One day, all this will be yours: Can you enforce a verbal promise?

Britain’s highest court, the Supreme Court, has recently handed down judgment in a case – Guest v Guest – involving the enforceability of a verbal promise. The legal principle involved is known as proprietary estoppel, and as in this case, it’s one that often rears its head in relation to family farms.

The facts

Mr and Mrs Guest were dairy farmers. Their eldest son, Andrew, left school at 16, and further to his parents’ assurances that he would one day inherit half the farm, he lived and worked full-time on the farm for almost 33 years, receiving less than minimum wage. Unfortunately, the relationship between Andrew and his parents deteriorated, and ultimately, his parents removed him as a beneficiary from their Wills. Andrew left the farm in 2015.

In 2017, Andrew brought a claim in proprietary estoppel. He claimed that his parents’ assurances entitled him to receive a share of the farm.

What is proprietary estoppel?

Proprietary estoppel is a very legal sounding term, but it essentially means being stopped from reneging on a promise relating to property. It can apply when a property owner promises another person a right to the property but does not fulfil their promise. There are three parts to the legal test:

• Representation. There must be a representation, ie an assurance, by the owner. Mr and Mrs Guest assured Andrew he would inherit half the farm.
• Reliance. The claimant must act in reliance on the representation. Andrew worked for over three decades for less than minimum wage in the expectation of inheriting half of the farm.
• Detriment. The claimant’s reliance on the representation has caused them detriment, resulting in an unconscionable outcome.

If a claimant can satisfy this test, the court can enforce the promise.

The decision

It should come as no surprise that Andrew succeeded in establishing a proprietary estoppel. The judge ordered a ‘clean break’, requiring a lump sum payment to Andrew equivalent in value to 50% of the farming business and 40% of the farmland and buildings. This was broadly reflective of the terms of Mr and Mrs Guest’s original Wills.

Mr and Mrs Guest’s subsequent appeal concerned the clean break remedy, not the finding of proprietary estoppel. They argued that Andrew’s expectation was that he would receive half of the farm after their deaths. Granting him relief while they are still alive would mean they had no option but to sell the farm. The Court of Appeal dismissed their appeal, and the matter was referred to the Supreme Court.

On a 3/2 split decision, the Supreme Court justices found that Andrew was entitled to an immediate clean break settlement but offered Mr and Mrs Guest a choice. One option they have is to put the farm in trust for Andrew, with Mr and Mrs Guest having a life interest. In doing so, their ability to leave the property to anyone else is restricted. Alternatively, Mr and Mrs Guest can make an immediate payment to Andrew, albeit discounted for early receipt. That option is very likely to require the farm to be sold.

Lessons

The major takeaway from cases such as this is that there’s rarely a true winner. The parties’ combined costs in taking this matter all the way to the Supreme Court will have been eyewatering. In the meantime, Andrew is now working on someone else’s farm with little prospect of buying his own, even when he eventually inherits. The situation is also difficult for his parents who, should they choose to sell the farm in order to pay the discounted sum to Andrew, will need to find somewhere to live and another way of making a living.