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Nature and importance

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henever there is concurrent or successive ownership of land, questions may arise concerning (for example) rights of occupation and sale of the land. A very simple example comes from concurrent ownership: one co-owner wants to occupy the land and the other wishes to have it sold. It is necessary for the law to deal with these questions and to establish procedures for resolving disputes. There are various ways in which this could be achieved, but since 1925 we have imposed a trust and then provided for the operation of this trust. This means that trusts are given an extensive and vitally import-ant role. This is a feature which often surprises those who are not familiar with English land law. Today, this is the province of the Trusts of Land and Appointment of Trustees Act 1996 (TLATA) and much of this chapter is devoted to the working of the rules it establishes.

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The need for regulation: successive interests

The origins of the modern law lie in nineteenth-century successive interests. Take a simple settlement whereby land is held for Alice for life and thereafter by Brian (a fee simple in remainder). Originally, these would be legal estates and, during Alice’s lifetime, the land would be managed by Alice. All would be well so long as all that needs to be done is to let the land to tenant farmers on short leases and ensure that it is properly farmed.

However, problems arose as soon as anything more radical needed to be done. If part of the land needed to be sold – perhaps for housing or industrial development – then both Alice and Brian would have to be involved. This might not appear too difficult, but the various interests would frequently be far more complex and in any event Brian might be an infant or a person whose identity is unascertained. An example of the latter would be a remainder to the children of Brian: until Brian dies, we cannot be sure that we have a complete list. This made it difficult and expensive to sell or to enter into other long-term transactions, such as longer leases or mortgages.

Similar problems arose if the land needed improvement, one example being by the construction of drains. Alice may well not be willing to spend her own money, as her

Nature and importance

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interest terminates on her death, whereas Brian has little immediate interest in improv-ing land that doesn’t yet provide him with any return.

The nineteenth-century response was to confer powers on the tenant for life, Alice.

Alice could improve, mortgage (to borrow money) and sell the land, subject to safeguards to protect Brian. One very important aspect of these powers was that a sale (for example) by Alice would overreach all the successive interests. Overreaching is the shifting of interests from the land to the proceeds of sale; it is studied later in this chapter. It means that Brian ceases to have an interest in the land and instead has an interest in money. A purchaser from Alice is not bound by Brian’s interest whether it is legal or equitable and regardless of notice (or, today, its being an overriding interest).

Accordingly, the purchaser doesn’t have to deal with Brian – it is this factor that eases property transfer. This settlement structure is often termed settled land; it found its final form in the Settled Land Act 1925, under which the tenant for life (Alice) is given the legal fee simple on trust.

An alternative was for the land to be vested in trustees for sale, holding on trust for Alice and Brian. Trusts for sale had long been recognised; they involve an obligation to sell the land and were originally used when long-term retention of the land was not intended. However, there would usually be a power to postpone sale and this rendered the trust for sale suitable for long-term landholding, despite its unpromising label. This trust was recognised by the 1925 legislation as an alternative to settled land. As one might expect, powers to deal with the land were conferred on the trustees by the Law of Property Act 1925 (LPA) and overreaching protected purchasers. One might ask why the 1925 legislation didn’t employ a simple trust of land, rather than a trust for sale. The answer appears to be that settled land involved the tenant for life’s holding the land on trust. A contrasting form of trust (the trust for sale) was required for cases where trustees held the legal title.

However, since TLATA there has been a single form of settlement: the trust of land.

This is much more straightforward than the previous settled land and trusts for sale regimes, which involved two sets of rules. The old settled land approach of conferring powers on the tenant for life was thought to be inappropriate in many cases. The tenant for life might be incompetent and, in any event, there may well be a conflict of interest between the life interest and fee simple (the tenant for life being more interested in short-term benefits). Settled land was best suited to settlements based on primogeniture (property passing to the eldest son), which is now regarded as outdated. Trusts for sale are subsumed within the new trust of land and cease to be a separately regulated land-holding structure. They are simply one type of trust of land: one in which there is a duty to sell. They will be considered later in this chapter; suffice to say at this stage that few settlors today wish to create trusts for sale.

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Extension of regulation to concurrent interests

Until 1925, concurrent interests received no equivalent attention from the legislation.

However, it was perceived that some of the same problems could apply as with succes-sive interests. The joint tenancy is unlikely to pose problems as it will be unusual for

Nature and importance

there to be a large number of joint tenants. Furthermore, the number will decrease as they die (survivorship, explained in Chapter 11). However, it is not such plain sailing for tenancies in common. The problem here is that a tenant in common can pass on his interest on death. This involves two practical points. First, it becomes necessary to trace the passing of each interest (more complex than showing a death certificate to prove survivorship). Second, the will may pass an interest to a wide class of persons. An example would be a gift by a tenant in common ‘to my grandchildren’, of whom there are ten.

This illustrates the potential for there to be an increasing multitude of tenants in com-mon, which would make it difficult to get the unanimity required for dealing with the land. Even where they all agree, dealing with more people and tracing the passing of interests can multiply the work (and thus time and expense) involved in buying land.

The LPA solved these problems by imposing a trust for sale in all cases of co-ownership.

It enabled sale (by the trustees, usually the same persons as the co-owners) and over-reaching in the same way as in successive interests. The use of a trust for sale had the strange result that a couple who had just bought their home had an obligation to sell it, though it did little harm in practice. Today, there is a simple trust of land (without any need for a trust for sale) and, like successive interests, it is governed by TLATA. Trustees always hold as legal joint tenants: since 1925 it has been impossible to hold a legal tenancy in common.¹The beneficial interest will be either a joint tenancy or tenancy in common, according to the normal rules considered in Chapter 11.

How does this work if Freda, Gerry and Harry buy land as tenants in common? The three of them will be joint tenants holding the legal estate as trustees (there is a maxi-mum of four trustees)²on trust for themselves as beneficial tenants in common. Should Gerry die, Freda and Harry will hold the legal estate as trustees for themselves and who-ever has Gerry’s share under his will. A purchaser will deal only with Freda and Harry.

Independent trustees (i.e., not the same persons as the trustees) are more likely where the trust is set up as part of a settlement or will.

One may doubt whether the problems caused by concurrent interests before 1925 were (or are today) anything like as great as was feared. The reforms have not been implemented in other common law jurisdictions, which do not appear to experience significant problems. Yet it would be unrealistic to abolish the compulsory trust of land.

As has been observed, the trust is the key to a host of provisions regulating the rights of the co-owners and resolution of disputes. This also goes far to explain why the law imposes a trust when there is a joint tenancy.

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A single regulatory regime for successive and concurrent interests

We employ the identical TLATA regime for both concurrent and successive interests.

However, the needs of the two types of interest may well be different: one cannot assume that the rules will be applied in an identical manner. Two examples (both considered in

1 LPA, s 1(6) (the reference to ‘undivided share’ is another way of describing a tenancy in common).

2 Trustee Act 1925, s 34.

Main issues and rules

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greater detail later in this chapter) may be given. First, trustees have statutory authority to delegate their powers to a beneficiary whose interest is in possession. This is unneces-sary where two co-owners are both trustees and beneficiaries: they are managing the land already. It makes much more sense when independent (i.e., non-beneficiary) trustees delegate to the holder of a life interest. Second, the courts are very willing to intervene in disputes between co-owners who are also trustees. Because trustees normally must exercise their powers unanimously, decisions cannot be taken unless they agree. If the co-owners (typically a couple) have split up and cannot agree what to do with the land, court intervention is essential to decide whether it should be sold. By contrast, the courts may display much greater reluctance to get involved if beneficiaries dispute decisions by independent trustees. The settlor has chosen the trustees as persons and entrusted them with decision-making. The courts retain jurisdiction to review decisions, but one may expect that it will be sparingly exercised (at least if the trustees are unanimous).

Main issues and rules

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When is there a trust of land?

Unsurprisingly, there is a trust of land whenever land is held on trust. It has been seen that the trust of land regime is intended to apply to successive and concurrent interests.

In this section, the scope of trusts of land is considered in a little more detail.

Successive interests

The only legal freehold estate since 1925 is the fee simple absolute in possession. This means that a life interest and an interest in remainder necessarily take effect as equit-able interests, under a trust.³TLATA naturally applies to these successive interests.

Concurrent interests

LPA section 36 makes it clear that a joint tenancy must be held under a trust. This has the apparently odd result that a transfer to Ruth and Sam means that they hold the legal estate as joint tenants on trust for themselves as equitable joint tenants. It may be justified because the trust is vital for TLATA to apply, enabling effective land management and the resolution of disputes.

LPA section 1(6) prevents tenancies in common being legal estates. It follows that they must be equitable interests under a trust: a trust of land. LPA section 34(2) provides that a purported transfer to tenants in common takes effect as a transfer to them as joint tenants, holding on trust for themselves as beneficial tenants in common. That works well enough if there is a transfer to Richard and Susan as tenants in common. They hold the legal estate as joint tenants on trust for themselves as tenants in common.

Unfortunately, the legislation fails to cope with more complex situations. Suppose there is a transfer to Tom, when Ursula has contributed to the purchase? We saw in Chapters 9 and 11 that the law will recognise a constructive trust, whereby Tom holds

3 LPA, s 1.

Main issues and rules

the legal estate for himself and Ursula as tenants in common. Unfortunately, section 34(1) states that a tenancy in common shall not be capable of being created except

‘as hereinafter mentioned’. The Tom and Ursula example falls outside section 34(2) as it is not a case where ‘land is expressed to be conveyed to any persons’ as tenants in common: this is because the tenancy in common arises from the constructive trust. This means that the situation is not ‘hereinafter mentioned’ and therefore, apparently, there cannot be a tenancy in common. This would, however, be an unacceptably harsh and restrictive result: there is no policy reason why there shouldn’t be a tenancy in common in such cases. Though offering no analysis, Denning LJ in Bull v Bull⁴clearly held that there is an equitable tenancy in common in such cases. This is the only sensible result and it has never been challenged. The consequence, of course, is a trust of land with Tom being the trustee.

Other cases

A bare trust (where trustees hold on trust for one individual absolutely) is a trust of land.

This enables purchasers to be protected by overreaching when they deal with the trustees.

Some special cases are explicitly included by TLATA.⁵ These include conveyances to infants (a trust is necessary to enable the land to be properly managed) and land subject to family charges. There is a family charge where a sum of money has to be paid annu-ally to a member of the family, with the obligation charged on the land (this gives the payee rights in the land to ensure payment). It would be difficult to sell the land subject to the charge and it is useful to be able to overreach the charge.

Might trusts of land apply in unintended circumstances? One possible example is a contract to sell land. This is an estate contract, an interest in land that can bind anyone later acquiring an interest in the land. It is often thought that the seller holds the land on trust for the purchaser, though it is a rather special form of trust. It would be very odd to apply the trust of land regime to the estate contract: this would enable the seller (trustee) to dispose of the land free of the estate contract. Estate contracts are expected to bind purchasers and cannot sensibly take effect against the proceeds of sale. We can con-fidently predict that the courts would find a way to conclude that there is no trust of land.

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Trustees’ powers and their exercise

As one might expect, the trustees usually manage the land. Trustees of other property only have such powers as the trust document or the general law confers. For trusts of land, the general philosophy is to confer almost unlimited powers on the trustees, but then to place restrictions on how they are to be exercised.

There may be said to be four players in the operation of the trust: settlor, trustees, beneficiaries and the court. Much of the interest in the present law is as to whether each of these four is given an appropriate role by TLATA. Beneficiaries traditionally had almost no say in the running of trusts (though it was very different for Settled Land Act settle-ments), but we shall see that TLATA provides a number of ways in which beneficiaries’

4 [1955] 1 QB 234.

5 TLATA, Sched 1.

Main issues and rules

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wishes are taken into account. The role of the court is vital because TLATA section 14 con-fers jurisdiction to resolve disputes (fully discussed below).

The extent of trustees’ powers

TLATA section 6 confers on the trustees ‘all the powers of an absolute owner’. This means that they can sell, lease or mortgage the land, as well as undertaking lesser transactions such as creating easements. This contrasts with earlier legislation, which conferred specific (though still wide) powers.

Section 8 (new in TLATA) allows the settlor to exclude powers; for example, the power to sell can be excluded. This is interesting because it runs counter to the policy of the past century that land must always be marketable. One reason for the change is that there are many fewer large settlements today, so that the entire issue is less significant.

In any event, it can confidently be expected that few settlors will wish to limit powers:

the advantages of marketability are now widely accepted.

TLATA confers other powers, going beyond land management: to acquire land (section 6(3); see also Trustee Act 2000, section 8), to transfer the property to the benefi-ciaries (section 6(2)), to split the land among the benefibenefi-ciaries (partition: section 7), to delegate powers to beneficiaries (section 9) and to resolve occupation disputes (sections 12 and 13). Delegation and occupation are considered later in this chapter.

Exercising the powers

A general rule of equity is that trustees must exercise their powers unanimously. This is particularly important when the beneficiaries are also the trustees, as is usual for con-current interests. Disagreement is quite likely in the typical case where they are a couple whose relationship has broken down; nothing can then be done without a court order.

Although independent trustees must similarly be unanimous, in practice this gives rise to little difficulty. In addition, it must be remembered that trustees hold their powers in their capacity as trustees, not for their personal benefit. The powers must be exercised for the benefit of the beneficiaries. No legislation is required to establish this, though section 6 stresses the need to have regard to beneficiaries’ rights and to comply with statutory and common law (or equitable) rules.

There are a number of specific ways in which beneficiaries may be involved in man-agement questions. We will leave aside the possibility that beneficiaries may be trustees (common for concurrent interests) or that powers may have been delegated to them.

Unless excluded by the settlor, TLATA section 11 requires trustees to consult beneficiaries when exercising their powers (when selling, for example) and to give effect to the majority view ‘so far as consistent with the general interest of the trust’. This interesting provision is less significant than one might expect. For concurrent interest trusts, the beneficiaries will typically also be trustees – nothing can be done without their active participation.

Consulting themselves is an empty charade! In any event, the beneficiaries will frequently hold equal interests and there will be no majority view.

Section 11 may be more useful for successive interest trusts. However, it is important to note that those consulted are limited to adults holding interests in possession. A fundamental duty of trustees is to balance the interests of life tenants and holders of

Main issues and rules

remainder interests. It may well be that the needs of holders of interests in remainder conflict with the interests of life tenants. Thus, a life interest holder may wish a house to be sold in order to increase income, while those with interests in remainder may regard it as the traditional home and want to live there in due course. The trustees cannot blindly implement the wishes of the life interest holder.

A settlor may require a beneficiary’s consent before powers are exercised (section 8(2)).

A simple example is provided by a trust of a family home for a widower for life, remainder to children. The settlor might intend that the widower should live in the home and may therefore want the widower to have to consent before sale. Special provision is made where the individual is an infant (parents can consent: section 10(3)). There is protection for purchasers in order to avoid onerous consent requirements: if the consent of more than two persons is required then the consent of any two suffices (section 10(1)).

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The role of the court

The court has wide powers to settle disputes relating to the exercise of the trustees’ func-tions. Disputes may arise because the beneficiaries disagree with what the trustees pro-pose to do (or not do) or because the trustees disagree with each other. Virtually all cases have involved concurrent interests, where the same persons are both trustees and bene-ficiaries. If their relationship breaks down, then they are quite likely to have differing views as to what should happen to the land, most obviously when it is occupied by one of them and the other wants it to be sold. It will take a court order to resolve these disputes.

The present jurisdiction is found in TLATA section 14, which confers wide powers on the court. Section 15 lists four factors that the court must consider:

(a) the intentions of the settlor;

(b) the purpose for which the land is held;

(c) the welfare of occupying minors; and (d) the interests of secured creditors.

In addition, the court ( just like the trustees) is to consider the wishes of those with interests in possession.

The modern case law has centred on disputes involving trustees in bankruptcy or secured creditors. These disputes are considered below, under ‘Critical and controversial issues’. Disputes between co-owners featured in cases were decided under LPA section 30 (the precursor of TLATA sections 14 and 15); they provide a guide to the operation of TLATA. Section 30 contained no list of considerations for the court to take into account.

The courts developed an analysis whereby the land would not be sold if there was a purpose⁶ underpinning the acquisition of the land (the cases invariably involved purchase rather than a settlor settling land). Once the purpose had come to an end, the land would be sold.

6 Before TLATA, under the trust for sale the primary purpose (in the eyes of the law) was sale. This is why the earlier cases refer to collateral purposes.

Main issues and rules

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In the leading case of Jones v Challenger,⁷ the husband and wife jointly purchased their family home. Later they divorced, seemingly because of the wife’s conduct. She left him in the former family home, but now sought sale. The Court of Appeal recognised that sale would not normally be ordered if the purpose was still continuing. However, on the facts, the purpose was for the occupation of both of them and that had come to an end on divorce; sale was ordered. It will be a rare case in which a couple will intend occupation by just one of them, should they separate.

Most cases have involved disputes between couples, whether married or not. While they are living happily together, no question of sale will arise. They may disagree whether they should move to a different house, but the chances of such a disagreement leading to litigation are almost zero. Once they split up, however, the purpose has come to an end and, in the absence of children, sale seems inevitable. The only realistic alternative course is for the occupier to buy out the other person’s share, whereupon neither really loses out. Of course, in many cases there will simply not be the funds available for this to be practicable.

One might expect similar results under TLATA. However, two significant changes in the new legal structure can be pointed to. The first is that the old law employed a trust for sale, with the result that the fall-back position was that sale should be ordered. The present law contains no such pro-sale bias. Although this might indicate that sale is less likely today, the role of the obligation to sell in cases such as Jones v Challenger was already marginal. The second change is that the interests of occupying minors are clearly established for the first time. The minors need not be the children of the co-owners, so the interests of grandchildren can be considered.⁸

More generally, the point can be made that section 15 is broader in its outlook. It lists criteria to be taken into account and makes it clear that other relevant factors can be con-sidered. An example might be where a house has been modified so as to provide chair-lift access to an upper floor for an elderly relative: this would be a reason for not selling.

The old law, it may be thought, placed rather too much stress on purposes. This can be unhelpful when purposes are not clearly articulated, especially where purposes are mixed and one of them ceases to apply. Bedson v Bedson⁹illustrates this. Property had been pur-chased as a home and also as a drapery shop. When the marriage broke down, it was held that the purpose of a drapery business continued so that sale should not be ordered.

It is easy to see that many cases may involve similar mixed purposes, for example to pro-vide a home for a couple and also their parents/children. It is equally wrong always to insist on a sale if one of the purposes has ended as always to deny a sale unless all the purposes have ended: a balanced approach is required.

Against that background, how significant are the changes in TLATA? Apart from bank-ruptcy/secured creditor situations, there have been few cases since TLATA. However, there is an interesting statement by Neuberger J in Mortgage Corpn v Shaire¹⁰that the

7 [1961] 1 QB 176.

8 First National Bank plc v Achampong [2004] 1 FCR 18.

9 [1965] 2 QB 666.

10 [2001] Ch 743 at p. 761.