Promises, promises...avoiding proprietary estoppel claims

Those who own farms, estates and family businesses in England and Wales may be losing sleep over the recent trend in 'proprietary estoppel claims' brought by disinherited family members.

2018 saw a bumper crop of these claims come through the courts, with no less than 14 reported decisions, including the case of Thompson v Thompson [2018] EWCH 1338 (Ch) (in which WBD acted) and the Court of Appeal decision of Moore v Moore [2018] EWCA Civ 2669. 2019 looks to be an equally productive year, with at least 7 decisions already reported, including the Court of Appeal decision of Habberfield v Habberfield [2019] EWCA Civ 890.

Reported cases are just the top of the woodpile. There are hundreds of these claims sprouting up across the country at any one time, most of which will settle out of court.

There have been many articles looking in detail at the facts of the recent cases and the legal principles arising. That is all very interesting for lawyers, but this article considers what, if anything, can be done to prevent the seeds of estoppel claims from being sown in the first place.

What is proprietary estoppel?

Proprietary estoppel is a legal principle that allows an individual to lay claim to an asset (usually land) that was promised to them, even if the owner of the asset subsequently changes their mind and decides to leave it to someone else.

To succeed with a claim, the following requirements must be met:

  1. the claimant must show that she/he was promised or assured by the owner that the asset would be his/hers. The promise does not have to be in writing. Cases have held that verbal promises are enough, and even a course of conduct, or non-verbal gestures which are perceived to be a promise, can meet the test.
  2. the claimant must show that she/he relied on the promise and lost out financially as a result (for example by working for the business for low pay, when a more lucrative career could have been pursued).
  3. in all of the circumstances, it would now be 'unconscionable' to deny the asset promised, or damages to appropriate compensation.

Why are estoppel claims more common?

  • Despite the archaic name; proprietary estoppel claims are modern and highly relevant to farms and family business owners. Write them off as legal gobbledygook at your peril! 
  • Younger generations often work for family and farming businesses for limited pay (often for very good reasons), on the understanding that they will inherit the business in due course. Often they give up higher education, or a more lucrative career to do so.
  • The rise in property values (particularly agricultural land) has undoubtedly played a part. Even what some may consider a relatively modest farm or business can these days result in a multi-million pound dispute.
  • 'Compensation culture' and the increase in US-style 'no win, no fee' litigation has increased the number of claims. Google means that everyone is a lawyer these days, while some solicitors firms are using social media to specifically target those who are likely to be expecting an inheritance.

 What can be done to prevent a claim?

There is no easy fix or 'method' for avoiding an estoppel claim. They are very fact specific and therefore unpredictable, often turning on whether the judge believes one witness over another. This can be fertile ground for claimants 'having a go', even if the legal merits do not look particularly strong.

There are, however, a number of things that estate or business owners can do to minimise the chances of a successful claim: 

Communication, communication, communication

  • Our top tip is practising clear, consistent communication. The most common trigger for any succession dispute, in our experience, is a disconnect between what different sides of the family are expecting and what is the case in reality. Inheritance may not be top of the list for dinner-table conversation (though possibly higher up than Brexit!). But the financial and emotional value of facing up to difficult discussions can be huge
  • Equally important is the way that discussions take place and are recorded. Neutral surroundings are to be encouraged (such as around the kitchen table, or where business meetings are usually held), with all of the key people present. Avoid 'cosy one to one chats', or off-hand comments; this is where misunderstandings most-frequently arise. Document exactly what was discussed at meetings and get everyone to agree the note
  • Appreciate the gravity of making promises; do not make them lightly. Although promises apparently count for little these days in some walks of life, for estate or family business owners they can have very serious consequences (even if the words "I promise" are not used). The Thompson case was a prime example of this; the judge found that in reneging on her promises, Mrs Thompson had 're-written history' and that her position until the family fall-out had been 'entirely different'.

Ensure legal arrangements reflect intentions

  • Ensure that land / business assets are legally held in the way that everyone intends them to be
  • If the farm, estate or business is being run as a partnership, then a partnership agreement should be drawn up which clearly sets out the proportions owned and rules about partnership pay and drawings. Crucially, if the business' land is intended to be owned by the partnership (rather than individuals) this needs to be appropriately documented
  • Properly thought out documentation alone may be enough to combat claims that an inheritance was promised. In the Thompson case, there was a partnership but it was poorly documented and the land was held in a confusing and inconsistent way, providing the claimant with ammunition to support his claim.

Pay a reasonable wage

  • If not addressed, this is a very easy way for a disinherited family member to meet the 'financial detriment' part of the test, and therefore improve their prospects of success. In Thompson, the claimant was being paid between £30 and £50 per week for much of his life. The judge found this to be clear financial detriment, remarking that "the rewards for a man in his 50s running the farm were very small and he was more or less obliged to live with his parents with no means to rent or buy his own home"
  • There are often very good reasons for low pay, such as: poor cash flow in the business; a desire to minimise outgoings in the early years; or an intention to accrue capital that will ultimately benefit the person foregoing pay
  • But documenting how those involved in the business are benefitting financially can be the difference between good and bad claims. It is worth thinking creatively about how this can be done. For example, could provision of accommodation free of rent be documented as notional income for that beneficiary? Likewise the use of vehicles as a benefit should be appropriately captured. 

Good estate planning

  • Cheap but ill-thought-through estate planning is the definition of a false economy; especially if it leads to an estoppel claim or wider inheritance dispute. The legal costs can be enormous, not to mention the emotional burden and stress that come with years of litigation.
  • Common issues that we regularly see include will writers who fail to prepare any file note of their will instructions, or worse still who prepare a note stating that 'X was promised Y when Z dies'
  • There is a fine line between a file note which records testamentary intention (which can and does change over time) and a note recording a promise which is arguably binding. Yet this can be the difference between a successful and unsuccessful proprietary estoppel claim, as demonstrated by the Thompson case which really turned on numerous file notes made by professionals, explicitly recording words to the effect that 'when we are gone, the farm will be his'
  • As well as documenting meeting minutes carefully (and ideally agreeing the minutes with the client), a good adviser will also be able to understand and properly factor in business interests when drafting wills. They may also be able to suggest creative ways of putting beneficiaries off pursuing claims; for example by including a gift which is conditional on the beneficiary in question not claiming against the estate.