A strategy for estates

We start with the question: what interests do purchasers want to buy? In order to facilitate land transactions and, thereby, efficient land use, we need to ensure that purchasers can

A strategy for estates

readily purchase those interests. We start with freehold estates (life interests and the fee simple) and then move on to leasehold estates (tenancies).

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Freehold estates

Nearly all purchasers want to buy ‘the land’. We have seen that ownership of land is not, technically, recognised by English land law. The closest right is the fee simple absolute in possession. This is what purchasers want to buy. Virtually nobody wants to purchase life estates or remainders: their length is uncertain and they are simply not what purchasers are looking for. It follows that a central objective is to ensure that there is always some-body with the fee simple absolute in possession and that a purchaser can safely purchase from that person.

The 1925 legislation

That central objective explains section 1 of the Law of Property Act 1925, which states that the only legal freehold estate that can exist today is the fee simple absolute in possession. This means that there will always be somebody with a fee simple absolute in possession: it is this person that a purchaser of the freehold will deal with. Life interests and remainders can still exist, but only as equitable interests under a trust.

If the law were simply to limit the number of legal estates, purchasers would still have to discover equitable interests and negotiate with their holders. Suppose Richard and Sally hold on trust for Andrew for life and thereafter for Betty. Without further provisions, a purchaser would almost certainly have notice of Andrew and Betty’s equitable interests and therefore be bound by them. Purchasers do not want to be bound by life interests or remainders and so they would have to ascertain that Andrew and Betty approved the sale. Purchase of land would be made no easier.

To avoid these problems, the legislation entitles the trustees (Richard and Sally) to sell the legal fee simple free of interests under trusts. These interests then take effect against the proceeds of sale held by the trustees, not against the purchaser. This shifting of interests from the land to the proceeds of sale is called overreaching. It means that a purchaser can deal with just Richard and Sally and can ignore the beneficial interests of Andrew and Betty (whether or not the purchaser knows about them). Richard and Sally might, for example, buy Marks & Spencer shares with the proceeds of sale: Andrew will now have a life interest in the shares and will be entitled to the dividend income from them.

So far we have been considering successive interests. However, it was thought that concurrent interests might also pose problems for purchasers: this is further dis-cussed in Chapter 12. In order to avoid similar problems for purchasers, there is again a trust and the concurrent interests can be overreached.

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

Under the 1925 legislation, there is a trust whenever there are successive and concurrent interests. The object of TLATA is to regulate how that trust of land operates. For example, it tells us what powers the trustees have and whether the beneficiaries have rights to

A strategy for estates

Legislative reform: 1925 to 2002

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occupy the land. Very importantly, it gives the court discretion to settle any disputes regarding the land. Let us return to the example involving Richard and Sally as trustees and Andrew and Betty as beneficiaries. There may be disagreement as to whether the land should be sold. Whether there is disagreement between Richard and Sally or between them and the beneficiaries, the court can decide what should happen.

Though some of these issues had been dealt with by the 1925 legislation, TLATA intro-duces much more comprehensive rules. It provides the focus of Chapter 12.

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Leasehold estates

Leasehold estates do not pose the same problems as freehold estates such as life interests and remainders. Experience shows that purchasers are happy to buy leases and to buy land that is subject to a lease. Suppose that Fast Food Ltd wants to open an outlet in Bristol. It wants to have a lease because it doesn’t have the resources to purchase a fee simple; anyway, it does not want a long-term commitment to any particular plot of land.

It would be happy either to take a lease from a landlord for, say, five years or to purchase a lease from an existing tenant. Suppose Gourmet Meals Ltd has a lease of a restaurant from Megaproperty Ltd (the landlord) for ten years and wants to leave after five years.

Fast Food will be perfectly happy to take over Gourmet Meals’ lease, making a small pay-ment if the rent is below current market levels. This is an example of a sale of a lease.

Many purchasers buy land as an investment, intending to receive rent from tenants rather than to occupy the land. This means that it is quite easy for Megaproperty to find a purchaser for the freehold of the restaurant, despite the lease of Gourmet Meals (or Fast Food). There are two reasons why this is different from buying land subject to a life interest. The first is that life tenants do not pay rent: invariably, life interests are created by members of the family making gifts of their property and not as commercial transactions.

In contrast, a purchaser from Megaproperty will receive rent. The second reason is that a purchaser knows how long the lease will last. Even if the rent is below current rental levels, the purchaser can calculate the cost of this over the duration of the lease and negotiate for a lower purchase price to take account of it. With a life interest, nobody knows how long the life interest holder will live: any purchaser would be taking a gamble.

This shows that land can readily be sold despite the fact that the purchaser is bound by a lease. The 1925 legislation recognises this by allowing leasehold estates to be legal.

We therefore have two types of ownership right that are commonly bought and sold: the fee simple absolute in possession (whether or not subject to a lease) and the lease.

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Registration of title

In the modern law, the great majority (over 90 per cent) of houses and other plots of land are registered. This means that there is a register that identifies the relevant plot of land and who owns it. The system is not yet universal, but that may be achieved within the next decade. Registration makes it much easier to buy and sell land. For unregistered land(the 10 per cent not yet registered), purchasers have to read through documents transferring the land from one person to another – these are the title deeds. This can