Introduction

• trusts of land came into existence on 1 January 1997 under Trusts of Land & Appointment of Trustees Act 1996
• previously trusts involving land usually took form of strict settlement or trust for sale
• A leaves gift of land to Ts on trust for D for life & remainder to E in fee absolute
  under strict settlement: legal estate not held by Ts
  D is tenant for life (first person entitled to an interest in possession) & holds legal fee simple
  D has dual role: trustee holding legal estate for himself & other beneficiary (E) & D also beneficiary
  D's powers: may sell the land but purchaser must follow overreaching procedure
  Ts hold no interest in the land but hold the proceeds of sale under terms of trust
• A leaves gift of land to Ts on trust for sale for D for life & remainder to E in fee absolute
  under trust for sale: trust creates succession of estates in land
  Ts own legal estate & manage trust land & D & E are beneficiaries
  Ts decide whether to sell, theoretically duty to sell immediately but power to postpone implied
  purchaser must follow overreaching procedure & Ts hold proceeds for D & E
• two-trust system problematic so reform needed & required settlor too explicitly create trust for sale
• strict settlement: expensive, complicated to administer & life tenant dual role
• trust for sale: immediate sale was not intention of many trusts over land

Trusts of Land and Appointment of Trustees Act 1996 (TLATA)

• TLATA 1996 replaced two-trust system with single trust (trust of land)

  Trusts of Land & Appointment of Trustees Act 1996

  • s.1(1)(a): trust of land: any trust of property which consists of or includes land
  • s.1(2)(a): trust of land may be express, implied, resulting or constructive, including trust for sale & bare trust
  • s.1(2)(b): includes trust created or arising before commencement of this Act
  • s.2: no new strict settlement may be created but existing not converted
  • s.4: provision for trust for sale to be expressly created, trustees under duty to sell immediately but implied power to postpone (must be exercised unanimously)
• trust comprising of land or mixture of land & personalty created on or after 1 January 1997 must take form trust of land (s.1(1)(a) TLATA 1996)
• generally not possible create new strict settlement & trust for sale possible but if over land must be trust of land (s.2 TLATA 1996)
• existing strict settlements remain until trust ends
• existing trusts for sale & bare trusts converted to trusts of land on 1 January 1997 (s.1(2) TLATA 1996)
• trustees: legal owners & power to manage trust property beneficiaries: equitable interest in land

Trust of land: creation

• settlor can expressly create trust of land or implied: co-ownership & where deceased's assets vests in personal representative
• documents to create must vest legal estate in trustees & equitable interest for beneficiaries

  Law of Property Act 1925

  • s.52(1): any transfer of legal estate in land must take form of a deed
  • s.52(2): not apply to
    s.52(2)(a): assents by personal representative (document used by personal representatives to transfer ownership of deceased's land)
  • s.53(1): signed written document to transfer equitable interest to beneficiaries
• s.53(1) LPA 1925 deed not required for assent, but must be in writing & signed by personal representatives & will sets out interest of beneficiaries
• restrictions apply to number of trustees

  Law of Property Act 1925

  • s.34(2): maximum of four trustees

Trustees' powers: general

• trustees' powers are set out in TLATA 1996

  Trusts of Land & Appointment of Trustees Act 1996

  • s.6(1): For the purpose of exercising their functions as trustees, the trustees of land have in relation to the land subject to the trust all the powers of an absolute owner.
  • s.6(2): trustees may dispose of legal estate in specified way (transferring to beneficiary absolutely entitled & ending trust)
  • s.6(3): give trustees power to buy land for purposes as set out in s.8 Trustees Act 2000
  • s.6(5): requires trustees to have regard to the rights of the beneficiaries
  • s.6(6): powers must be exercised in compliance with rules of equity & law
• s.6(2): allows trustees to end trust even if beneficiaries not requested
• s.6(3): term power seems to give trustees permission to deal with trust property rather than a lesser ability, power is limited to buy legal estate not equitable interest
• trustees powers much wider than previous (include power to sell or mortgage)

Trustees' powers: specific

• in addition to providing trustees with powers of absolute owner (s.6(1) TLATA 1996) also provided with specific powers
• trustees have specific power to partition land

  Trusts of Land & Appointment of Trustees Act 1996

  • s.7(1): trustees can partition land between beneficiaries (if beneficiaries : full age & absolutely entitled to trust land in undivided shares
  • s.7(3):trustees must obtain consent of beneficiaries
• to execute a partition: deed conveying part of land to each beneficiary, beneficiary becomes sole legal & beneficial owner of part & trust ends
• trustees given specific power to delegate

  Trusts of Land & Appointment of Trustees Act 1996

  • s.9(1): trustees can delegate their powers to an attorney (attorney must be: full age & entitled to an interest in possession under the trust
  • s.9(3): power of attorney must be made jointly by all trustees but appointment can be revoked by one
  • s.9(7): attorney may sell land but note entitled to proceeds, proceeds must be paid to trustees
• no statutory provision to allow settlor to exclude trustees' power to delegate

Trustees' powers: restrictions

• some restriction to powers in form of trustee duty to consult beneficiaries

  Trusts of Land & Appointment of Trustees Act 1996

  • s.11(1): trustees must consult with beneficiaries (of full age & who have interest in possession) & as far as is consistent with the general interests of the trust comply with wishes of majority in value
  • s.11(2)(a): settlor may exclude duty to consult in trust deed
  • s.11(2)(b): duty to consult does not apply if trust was made under will prior to commencement date (1 January 1997)
• TLATA 1996 makes some provision to allow settlor's to restrict trustees' powers

  Trusts of Land & Appointment of Trustees Act 1996

  • s.8(1): applies to trusts of land created by disposition (express trusts)
  • s.8(2):settlor may require consent to be obtained for a trustee to exercise powers under s.6 (powers of absolute owner) or s.7 (power to partition)
  • s.8(3):not apply to charitable, ecclesiastical or public trusts
• s.8 only applies to private express trust of land & most commonly used to prevent trustees selling land without consent of named persons
• if settlor excluded powers then courts cannot intervene in relation to a non-existent function

  Trusts of Land & Appointment of Trustees Act 1996

  • s.14 : courts may intervene in disputes between trustees & beneficiaries & make order relating to the exercise by the trustees of any of their functions

Beneficiaries' rights

• most beneficiaries rights derived from trustees' duties: rights be consulted (s.11 TLATA 1996) & permission required (s.8 TLATA 1996)
• under trust for sale no right to occupy as interest was in proceeds of sale not land itself (doctrine of conversion)
• strict application of doctrine of conversion not practical so courts considered if collateral purpose of trust for sale (providing beneficiary with home), if so court could order postponement of sale while purpose existed
• some provision for occupation in TLATA 1996

  Trusts of Land & Appointment of Trustees Act 1996

  • s.12(1): beneficiary entitled to an interest in possession in land, right to occupy land if:
    s.12(1)(a): purpose of trust include making available for occupation
    s.12(1)(b): land is held by the trustees so it is available for occupation
  • s.12(2): no right to occupy land if it is either unavailable or unsuitable for occupation by him
  • s.13(3): trustees may impose reasonable conditions on beneficiary in relation to occupation
  • s.13(5): conditions may include paying outgoings or expenses

Dispute resolution

• dispute may arises between trustees or trustees & beneficiaries
• there is provision for the courts to intervene in certain circumstances

  Trusts of Land & Appointment of Trustees Act 1996

  • s.14(1): application for court order can be made by trustee or beneficiary
  • s.14(2): court may make order as thinks fit:
    s.14(2)(a): relating to trustees exercise of any of their functions (including order relieving them of duty to consult)
    s.14(2)(b): declaring nature or extent of a person's interest in trust property
  • s.14(3): no court order as to appointment or removal of trustees
  • s.15(1): non-exhaustive list of considerations when making order:
    s.15(1)(a): intentions of settlor in creating trust
    s.15(1)(b): purpose trust property held for
    s.15(1)(c): welfare of minors in occupation
    s.15(1)(d): interests of any secured creditor

Protection of a purchaser form trustees

• if trustees sell, purchaser must ensure he buys land free of equitable interests of beneficiaries by following correct procedure
• overreaching protects purchaser if he pays capital money (purchase price) to at least two trustees, trustees then hold proceeds under terms of trust

  Law of Property Act 1925

  • s.27(1) : to overreach: buyer must pay the purchase price to all trustees (at least two) or trust corporation
  • s.27(2): a sole personal representative can overreach
• further protection from consequences of breach of trust by trustees is given under TLATA 1996

  Trusts of Land & Appointment of Trustees Act 1996

  • s.10(1): where trust deed requires trustees to obtain consents before sale, purchasers need only check that two consents have been obtained
  • s.10(2): if one person is under full age, purchasers do not have to ensure that this consent is obtained
  • s.16(1): buyer not have to ensure trustees have complied with statutory requirements to consult or are acting with regard to beneficiaries interests
  • s.16(2): if buyer has no actual notice of the breach, conveyance will not be invalidated
  • s.16(2): trustees should inform buyer of any limitation to their powers, without actual notice conveyance will not be invalidated
• s.16 does not protect purchasers of registered titles
• equitable interests under a trust of land are interests affecting a registered estate & should be protected by an entry (a restriction) on the register to bind a purchaser
• restriction: warns purchasers to follow the correct procedure (overreaching) when buying the land
• overreaching can take free over of actual occupation rights (overriding interest)

  Land Registration Act 2002

  • Sch.3 p.2: protects interest of person in actual occupation
  • recognised interest in land (equitable interests under trusts & options to purchase)
  • occupation obvious on reasonable inspection of the land or buyer knew of interest
  • buyer can take free if asks occupier & occupier unreasonably fails to disclose

  London Building Society v Flegg [1988] AC 54

  Facts:

  • Mr & Mrs B and Mr & Mrs F both paid half the purchase price of Bleak House
  • Bleak House registered in name of Mr & Mrs B, who held legal title on trust for sale
  • Bleak House was occupied by Mr & Mrs B and Mr & Mrs F
  • Mr & Mrs B mortgaged the property to City of London Building Society (in breach of trust & Mr & Mrs F were unaware)
  • Mr & Mrs B defaulted & City of London Building Society sought possession
  • Mr & Mrs F argued: a beneficial interest through contribution to purchase which was an overriding interest as in actual occupation (s.70(1)(g) LPA 1925)
  • City of London Building Society argued: Mr & Mrs F's interest was overreached as trustees (Mr & Mrs B) had received capital

  Issue:

  • had overriding interest been overreached?

  Held:

  • House of Lords: Mr & Mrs F's interest was overreached
  • overreaching operated to detach beneficial interest from land to proceeds of sale, so no interest capable of being an overriding interest
  • City of London Building Society took free of beneficial interests
• under s.6 TLATA 1996, trustees have powers of absolute owner subject to rule of law & equity

  Land Registration Act 2002

  • s.26: trustees, once they become the registered proprietors have powers of an absolute owner (including the power to sell)
• any limits on trustees' wide powers should be reflected by the entry of restriction (on proprietorship register)

Ending a trust in land

• four ways to end trust of land: sale, rule in Saunders v Vautier, transfer to beneficiaries and partition
• sale: proceeds (personalty) are only trust property remaining
• beneficiaries may exercise rights under rule in Saunders v Vautier:

  Saunders v Vautier (1841) 4 Beav 115

  • absolutely entitled beneficiary can end trust by requesting trustees hand whole trust fund over to him or other trustees
• transfer of trust property is provided for under TLATA 1996

  Trusts of Land & Appointment of Trustees Act 1996

  • s.6(2): trustees may transfer property to beneficiaries (if all full age , capacity & absolutely entitled to the land)
• partition of trust property is provided for under TLATA 1996

  Trusts of Land & Appointment of Trustees Act 1996

  • s.7(1): trustees can partition land between beneficiaries (if beneficiaries : full age & absolutely entitled to trust land in undivided shares