Trust for Sale and Trust of Land
A discussion of how ‘trust of land’ introduced in the 1996 Act differs from the statutory trust for sale which preceded it in co-ownership
This article discusses how the old ‘trust for sale’ (TFS) under the Law of Property Act (LPA) 1925 is different from the new ‘trust of land’ (TOL) introduced by the Trusts of Land and Appointment of Trustees Act (TLATA) 1996. This paper through its comparison highlights the adequacy of this new trust as a basis for co-owned land, and follows through into a discussion of how well this TOL works for co-owned land the problems it poses.
Prior to the LPA 1925 legislation, two separate situations resulted in land title becoming fragmented. Concurrent ownership fragmented title in space and successive interest fragmented ownership down in time. Therefore after 1925 future interests were made into settled land. However, where future interests were granted on trust with the power to sell, this made it subject to the rules governing TFS. After 1925 in all concurrent interest, a TFS was imposed. The TFS as the name suggests is essentially an investment notion, meaning that the trustees were under a duty to sell the property unless they all agreed to postpone sale. The legal owners held the property on TFS as trustees for themselves and any additional number of equitable owners.
The TFS provided a purchaser with a protected legal title irrespective of any undisclosed equitable interest, provided that the purchase money was paid to the legal co-owners. The drawback was the equitable owners in concurrent interests were at risk (in overreaching transactions) when their rights were transformed from land into notional rights in money. The trustees could defraud the equitable owners. A further aggravating factor was the doctrine of conversion, which notionally deemed a sale to have already taken place, due to the duty to sale under the TFS. Judges would treat interests as already being in money and not in land. This doctrine was applied very rigidly, paradoxically and unimaginatively, which was stigmatised as unrealistic. Moreover the duty to sale often resulted in one of the co-owners who disputed the sale having to leave the property, under a court-ordered sale.
The TFS operated for seventy years until it was changed by the Trusts of Land and Appointment of Trustees Act 1996 (TLATA), following a Law Commission Report. From 1997 successive interests in the form of life interests take effect as a TOL. Similarly all concurrent interest was transmuted retrospectively overnight from being TFS to being held under a TOL. The TOL usually arises in three main circumstances: first, where the settlor expressly creates it. Second, where law implies it, where one person is the titleholder but the law draws in a resulting trust or a constructive trust. The third is by statute; TOL includes any trust, which consists of land and can arise through the old TFS.
The most significant difference is that there is no longer a duty to sell the land. The courts when considering whether to order a sale of land may feel less compelled to so. This was suggested obiter in Banker’s Trusts Co v. Namdar; ‘It is unfortunate for Mrs Namdar that the very recent [TLATA] was not in force at the relevant time as the result might have been different.’ Moreover, Neuberger J observed that former decisions where there was a duty to sell under the TFS should be treated with caution because ‘…they are unlikely to be of great…assistance’. The preamble and side note to s.3 refers to the abolition of the doctrine of conversion. This would suggest that the TOL is not an interest in the proceeds of sale rather an interest in land. This brings us back to the de facto position under the TFS as asserted by Lord Wilberforce in Boland. Furthermore, trustees of land now have all the powers of an absolute owner. Under the TFS, trustees had all the powers of a tenant for life of settled land. This is a considerable change because there were limited powers granted to a tenant for life on settled land and there are several restraints on them, it was thought settlors would use that to try and keep land in the family.
The wider powers of trustees in TOL are balanced by trustees considering the beneficiaries in two ways, the first is the ‘…trustees [should] have regard to the rights of the beneficiaries.’ Nevertheless s.6(5) TLATA is vague in indicating what beneficial rights trustees should regard, and it can be asked, what are these rights beneficiaries have, that they don’t have under trust law? The second is that the trustees must consult the beneficiaries concerned before taking any decision whatsoever relating to the land, it extends to all new trusts, but the trust instrument can exclude it. Consultation requirements placed on the registered can protect the equitable co-owners in the eventuality of a trustee overreaching without their consent. However, this consultation procedure does not differ from its repealed predecessor s.26(3) which has been criticised by the Law Commission as weak.
It is not immediately apparent how effective these restrictions are likely to be and most of these restrictions and express powers are likely to be of more importance in successive interest trusts rather than pure co-ownership. This is because a husband and wife co-owning are both beneficiaries and trustees and have identical interests that will deadlock. This type of dispute will need to be resolved under an s.14 application where the court is directed to take account of the majority’s wishes when settling disputes.
Trustees also have the power to jointly, delegate powers to a beneficial owner, although the beneficiary to whom delegation can be made cannot give a valid receipt for capital money and thus cannot overreach. This replaces the power of delegation given to trustees for sale under the old regime; something likely to provoke disagreements is the actual occupation of the land. Under the TFS co-owners had a prima facie right to occupy the whole land. In successive interests under the TFS it was really at the trustee discretion whether a life owner or any other beneficiary was allowed to occupy or not, they didn’t have the right to occupy. This has been considerably changed by s.12. Beneficiaries have the right to occupy land but only provided the purpose of the trust includes occupation of that class of beneficiary. Secondly there must be ‘available and suitable’ land held by the trustees for occupation. Furthermore, s.12 appears to statutorily empower the trustee to purchase land from the money in the trust for the ‘purpose’ of a beneficiary’s occupation. Where several beneficiaries have the right under s.12 to occupy trust property, the trustees are given powers to exclude or restrict such rights in relation to some of the beneficiaries, but not to prevent all the beneficiaries from occupying the land. A beneficiary who is permitted to occupy at the expense of another co-owner may be made subject to an obligation to pay compensation to a non-possessing co-owner or forgo some benefit or payment. In the case of co-ownership a deadlock in the rights of occupation and exclusion can arise. Hence, the court’s assistance under s.14 application will be needed which produces the danger of the old s.30 harshness creeping back.
Section 14 provides that any person can make applications for a variety of orders with an interest in the land. While s.15 provides guidance to the court in what matters need to be considered in determining applications. The Law Commission originally proposed six factors; this was reduced to four by TLATA. If there is a dispute between co-owners these factors are particularly relevant. Under the old TFS it was open to any person interested in the property, (creditors) to bring an order for the sale of that property under s.30. The new procedure will not be applicable to cases of a trustee in bankruptcy; they are in a different position, which is not affected by the 1996 legislation.
Under the old law the archetypal co-owners were the husband and wife, who would agree to postpone a sale under a TFS because the purchase would be of a family home. If relations broke down and an agreement to postpone the sale was not wanted by one of the co-owning parties, or a creditor wanted a sale then under the old scheme an application could be made to the court to order a sale. However, if the person resisting the sale could prove that the parties had agreed on a collateral purpose, when the corresponding trust was made, the court would not order the sale. A continuing collateral purpose could be shown through the needs of dependent children; this would defer a sale.
Under the new scheme, some provisions take into account the courts’ developed positions under the old s.30. Today the court is expected to have regard to: the intentions of the settlor, purposes for which property is held, the interests of any minors and the interest of any secured creditor. There is also a provision in s.15 that the court must have regard to the circumstances and wishes of the beneficiaries who are entitled to occupy the land. These will no longer be considered in the context of a TFS with a presumption to sell as in Re Mayo. This should lead to a greater disposition not to order an immediate sale. The factors in s.15 are not prioritised. When the court is faced with an application for sale, does it take regard to the jurisprudence it has built up over a long period in application for sale, or does it rely on the factors in s.15? It is argued the new rules will be meaningless without the court taking substance from the previous developed positions. Thus it is important to observe how the court is interpreting s.15 in post 1996 cases.
In Mortgage Corporation v. Shaire, Neuberger J's specific question was: did s.15 modify the law from how it had been developed in Citro and Byrne ? He advanced eight reasons as to why s.15 has changed the law. Although they can be criticized for not embracing the true meaning of s.15 along with the Law commission proposals, they nevertheless appear to fundamentally change the courts approach in deciding whether a beneficiary or creditors interests should prevail. His approach has been praised for blowing away ‘the remnants of the harshness for families’ caused by s.30.
However in Bank of Ireland Home Mortgages Ltd v. Bell it was suggested, the departure of one of the co-owners brings the purpose of providing a family home to an end, with the result that the interests of the children will be a small consideration against sale. In reaching the decision to order the sale the court restricted the weight that was to be given to the factors in s.15. Peter Gibson L.J. declared the collateral purpose of a family home ‘ceased to be operative once Mr. Bell left the property.’ This has been described as ‘contentious’ considering there was a dependant child aged five.
The factors drafted in s.15 collapse the welcomed positions developed by the courts under old authority. If the decision in Bell prevails the likelihood is that a sale will be ordered notwithstanding the obliteration of the duty to sell under the TFS. Probert has described this case as changing the direction of the wind therefore it has ‘blown us back to where we started.’ Whether automatic sales will be ordered under s.14 remains to be determined and will depend on the correct judicial application of old authority with s.15 factors.
This begs the question of whether TOL is a more satisfactory for holding co-owned land. It has been demonstrated there is no longer the duty to sell a property, but because the most common type of co-owners are co-habiting couples whose rights are identical all the right and provisions of the TOL stalemate. It has been argued there is limited use of this toothless trust and its provisions in co-ownership. Where one co-owner has surrendered his right to a creditor, the new regime can have the effect of ordering a sale over interests of the family, somewhat of a step backwards from the old law. TOL is a new concept with little case law. Whether it is satisfactory trust for co-ownership, will depended on whether its provisions and the Act, which creates it, are read in the light of previous judicial decisions on TFS.
Bibliography
Clements, L., ‘The Changing Face of Trusts’, [1998] 61 Modern Law Review 56
Gravells, N.,‘Co-ownership, severance and purchasers - the Law of Property (Joint Tenants) Act 1964 on trial?’ (2000) Conveyancer 461
Hopkins, ‘The Trusts of Land and Appointment of Trustees Act 1996’, [1996] 60 Conveyancer 411, especially pp 418-422
Jones & Palmer, ‘The Trusts of Land and Appointment of Trustees Act 1996’, [1997] 1 Web Journal of Current Legal Issues
Pascoe, ‘S. 15 TLATA 1996 - a change in the law?’, (2000) Conveyancer 315
Percival, ‘Severance by written notice - a matter of delivery?’, (1999) Conveyancer 60
Martyn, Ross, ‘Co-owners and their entitlement to occupy their land before and after TLATA 1996’, (1997) Conveyancer 254
Oldman, ‘Balancing commercial and family interests under TLATA 1996, s.15.’, (2001) 60 Cambridge Law Journal 43-45
Probert, ‘Creditors and section 15 of the Trusts of Land and Appointment of Trustees Act 1996: first among equals?’, (2002) Conveyancer 61-67
Thompson, M.P., ‘Secured creditors and sales’, (2000) Conveyancer 329
