#17747 - Co Ownership Regulation Notes - Land Law

Co-ownership Regulation Notes

What are the basic aspects of co-ownership of land?

Whenever land is co-owned, whether co-ownership arises in relation to the legal title, the beneficial interests, or both, the land is held on trust. All co-ownership trusts are considered to be ‘trusts of land’ and are governed by the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996).

How does the TOLATA statutory scheme work?

The Trust of Land

1. Section 1 – A ‘trust for land’ means any trust of property which consists of or includes land

Functions of Trustees of Land

1. Section 6 – establishes the general powers of trustees

   1. s6(1) – for the purpose of exercising their functions as trustees, trustees of land have all the powers of the absolute owner

   2. s6(2) – the powers conferred upon them include the power to convey the land to the beneficiaries even though not required to do so by the beneficiaries

   3. s6(9) – the duty of care under s1 of the Trustee Act 2000 applies to trustees of land when exercising powers conferred by this section

2. Section 8 – establishes the exclusion and restriction of powers

   1. s8(1) - s6 and can be disapplied where the trust of land is created by a disposition and that disposition stipulates those sections will not operate in relation to that trust

   2. s8(2) – where the trust of land is created by a disposition, the settlor may make the exercise of the powers in s6 subject to the beneficiaries’ consent

3. Section 11 – consultation with beneficiaries

   1. s11(1) - Trustees must, in any exercise of any function relating to land subject to the trust:

      1. s11(1)(a) - So far as is predictable, consult beneficiaries of full age and beneficially entitled to interest an interest in possession; and

      2. s11(1)(b) - So far as consistent with the general interest of the trust, give effect to the wishes of those beneficiaries

         1. Where there is a dispute between multiple beneficiaries, effect should be given to the wishes of the majority

   2. s11(2) – the effect of this section can be disapplied where the trust is made either by a will or a disposition and the will or disposition so provides

Right of the Beneficiaries to Occupy the Trust Land

1. Section 12 – the beneficiary’s right to occupy

   1. s12(1) – a beneficiary with a beneficial interest in the possession of land will be entitled to so occupy where:

      1. s12(1)(a) – the purpose of the trust includes making the land available for their occupation

      2. s12(1)(b) – the land is held by the trustees so as to be available

   2. s12(2) – subsection (1) does not confer a right to occupy on the beneficiary if the land is either unavailable or unsuitable for occupation by him

      1. This section becomes relevant where one of the co-owners becomes bankrupt and the trustee administering the bankruptcy would not be able to occupy with the remaining co-owner

         1. As such s13 will not apply – any occupational rent or other equitable compensation then falls to be considered under the old common law rules of equitable accounting (see Davis v Jackson below)

The application of s12 is subject to the application of:

2. Section 13 – exclusion and restriction of the right to occupy

   1. s13(1) - Where 2 or more beneficiaries are entitled under s12 to occupy land, the trustees can exclude or restrict the entitlement of any one or more (but not all) of them

   2. s13(2) – However the trustees may not:

      1. Unreasonably exclude a beneficiary’s entitlement to occupy land; or

      2. Restrict any entitlement to an unreasonable extent

   3. s13(3) – From time to time, trustees can impose reasonable conditions on any beneficiary in relation to his occupation of the land

      1. s13(5) – such conditions include:

         1. payment of outgoings or expenses in relation to the land

         2. assuming another obligation in relation to the land or any activity proposed

   4. s13(4) – Trustees must have regard to the following matters in exercising their powers:

      1. the intentions of the person who created the trust

      2. the purposes for which the land is held

      3. the circumstances and wishes of each of the beneficiaries who is entitled to occupy

   5. s13(6) - Where a beneficiary is excluded under s13(1), the following conditions may be imposed on the beneficiaries who remain in possession:

      1. Payment of compensation to the excluded/restricted beneficiary

      2. Forgo payments that the beneficiary is entitled to under the trust so as to benefit the excluded/restricted beneficiary

         1. NOTE: the wording of s13(6) suggests that there must have been an affirmative decision by the trustees to exclude the beneficiary

            1. Realistically in family cases a co-owner will leave because the couple can no longer live together

               1. Bright says that it would be hard to find some sort of “constructive exclusion” as coming within the definite language of s13(6)

   6. s13(7) – the powers found in s13 may not be used so as to prevent a person currently in occupation from continuing to occupy land, or in a way likely to result in such person ceasing to occupy the land

      1. Smith says that s13(7) restricts the application of s13(6) – if an occupier cannot afford to pay an occupation rent and paying one would force them to move out, then there is no power to order compensation

NOTE: In French v Barnham it was held that beneficiaries who do not have a right of occupation under s12 (and so s13 does not apply) can still claim equitable compensation from the occupying beneficiary

• Where it would be unreasonable to expect co-owner not in occupation to exercise right as co-owner to take occupation of property, it is fair/equitable to charge occupying co-owner occupation rent.

Seemingly in contrast to this, Stack v Dowden saw Baroness Hale observe that:

“These statutory powers replaced the old doctrines of equitable accounting under which a beneficiary who remained in occupation might be required to pay an occupation rent to a beneficiary who was excluded from the property. The criteria laid down in the statute should be applied, rather than in the cases decided under the old law, although the results may often be the same”

• Lord Neuberger made comments to similar effect, stating it would be a “rare case” where the statutory scheme would lead to different results than the old principles of equitable accounting

  • BUT: in Davis v Jackson, Snowden J said that TOLATA had not replaced the old principles of equitable accounting: had Lord Neuberger and Baroness Hale intended to exclude all of the pre-TOLATA law on this matter, this would have been a major change in the law which would have prevented certain parties from being able to claim

In applying these old principles of equitable accounting Snowden J said the following:

• Ultimately in deciding whether or not a co-owner not in possession (or the trustee if their bankruptcy) can claim occupation rent (or something similar: ie mortgage payments, improvements), “the court has a broad jurisdiction to do justice between co-owners on the facts of the case”

  • NOTE: the thrust of the equitable compensation approach very much appears to be a contextual one – look at what would be fair based on the relevant factors below

• A relevant consideration, he thought, was any agreement or understanding to which the non-occupying owner was a party before his bankruptcy; as well as the effect of an order for payment of rent on both sides of the party

  • In this light, he thought that the positions as regards occupation rent would be materially different in the following two situations:

    • Where the property in question was acquired as a home for one co-owner alone and the bankrupt never had, nor was intended to have, any right of occupation of the property at all

    • Where the property was acquired jointly with the common intention and purpose that the parties would live in it

Powers of the Court – Applications for Sale

• Third parties can apply for the sale of co-owned land.

• Most likely third parties to do this are creditors and trustees in bankruptcy (TIB, a trustee in bankruptcy is a person in charge of administering a bankruptcy estate) of one of the beneficiaries.

• Applications by creditors are considered under TOLATA 1996.

• Applications by TIB are considered under the Insolvency Act 1986.

• When a creditor or TIB applies, the court decides whether the beneficiary can remain in the home, or whether home should be sold to allow debt payment.

  • Questions are asked as to relative weight of the desire to remain in the home and the purely financial interests of the creditor.

• Striking the appropriate balance even harder to find where both parties “victims” of another’s malpractice.

• e.g. creditor might be suffering from fallout of another co-owner’s financial crisis.

• When creditor succeeds in application for sale, proceeds divided proportionately between beneficiaries in accordance with their beneficial shares.

• Only those representing debtor’s shares used to pay off debt.

• If co-owners are joint tenants, grant of a charging order severs tenancy (acts upon joint tenant’s share).

• Where co-owner becomes bankrupt, proceeds of sale representing bankrupt’s share used to pay off debts.

• Bankruptcy also severs joint tenancy - involuntary act operating on joint tenant’s share.

For applications by creditors:

1. s14 – applications for order

   1. s14(1) – Any trustee of land or a person who has an interest in property subject to a trust of land can make an application to the court under this section

   2. s14(2) – The court can make an order:

      1. Relating to the exercise by the trustees of any of their functions (including relieving the trustee of the need to obtain consent of/to consult the beneficiary)

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