes a keen interest in farming, and the parent (and owner of the farm) promises the child that if they work on the farm for a minimal (or non-existent) salary then upon the parents’ death they will inherit the farm.
- The child works on the farm and gives up any opportunities to work or study elsewhere.
- Upon the death of the parents, the child discovers they have gone back on their promise and left the farm or shared it with a sibling.
So how does proprietary estoppel work? Basically, it effectively allows the court to step in and stop the parent from going back on their promise – where to not do so would be unconscionable as the child has relied on their promise to their detriment.
The requirements of a claim
To establish proprietary estoppel, you have to satisfy 3 key elements (as set out in Davies v Davies [2016] EWCA Civ 463):
- A representation, promise, assurance or other encouragement by the defendant giving rise to an expectation by the claimant that he/she would have a certain proprietary interest.
- A reliance by the claimant upon that expectation.
- A detriment to the claimant in consequence of his/her reasonable reliance on the promise.
Once these 3 elements have been satisfied, the Court will consider what remedy to award. It has a wide discretion and each case is dependent on the facts. The Courts options can include:
- monetary compensation,
- removal of the legal owner’s right to possess the land, and
- the grant of a lease.
Case example: Guest v Guest
In Guest v Guest the Court of Appeal dismissed a proprietary estoppel claim involving a family farm. Briefly summarised:
- Tump Farm had been in the Guest family for three generations and was owned by David Guest, the father.
- Andrew Guest, the eldest of two son and the claimant in the original case, had worked on the farm for over 30 years for low pay.
- Andrew had always been led to believe by his parents that he would inherit a substantial interest in the farm.
- In 1981 Andrew’s parents drew up wills ensuring that he and his brother would inherit Tump Farm in equal shares.
- Whilst Andrew’s inheritance expectation did change over the years – from inheriting the farm entirely, to inheriting it along with his brother, what did not change was his anticipation and expectation that he would inherit sufficient to continue with the farming business.
- Sadly by 2014 relations between Andrew and his parents has deteriorated and he stopped working at the farm.
- In 2018 Andrew’s parents made new wills excluding Andrew from any entitlement.
The Court found that until 2014 the parents had led Andrew to believe that he would inherit the farming business. There were clear assurances on which Andrew had relied to his significant financial detriment. The court felt that although Andrew’s expectations of inheritance had changed there was still ‘sufficient clarity’.
The Court when awarding the appropriate remedy awarded a lump sum payment amounting to 50% of the market value of the farming business and 40% of the value of Tump Farm. The Court acknowledged that this would inevitably lead to Tump Farm being sold but felt that due to the total relationship breakdown a clean break was required.
How to avoid claims
As demonstrated in Guest v Guest, proprietary estoppel cases are fuelled with emotion and often to lead to lengthy, bitter and very expensive litigation. There are practical steps you can take to avoid claims:
- Avoid making promises or expectations that you can’t keep
- Plan – land owners should consider succession planning (with the subsequent tax savings) at an early stage with everyone fully aware of each other’s’ wishes.
- Make a clear will – again discuss the contents with your family so that nothing comes as a surprise
Mediation
Whilst the above steps would help guard against any claim for proprietary estoppel, not everyone has the time or the knowledge of proprietary estoppel to put appropriate measures in place.
If faced with a claim for proprietary estoppel claim, the parties should consider the use of mediation over litigation as the advantages of using mediation include:
- Confidentiality – farming communities are small, and these cases are ripe for local gossip and media attention.
- Cost – a mediation costs between £1500 - £3000 per party vs legal costs of c £!00,000 if it went to trial.
- Speed – the mediation can be arranged within a few weeks and dealt with in one day - in comparison to the time it will take to bring the matter to trial (at least a year) and a possible 3 to 5 day hearing.
- The parties decide on the solution rather than a Judge making a decision (which often suits neither party).
Mediation allows the parties to have conversations and to get to the root cause of these disputes (these cases invariably involve a family breakdown and with mediation there is the chance that old wounds can be healed).
The one disadvantage of mediation is the cost of the day, if it does not settle, but from my experience even if the case does not settle the parties are able to narrow the issues and as a consequence they are able to make significant savings of time and cost during the litigation.
We like to think we will always be around. Unfortunately, our inability to confront our own mortality can have a disastrous effect on those closest to us and our businesses. All businesses need to deal with succession, but farming families are particularly vulnerable to the effects of failing to deal with succession. Why is succession planning so important within farming? One of the main reasons is that children are often involved in working on the family farm and there is this unwritten understanding that one day all of this will be yours. Farming families are also notorious for not having partnership agreements in place, which again can leave the business open to potential disputes over the ownership of the business and its assets. Issues within farming One of the most common disputes that arise in farming families from a lack of succession planning is a proprietary estoppel claim – briefly put this is where: A representation, promise, assurance or other encouragement by the defendant giving rise to an expectation by the claimant that he/she would have a certain proprietary interest. There is reliance by the claimant upon that expectation. Finally, the claimant suffers a detriment in consequence of his/her reasonable reliance on the promise. When can mediation help? During the planning discussions Getting to the actual discussion about succession is often the first hurdle. Farmers are often so busy running the farm that they don’t have time to think about succession planning and for many people having this sort of discussion doesn’t come easy. Family members don’t want to rock the boat – children don’t want to disappoint their parents by admitting they don’t really fancy running the farm. Parents may feel that they are forcing their children into running the farm, but then equally children can be insensitive with their new ideas for the farm, which can often lead to disputes with their elders. Having an open and honest conversation as early as possible – and before a problem arises, is the best course of action. The children may not want to carry on the farm, but by knowing this the parents can plan for their retirement and have something to aim for. Sometimes these discussions will get out of hand. Heated debate may take place and people may get offended and upset. Mediation enables an independent third party to come in and speak with all of those involved. The mediator can: Explore the goals of each family member and what they want to achieve Facilitate conversations between family members so that they understand what others feel and want Enable the family to come up with a way forward together Where no discussions have taken place and litigation ensues Proprietary estoppel cases are fuelled with emotion and often to lead to lengthy, bitter and very expensive litigation. Whist there are practical steps you can take to avoid claims such as avoiding making promises and succession planning, this isn’t always the case. If faced with a claim for proprietary estoppel the parties should consider the use of mediation over litigation as the advantages of using mediation include: Confidentiality – farming communities are small, and these cases are ripe for local gossip and media attention. Cost – a mediation costs between £1500 - £3000 per party vs legal costs of around £100,000 if it went to trial. Speed – the mediation can be arranged within a few weeks and dealt with in one day - in comparison to the time it will take to bring the matter to trial (at least a year) and a possible 3 to 5 day hearing. The parties decide on the solution rather than a Judge making a decision (which often suits neither party).
Despite popular opinion they are not something which should be only considered in later life, or at the onset of an illness but right now to ensure your wishes will be respected should you lose mental capacity, be that temporarily or indefinitely. Lasting Powers enable you, the donor, to appoint someone you know and trust to act in your best interest, when you are unable to do so. Their purpose is to promote your independence. Most attorneys will be appointed family members – children and grandchildren. Families do not always agree on things, and this will be no exception when it comes to making decisions as an appointed attorney. What can cause issues? • Underlying family tensions o The initial appointment of the attorney(s) may have exacerbated tensions between family members, with some questioning why they were only appointed as replacement attorney for example. • Lack of consensus of agreement between attorneys • Lack of agreement between attorney(s) and other family members • Lack of agreement/consultation between attorneys, family members and medical professionals • Lack of inclusion/consultation with the donor What kind of disputes can arise? • Accommodation decisions • Financial management • Property management • Care/treatment decisions • Gifts Family disputes can increase the risk to the donor as the disputes may mean that not all decisions are being made in the donor’s best interests, which can have a negative effect on the donor’s care, health and wellbeing. The Court of Protection and the Mental Capacity Act Code of Practice encourage those involved in an attorney dispute to attempt mediation. The mediator must have regard to the Mental Capacity Act 2005 (“MCA”), and one of the areas where mediation helps rebalance the power between donor and attorney(s) is that any settlement must comply with Section 4 of the MCA: “a decision made for a person who lacks capacity must be made in the best interests of that person” Mediation is ideal when people are not communicating well or not understanding each other‘s point of view. It can improve relationships and stop future disputes, so it is a good option for attorneys as it is in their interest to maintain good relationships in the future. Mediation • ensures issues are addressed in the best interests of the donor • involves the donor and takes into account their wishes and feelings • supports the donor in making decisions • enables parties to communicate effectively and understand each other’s points of view • likely cheaper than going to the Court of Protection
The latest Arcadis Global Construction Disputes Report 2020 has revealed that the average time taken to resolve construction disputes in the UK has fallen by 23% to just 9.8 months (previously 12.8 months). This reduction in time doesn’t correspond to a reduction in the average value of disputes, which have remained constant. So why is the average length of dispute in the UK the lowest in the world? The report looked at how the UK deals with its construction disputes with the top 3 most common methods pf resolving a construction dispute being: 1. Adjudication 2. Party to Party negotiation 3. Arbitration So why doesn’t mediation make the top 3? Mediation has lost its place in the top 3, having been overtaken by Arbitration – most likely due to the introduction of new low-cost schemes, such as the Chartered Institute of Arbitrators’ Business Arbitration Scheme. Efforts have been made to encourage the early use of dispute resolution in the construction sector – such as the Construction Industry Council’s Model Mediation Agreement and Procedure, but this doesn’t seem to have made much of an impact. Mediation offers a lower cost and a quicker option to those involved in the construction industry, so perhaps in time and with ongoing education as to the benefits more will come to use it. Whatever the method – alternative dispute resolution is here to stay, and the construction industry success certainly serves as a shining example.
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We like to think we will always be around. Unfortunately, our inability to confront our own mortality can have a disastrous effect on those closest to us and our businesses. All businesses need to deal with succession, but farming families are particularly vulnerable to the effects of failing to deal with succession. Why is succession planning so important within farming? One of the main reasons is that children are often involved in working on the family farm and there is this unwritten understanding that one day all of this will be yours. Farming families are also notorious for not having partnership agreements in place, which again can leave the business open to potential disputes over the ownership of the business and its assets. Issues within farming One of the most common disputes that arise in farming families from a lack of succession planning is a proprietary estoppel claim – briefly put this is where: A representation, promise, assurance or other encouragement by the defendant giving rise to an expectation by the claimant that he/she would have a certain proprietary interest. There is reliance by the claimant upon that expectation. Finally, the claimant suffers a detriment in consequence of his/her reasonable reliance on the promise. When can mediation help? During the planning discussions Getting to the actual discussion about succession is often the first hurdle. Farmers are often so busy running the farm that they don’t have time to think about succession planning and for many people having this sort of discussion doesn’t come easy. Family members don’t want to rock the boat – children don’t want to disappoint their parents by admitting they don’t really fancy running the farm. Parents may feel that they are forcing their children into running the farm, but then equally children can be insensitive with their new ideas for the farm, which can often lead to disputes with their elders. Having an open and honest conversation as early as possible – and before a problem arises, is the best course of action. The children may not want to carry on the farm, but by knowing this the parents can plan for their retirement and have something to aim for. Sometimes these discussions will get out of hand. Heated debate may take place and people may get offended and upset. Mediation enables an independent third party to come in and speak with all of those involved. The mediator can: Explore the goals of each family member and what they want to achieve Facilitate conversations between family members so that they understand what others feel and want Enable the family to come up with a way forward together Where no discussions have taken place and litigation ensues Proprietary estoppel cases are fuelled with emotion and often to lead to lengthy, bitter and very expensive litigation. Whist there are practical steps you can take to avoid claims such as avoiding making promises and succession planning, this isn’t always the case. If faced with a claim for proprietary estoppel the parties should consider the use of mediation over litigation as the advantages of using mediation include: Confidentiality – farming communities are small, and these cases are ripe for local gossip and media attention. Cost – a mediation costs between £1500 - £3000 per party vs legal costs of around £100,000 if it went to trial. Speed – the mediation can be arranged within a few weeks and dealt with in one day - in comparison to the time it will take to bring the matter to trial (at least a year) and a possible 3 to 5 day hearing. The parties decide on the solution rather than a Judge making a decision (which often suits neither party).
Despite popular opinion they are not something which should be only considered in later life, or at the onset of an illness but right now to ensure your wishes will be respected should you lose mental capacity, be that temporarily or indefinitely. Lasting Powers enable you, the donor, to appoint someone you know and trust to act in your best interest, when you are unable to do so. Their purpose is to promote your independence. Most attorneys will be appointed family members – children and grandchildren. Families do not always agree on things, and this will be no exception when it comes to making decisions as an appointed attorney. What can cause issues? • Underlying family tensions o The initial appointment of the attorney(s) may have exacerbated tensions between family members, with some questioning why they were only appointed as replacement attorney for example. • Lack of consensus of agreement between attorneys • Lack of agreement between attorney(s) and other family members • Lack of agreement/consultation between attorneys, family members and medical professionals • Lack of inclusion/consultation with the donor What kind of disputes can arise? • Accommodation decisions • Financial management • Property management • Care/treatment decisions • Gifts Family disputes can increase the risk to the donor as the disputes may mean that not all decisions are being made in the donor’s best interests, which can have a negative effect on the donor’s care, health and wellbeing. The Court of Protection and the Mental Capacity Act Code of Practice encourage those involved in an attorney dispute to attempt mediation. The mediator must have regard to the Mental Capacity Act 2005 (“MCA”), and one of the areas where mediation helps rebalance the power between donor and attorney(s) is that any settlement must comply with Section 4 of the MCA: “a decision made for a person who lacks capacity must be made in the best interests of that person” Mediation is ideal when people are not communicating well or not understanding each other‘s point of view. It can improve relationships and stop future disputes, so it is a good option for attorneys as it is in their interest to maintain good relationships in the future. Mediation • ensures issues are addressed in the best interests of the donor • involves the donor and takes into account their wishes and feelings • supports the donor in making decisions • enables parties to communicate effectively and understand each other’s points of view • likely cheaper than going to the Court of Protection
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