#29 - Trusts Of Land - Land Law

Land 8- Trusts of Land

Introduction

Any trust whose trust property includes land is known as a ‘land trust’. This is the case whether the beneficial interests are concurrent (A and B hold their interests at the same time) or sequential (A’s interest passes to B upon A’s death/marriage etc). The Trusts of Land and Appointment of Trustees Act 1996 stipulates special rules governing the management of land trusts.

TLATA 1996, Part 1, as amended by Trustee Act 2000:

S.1 “trust of land” any trust of property which consists of or includes land

S.4 In the case of every trust for sale of land created by a disposition there is to be implied a power for the trustees to postpone sale of the land; and the trustees are not liable in any way for postponing sale of the land, in the exercise of their discretion, for an indefinite period.

S.6(1) Trustees have the same powers as a full legal owner, for the purpose of exercising their functions as trustees. (2) They may vest the land in the beneficiaries. (3) The trustees have the power to acquire land. (5) In exercising the powers conferred by this section trustees shall have regard to the rights of the beneficiaries.

S.7 (1) Trustees may partition the land and make equality payment to the beneficiary. (3) To do so they have to gain the permission of the beneficiaries. (4) Where a share in the land is affected by an encumbrance, the trustees may either give effect to it or provide for its discharge from the property allotted to that share as they think fit.

S.8 (1) ss6-7 don’t apply where the trust stipulates that they shouldn’t, nor where the trust requires consent of the beneficiaries and this has not been obtained.

S.9(1) a trustee can delegate any of their powers to a beneficiary.

S.9A: trustees have a duty of care in delegating their powers.

S. 10(1) If a disposition creating a trust of land requires the consent of more than two persons to the exercise by the trustees of any function relating to the land, the consent of any two of them to the exercise of the function is sufficient in favour of a purchaser.

S.11 Trustees shall consult beneficiaries so far as possible in exercising their powers

S.12 A beneficiary who entitled to an immediate (not sequential) interest in the land has a right to occupy the land

S.13 Where two or more beneficiaries are entitled to occupy the land, the trustees may exclude or restrict the entitlement of any one or more (but not all) of them. The power must be used reasonable and must consider the intentions of the settlor, the purposes for which the land is held, and the circumstances and wishes of each of the beneficiaries who would be entitled to occupy the land under. The beneficiary permitted to occupy can be made to compensate the excluded beneficiary.

S.14 A beneficiary, trustee or creditor can apply to the court to sell the property.

S.15 In considering whether or not to sell, the court shall consider the intentions for the settlor, the welfare of occupiers, and the interests of creditors. This is not an exhaustive list of factors.

Consultation

TLATA 1996 s11- see above

Rights of occupation

TLATA 1996 ss 12, 13- see above (and Gardner’s explanation)

French v Barcham [2008] EWHC 1505: A beneficial tenant in common who continued in occupation of a property following the bankruptcy of the other beneficial tenant in common could be required to compensate the bankrupt’s estate for that continued occupation. Also, sections 12 to 15 of the 1996 Act did not provide “an exhaustive regime” for compensation for exclusion of a beneficiary from occupation of property held subject to a trust of land. Where the statutory scheme applied then it should be applied but where it plainly did not there was no reason why the party not in occupation of the land in question should be denied any compensation at all if recourse to the court’s equitable jurisdiction would justly compensate him. However, as it happened, this case did fall within s.13(6).

NB: Where a mortgagee can’t get a sale via the normal route (if a mortgagor defaults) due to, for example, a partner’s defence of undue influence, s.14 orders may give the mortgagee some relief. Furthermore, the mortgagee could sue the mortgagor on the contract, forcing the latter into bankruptcy. The factors that would then be used to decide whether a sale should be ordered are the criteria under the Insolvency Act (see below), which are more creditor-friendly that those under s.15 TLATA 1996. See Re Citro and Barca v Mears (below)

TLATA 1996 ss 14, 15: see above

Family Law Act 1996 ss 33: (1) If a person has a beneficial interest entitling him to occupy, and the dwelling house has at any time been the home of that party and another associated to him or was entitled by the party with an interest or the associate party as such, the party with the interest may apply for one of the following orders (assuming the interest has not been terminated): (3) enforce P’s entitlement to occupy; require D to let him remain; regulate the occupation of the house; suspend/regulate D’s own occupation; (6) in deciding how to use these powers, the courts should have regard to the needs of the parties and the welfare of any child, the financial resources of each party, the effect of the order on the health/safety of either party/child, the conduct of the parties.

Mortgage Corporation v Shaire [2001] 4 All ER 364; [2000] Conv 315 and 329 at 334-6, [2001] CLJ 43: D and F, who both had beneficial interests in a house, took out a mortgage with bank P, but F had forged D’s signature on certain documents giving charges over the house. After F’s death, D fell into arrears and P sued for possession under s.14 of TLATA 1996. Neuberger J did not make the possession order. He held that the 1996 act had been intended to change the law, not merely codify it. Under the court’s discretionary powers arising under the act for trusts of land, the correct approach is that “once the relevant factors to be taken into account have been identified, it is a matter for the court as to what weight to give to each factor in a particular case”. In assessing whether there ought to be a sale Neuberger J took account of the fact that P had a 25% equity that was useless without a sale, while D did not want to sell her home to which she was emotionally attached. He therefore made an order that the 25% share was to be treated as a loan that D could pay off at an appropriate rate of interest, and failure to do this would lead to repossession by P.

This demonstrates (1) that the law has moved away from the necessary conclusion that default = repossession, and the more flexible approach of loan restructuring can be made instead, based on reaching a compromise between the interests of the parties. (2) The noting that the home had an emotional value means that courts may draw an asset-home distinction, to be treated differently. (3) because this position seems more pro-co owner and anti-lender, the banks are simply more likely to bring proceedings under insolvency procedures, as in Slayford (below). Also NB the defendant in this case was pecunious and had a reasonable chance of successfully buying the lender out: exceptional.

Bank of Ireland v Bell [2001] 2 FLR 809: Case of a wife’s forged signature on the mortgage documents. The wife had only a small (10%) beneficial share. There was no real prospect of the wife acquiring the other share. CA held that the bank was entitled to an order for sale and that the judge had not given due weight to the interests of the lender under s.15 of TLATA 1996, since the lender would be done an injustice if he could not acquire a money value for his vast majority share.

Peter Gibson LJ: “The 1996 Act, by requiring the court to have regard to the particular matters specified in section 15, appears to have given scope for some change in the court’s practice. Nevertheless, a powerful consideration is and ought to be whether the creditor is receiving proper recompense for being kept out of his money, repayment of which is overdue”. Radley-Gardner: This more restrictive reading of the 1996 act may be to avoid encouraging banks to bring bankruptcy proceedings in place of repossession proceedings and therefore the 1996 had to seem more favourable to them.

Alliance & Leicester plc v Slayford (2001) 33 HLR 743: The Court of Appeal held that it is not an abuse of process for a mortgage lender, who cannot get a possession order because the borrower's wife has an equitable defence, to sue on the borrower's personal covenants and bankrupt the borrower, even though this may result in the trustee in bankruptcy selling the property in which the wife has an equitable interest. This seems to undermine the 1996 Act which seems calculated towards helping borrowers. In fact, by encouraging banks to proceed on these lines, it has made a defaulting borrower’s situation even worse.

First National Bank v Achampong [2004] 1 FCR 18 at paras 53-66: X and D (married) took out a mortgage loan. X had used undue influence against D so that when X absconded and defaulted, it was only X’s share that the bank, P, had acclaim to. P sued D for possession and sale of the house, and the CA granted it, using its discretion under te 1996 Act. The fact that D’s grandchildren and disabled child were living at the house might delay the sale but were not enough to prevent it.

Blackburne J: “the effect of refusing an order for sale is to condemn the bank to wait – possibly for many years – until D should...