Экзамен зачет учебный год 2023 / Dixon, Modern Land Law

Modern Land Law

changes that were to be made. It was recognised, however, that some people would find that their rights over the land itself had diminished, albeit that such rights could now take effect in its exchange product; that is, money.

These two goals remain, but changes in the way land was used, and the explosion of ‘private’ freehold ownership meant that the machinery of the 1925 legislation was out of date well before 1996. For example, land is no longer owned by the few, nor is it used only for investment purposes. The ‘property owning democracy’ is a clichéd but accurate description for the widespread land ownership that exists today. It was almost ludicrous that normal domestic co-ownership should have been forced to operate under a statutory mechanism (the old trust for sale) that was designed to promote the sale of land rather than its retention for use by the owners. Hence, the reforms of 1925 were rightly amended by the 1996 Act in order to reflect the reality of property use and ownership in 1997 and beyond. This should be remembered in the following discussion about the advantages of the 1925 and 1996 legislative reforms.

First, prior to 1 January 1926, any person wishing to purchase co-owned land would have to investigate either the one title of the joint tenants or the individual titles of every single tenant in common. Obviously, not only was this time-consuming, but the objection of just one tenant in common might prevent the land from being sold, even if this would have been for the benefit of every other tenant. By abolishing tenancies in common at law, the LPA 1925 has ensured that there is but one title to investigate: the legal joint tenancy. Moreover, the number of legal joint tenants is limited to a maximum of four (irrespective of the number of equitable owners), so that a purchaser need only concern himself with obtaining the consent of, at maximum, four people.47

Second, if there are two or more trustees of land (i.e. two or more legal owners), and the purchaser obtains the consent of all48 to a sale or mortgage, the purchaser safely may ignore all the equitable owners, subject only to any entries on the register of title restricting the trustees’ powers of dealing with the land.49 This is the magic of statutory overreaching whereby the interests of the equitable owners (be they in equity joint tenants or tenants in common) are transferred from the land to the proceeds of sale arising from the money paid by the purchaser. Indeed, such is the power of overreaching that it will operate even if no money is actually paid over in one large sum, provided that a sum is payable should the trustees wish to draw on it. Thus, in State Bank of India v. Sood (1997), overreaching occurred by reason of the fact that the

47In most cases of residential co-ownership, there will be only two trustees – usually the same people as the equitable owners.

48Bearing in mind there may be a maximum of four only.

49For example, a requirement to obtain a person’s consent before sale: a Form N restriction.

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trustees had mortgaged the property in return for an overdraft facility rather than receiving a one-off capital payment.50

Third, although a tenancy in common cannot exist at law, in equity both this and the joint tenancy are possible. Indeed, in the normal case, the equitable owners are secure in the knowledge that their interests, however held, will take effect in any proceeds should the property be sold or mortgaged. Moreover, the existence of a trust means that the equitable owners have powerful proprietary remedies in the event of default by the trustees. For example, the beneficiaries may establish ownership of any assets purchased by the trustees with the proceeds of sale or, failing that, may sue the trustees personally if they have spent the money on untraceable assets. After all, the trustees are ‘trustees’ and subject to the normal core obligations of that office.

Fourth, the existence of a power to sell under the trust of land prevents co-owned land becoming inalienable should there be a dispute between the co-owners (or other interested persons). Although all trustees must agree if the power of sale is to be exercised voluntarily, if the trustees disagree about how the land should be used, application can be made to the court under section 14 of TOLATA 1996 for an order for sale (or other order concerning the property). If sale is ordered, the equitable interests will take effect in the proceeds of sale in the normal way. Consequently, co-owned land will not stagnate through the inability to secure the agreement of all the legal owners. This is entirely consistent with the general aim of the 1925 reforms which was to ensure the free alienability of co-owned land through simplifying the conveyancing process and offering protection for the purchaser against any adverse equitable interests (the overreaching machinery). As noted above, the 1996 statute reflects the fact that much co-owned land is not held in order to sell, but in order that it be occupied, but that does not mean that it becomes inalienable. TOLATA’s replacement of the old trust for sale with the trust for land, comprising a power (but not a duty) to sell the land, puts this into practice. Thus, the 1996 statute holds more evenly the balance between the needs of the purchaser and the needs of the equitable owners and an application under section 14 can be made when there is deadlock.51 A synopsis of the effect of the 1996 Act is given below.

4.9The disadvantages of the trust of land as a device for regulating co-ownership

Given what we have just learnt about purchaser protection through the overreaching machinery, it is not surprising that many of the disadvantages of the

50It would be otherwise if no sum were payable at all.

51Although the express and deliberate creation of a trust for sale is still possible, such trusts will be subject to the strictures of TOLATA 1996 and now carry no advantages.

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current mechanism, even after the 1996 amendments, focus on the other half of the equation: the equitable co-owner, particularly the equitable owner who is not also a trustee of the legal estate. However, as we shall see, not even the legal owners of co-owned land always benefit from the imposition of a trust.

4.9.1 Disputes as to sale

An immediate difficulty of utilising the trust as a mechanism for co-ownership is that there may well be disputes between the co-owners52 as to whether the property should be sold or retained for occupation. Admittedly, the difficulty is not as pressing as it was prior to the 1996 Act – the trustees are no longer under a duty to sell – but the potential remains for dispute and litigation. Indeed, in the normal course of events for residential property, the legal owners and the equitable owners will be the same people and the property will have been acquired for a purpose (domestic occupation) and both will be happy to retain the property. Yet, should the co-owners’ relationship break down, or one of the co-owners go bankrupt, the other co-owner or co-owners53 or the representatives of the bankrupt co-owner, may wish to sell the property to realise its capital value or may be forced to do so to satisfy creditors.

To deal with such disputes, section 14 of TOLATA 1996 provides that any trustee of land, or any person having an interest in land subject to such a trust (e.g. an equitable owner, mortgagee, or trustee in bankruptcy) may apply for an order concerning the property. Among other things, such an order may be for sale of the property. Save in those cases where the application is made by a trustee in bankruptcy in respect of property in which a bankrupt has an interest,54 in deciding whether to order a sale (or make some other order), the court is to have regard to the intentions of the persons who established the trust, the purposes for which the property is held, the welfare of any minor who occupies the land as his home (whether or not as a child of the owner), the interests of any secured creditor, and, in most circumstances, the wishes of any equitable owner (section 15 of TOLATA 1996).55 Although this list, as a matter of law, is not exclusive (consequently other factors may be considered), in most cases it will not be necessary for a court to go beyond section 15 in order to reach an appropriate conclusion. Section 15 is designed to ensure that a court does not simply order sale of property as a quick route

52Whether trustees of equitable owners.

53Meaning wither the legal or equitable co-owners.

54See 4.9.3.

55In Chun v. Ho (2001), the court decided that no sale should be ordered until a specified time in the future.

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to a solution, but instead considers the matter in the round as represented by the section 15 list of criteria. Thus, under section 15 it is perfectly possible for an order for sale to be refused.56 Importantly, these statutory considerations mirror many of the factors developed by the courts when interpreting the now repealed section 30 of the LPA 1925 – the section that sections 14 and 15 of TOLATA replaced. Thus, it was the Law Commission’s view that much of the pre-1996 case law will be relevant in interpreting sections 14 and 15 of TOLATA 1996.57 The following are examples of factors considered by the court in deciding whether to exercise its discretion either under the old section 30 or explicitly under the rubric provided by section 15 of TOLATA 1996:

1Whether the property is needed for the maintenance of a matrimonial home (Jones v. Challenger (1961)) or for the home of a stable unmarried couple.

2Whether the property is required in order to provide accommodation for the lives of the co-owners, or that of the survivor (Harris v. Harris (1996)) or until the occurrence of any event, such as the completion of the education of one co-owner, as in Chun v. Ho (2001) where sale was postponed until such an event occurred.

3Whether the property is needed for the provision of a family home for the children of a relationship that has broken down (Williams v. Williams (1976)). Under section 15 of TOLATA 1996, the welfare of any minor occupying the land as his home is made relevant expressly, thus resolving the doubts expressed in Re Holliday (1981) and Re Evers’ Trust (1980). This was employed to good effect in Edwards v. Lloyds TSB (2004) where a co-owner was able to postpone a sale for five years, even though the application was made by a mortgagee whose mortgage took effect over more than 50 per cent of the value of the property.58

4Whether the property is required in order that a business may continue, the land having been purchased for that purpose, as in

Bedson v. Bedson (1965).

5Where the person seeking a sale may be estopped from obtaining an order for sale by their conduct, such conduct having been relied on by the other co-owner, Holman v. Howes (2007).59

6Whether there has been any misconduct by the person applying for sale, or his legal advisers, as in Halifax Mortgage Services v. Muirhead

56Holman v. Howes (2007).

57Law Commission Report No. 181 that led to TOLATA 1996.

58The mortgage operated over the former husband’s share, but not over the former wife’s.

59This has echoes of proprietary estoppel. See also Re Buchanan Wollaston’s Conveyance (1939).

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(1998), where sale was refused because the claimant’s solicitors had wrongly altered relevant documents.

7Finally, and perhaps most importantly, if the request for a sale comes from a creditor – such as a mortgagee – the courts have taken the general view that a creditor should not be kept out of his money unless there are clear reasons to refuse a sale: Bank of Ireland v. Bell (2001). Although this is not always the paramount consideration – see

Mortgage Corp v. Shaire (2001) and Edwards v. Lloyds TSB (2004) – there is a trend towards ordering a sale at the request of a creditor even though it will result in the loss of a home for the non-consenting co-owners. So, in First National Bank v. Achampong (2003) and Pritchard Englefield v. Steinberg (2004), a sale was ordered at the request of the mortgagee even though the interests of the persons

in occupation had priority to the mortgagee as a matter of property law.60 This is considered more fully below.

4.9.2 When is it likely that a court will order sale?

As was the case under the old law of section 30 of the LPA 1925, whether an application under section 14 of TOLATA for a sale will be granted necessarily depends greatly on the particular facts of each case. However, while there is no doubt that the decisions taken under section 30 will remain useful, we must be aware of one very important proviso. As we have seen, before the 1996 Act, co-owned land was subject to a trust for sale and this carried with it a duty to sell. Thus, in any dispute as to sale, the default position was that a sale must take place and this is reflected in the case law decided under the old section 30. However, under TOLATA 1996, there is no duty to sell the land – it is a trust of land – and pre-1996 statements unequivocally favouring a sale of co-owned property in cases of dispute must be read with some care and cannot be applied without thought to applications under section 14 of TOLATA.61 Thus, in Banker’s Trust v. Namdar (1997), a sale was ordered under section 30 of the LPA 1925, but Peter Gibson LJ thought that it was ‘unfortunate’ that TOLATA 1996 was not applicable (the case arose before TOLATA 1996 came into force) ‘as the result might have been different’. What this means in practice is hard to predict, but much may turn on precisely who is requesting a sale under section 14. For example, a court is still likely to order a sale when only the co-owners are in dispute and there are no extrinsic factors (e.g. no children),

60This priority would take effect in the proceeds of sale. Thus, the co-owner who is not bound by the mortgage would take their share of the proceeds of sale before any payment to the creditor.

61Mortgage Corporation v. Shaire.

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as this supports the alienability of the co-owned land.62 Again, a sale is likely to be ordered if the land was purchased as an investment, rather than a home, or if it would be inequitable to deny a co-owner their share of the capital value of land.63 Conversely, a sale may be resisted if there are children living in the property,64 if the co-owner wanting a sale is not in desperate financial straits or if one co-owner has special reasons for wishing to remain. So, in Chun v. Ho (2001), a sale was postponed until one co-owner completed her studies; the other co-owner had behaved inequitably, there was no real evidence that the money was needed to pay his debts, and the co-owner resisting sale had provided most of the original purchase price. Likewise in Dear v. Robinson (2001) where the wishes of the beneficiaries were critical (even though their consent to a sale was not required formally) and the postponement of sale was in accordance with the original intentions of the creator of the trust.65 Clearly, then, if the non-trustee equitable owners’ consent is required before a sale takes place (e.g. where such requirement is imposed in the original instrument crating the trust), a court will be careful before it dispenses with such consent and actually orders a sale against their wishes.

Importantly, case law has not been consistent in those cases (alluded to above) where the rights of creditors are in contest with the rights of the innocent co-owner (assuming no bankruptcy66). Thus in Pritchard Englefield v. Steinberg (2004), a sale was ordered at the request of a creditor holding a charging order67 despite the objections of an equitable owner and this followed a pattern established by TSB v. Marshall (1998)68 and confirmed by

Bank of Ireland v. Bell (2001) and First National Bank v. Achampong (2003) where even the fact that the non-consenting owner had priority over the creditor could not stave off a sale. Yet, once again all is not clear cut. In Mortgage Corporation v. Shaire (2001), it was made clear that the rights of creditors should not prevail automatically and in Edwards v. Lloyds TSB (2004), a sale was postponed for five years because of the needs of the children and family even though this would keep the mortgagee out of its security.

As is obvious then, the court’s approach to disputed sales will continue to vary with the circumstances, bearing in mind the altered priorities of section 14.

62But see Holman v. Howes (2007) where a sale was refused in precisely these circumstances.

63See the discussion in Barclay v. Barclay (1970).

64Edwards v. Lloyds TSB (2004).

65Even if the equitable owners’ consent is not a requirement of a sale or mortgage by the trustees, their wishes are relevant (see section 11 of TOLATA 1996), although it is unlikely that they will be pivotal.

66The position if one of the co-owners is bankrupt is discussed separately as a different statutory regime applies.

67Arising from a court judgment securing a debt over land of the debtor.

68A sale was ordered even though there were children present on the land because there was no realistic prospect of the debt being repaid.

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Sweeping generalisations about how TOLATA 1996 may have affected the court’s view are probably best avoided; note the emphasis against a sale in Shaire and Edward, and the emphasis for a sale in Bell and Englefield. What is clear, however, is that a properly advised co-owner can act to ensure that they are at least consulted before a sale takes place. In registered land, an equitable co-owner will be able to place a restriction on the title of the co-owned land which has the effect of limiting the legal owners’ (the trustees’) powers to act. If an appropriate restriction has been entered, this will ensure that no dealings can take place unless the conditions specified in the restriction are fulfilled; for example, that there are indeed two trustees of the land for overreaching, or that the consents of the equitable owners are required and obtained.69 Any attempt to deal with the land contrary to the restriction will be discovered by a purchaser and may trigger an application under section 14 of TOLATA 1996 to try to prevent sale, or to ensure that it takes place only on certain conditions.70 Note finally that a court is empowered under section 14 of TOLATA 1996 to revisit a previous application if circumstances change before a sale actually taking place. So, in Dear v. Robinson (2001) a previous order for sale was rescinded because circumstances had changed and a majority of the beneficiaries no longer wanted an immediate sale.

4.9.3 The special case of bankruptcy

The list of factors in section 15 of TOLATA 1996 do not apply to disputes concerning sale of co-owned property when an application is made by the trustee in bankruptcy of a person interested in co-owned land. In that case, an application is made under section 14 of TOLATA but section 335A of the Insolvency Act 1996 provides the list of relevant factors that the court must consider.71 Note also that by virtue of the Enterprise Act 2002, a trustee in bankruptcy should apply for sale of the property within three years of the bankruptcy, else he risks the property returning to the bankrupt free from the claims of the creditors.72

69Note, however, that in Coleman v. Bryant (2007), the court decided that it would not order the Land Registry (after their refusal) to enter a restriction requiring the beneficiaries’ consent as this would destroy overreaching. Indeed it would. It remains unclear whether the Land Registry would accept the entry of a restriction requiring the beneficiaries’ consent if the requirement for consent was specified expressly in the document establishing the trust. It would be difficult to justify a refusal in such circumstances.

70The legal owner may also, of course, apply under section 14 of TOLATA for authorisation to conduct a sale contrary to a restriction. In addition, any person interested may apply under section 14 for an injunction preventing an anticipated sale, but this is likely to be granted only in the most unusual and exceptional situations – assuming of course that the equitable owner knows of a proposed sale of mortgage before it happens.

71Section 15(4) of TOLATA 1996. Section 335A of the Insolvency Act 1986 replaces the similar, but not identical, section 336(3) of the Insolvency Act 1986.

72Enterprise Act 2002, section 261, inserting section 283A into the Insolvency Act 1996.

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If one of the persons interested in the co-owned land is made bankrupt (whether they are a legal or equitable owner), his assets vest in a ‘trustee in bankruptcy’. The ‘trustee in bankruptcy’ is simply the name given to the person who administers the bankrupt’s assets with a view to paying off his creditors. In a co-ownership situation, a trustee in bankruptcy will step into the shoes of the legal or equitable owner who is bankrupt. Naturally, the trustee in bankruptcy will want to sell the co-owned property to realise some of the bankrupt’s assets, and, equally naturally, this will be resisted by the other legal or equitable owners, who is often the bankrupt’s emotional partner wishing to stay in the house. If a sale is opposed, the trustee in bankruptcy will apply to the court for an order for sale under section 14 and the court will have to balance the needs of the innocent creditors and the needs of the innocent co-owner within the framework of section 335A Insolvency Act 1986. On its face, the section 14/section 335A procedure applies whether or not the co-owners were married, or, indeed, in any emotional relationship. This is different from the now repealed section 336(3) of the Insolvency Act 1986, which applied only to spouses and only to bankruptcies of the legal owners. However, it is only in the case of spouses (not unmarried couples) that spousal conduct and the needs of children are expressly mentioned as relevant factors for the court’s consideration. It is not clear whether this means that the needs of children of non-married couples are irrelevant under the statute (surely not; see section 335A(c)), but in any event the law relating to unmarried couples was declared to be relevant to the old section 336(3) by Re Citro (1991), and this should remain the case for the new section 335A. Section 335A is not to be regarded as an exhaustive list of the factors that the court should consider.

On hearing an application for sale by a trustee in bankruptcy, the court is directed by section 335A to consider the following matters: the interests of the bankrupt’s creditors, the conduct of the bankrupt’s spouse as a contributing factor to the bankruptcy, the needs of the spouse and the needs of any children and all other circumstances, and may make such orders as it thinks just and reasonable. However, if the application under section 14 of TOLATA 1996 is made more than one year after the bankruptcy, the interests of the creditors are deemed to outweigh the interests of the resisting co-owners unless the circumstances are ‘exceptional’. What this means is that after one year, the court is extremely likely to order a sale of the property in order to satisfy the creditors, but up to then, the court has a delaying jurisdiction designed to give the ‘innocent’ occupiers a chance to make alternative arrangements.73

73Note that the trustee is generally required to take action for possession and sale within three years of the bankruptcy, section 383A of the Insolvency Act 1986, else the property re-vests in the bankrupt to the exclusion of the creditors.

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So, in Harrington v. Bennett (2000) an application by the trustee in bankruptcy for sale more than one year after the bankruptcy was granted by the court. It was not an ‘exceptional’ circumstance that the bankrupt appeared to have a purchaser in view who might pay a higher price than that achievable under a sale by the trustee in bankruptcy.

It is apparent that section 335A of the Insolvency Act 1986 explicitly favours a sale at the request of the trustee in bankruptcy after one year and there may well be sound commercial and equitable reasons why this should be so. Nevertheless, it remains uncertain what may amount to ‘exceptional’ circumstances so as to justify a postponement of sale beyond the one-year period. Certainly the ‘mere’ fact that a family may be left homeless, whether or not there are children, has not been accepted as ‘exceptional’ because this is the expected inevitable consequence of bankruptcy. Neither is it an exceptional circumstance that a creditor would not suffer by reason of delaying sale.74 In fact, until now, very little has satisfied this test, although the fact that the bankrupt or their spouse is terminally or seriously ill has been held sufficiently grave as to justify a postponement of sale.75 Of more recent interest, is the case of Barca v. Mears (2004) in the High Court. In this case, it was argued that a sale should be postponed for longer than one year because of the special educational needs of the son. In the result, and on the particular facts, this was not persuasive, but the court did make some important observations. First, the court confirmed that Re Citro did assimilate the position of married and unmarried couples and its general approach would apply even if the co-owners stood in no relationship at all. Second, that as the law stood, the pressure for a sale at the request of the trustee in bankruptcy was virtually always overwhelming. Third, however, that the protection afforded by Article 8 of the European Convention on Human Rights (ECHR),76 as implemented by the Human Rights Act 1998, might require a rethink. It was arguable – indeed likely according to the judge – that the near automatic ordering of sale in these bankruptcy cases after one year could contravene the ECHR, the point being that a balance had to be struck between the needs of the creditors and the requirements of Article 8. The presumption of a sale after one year, save in exceptional circumstances, as this had been interpreted up to now, might not represent a sufficient balancing exercise. Consequently, what the judge called a ‘shift in emphasis’ in the interpretation of section 335A might be necessary to ensure compatibility with the ECHR.

74In Donohoe v. Ingram (2006), a sale at a later date would also achieve payment of creditors, but this was not sufficient to justify a postponement.

75Claughton v. Charalambous [1998] BPIR 558 and Re Bremner [1999] BPIR.

76Respect for private and family life, and possibly Article 1 of Protocol 1, respect for property.

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This could be achieved by recognising that, in the normal case of ‘everyday’ bankruptcy, the creditors’ interests would outweigh all other interests, but also by accepting that what was ‘exceptional’ should involve a proper consideration of the facts without the presumption of bias in favour of creditors that was evident in the pre-1998 case law. Unfortunately subsequent case law has not been as robust in its defence of the rights of innocent co-owners: in Donohoe v. Ingram (2006), the court paid lip service to the idea that the test within section 335A might have to be reinterpreted to make it Convention-compliant by simply deciding that, even on that basis, there were no exceptional circumstances; and in Nicholls v. Lan (2006), the court found no incompatibility between the provisions of the Insolvency Act 1986 and the Convention, thus neutralising the concerns raised in Barca. Perhaps, therefore, the farthest we can go after Barca is to conclude that judicial recognition that the Convention might have an impact on the interpretation of section 335A can remind us that ‘exceptional’ does not mean ‘nearly never’.

4.9.4 Summary thus far

It is convenient at this stage to summarise the position in respect of the court’s approach when an application is made under section 14 of TOLATA 1996. In most cases, the court must consider the factors listed in section 15 of TOLATA 1996 (the intentions of the creator of the trust, the purposes for which the property is held, the welfare of any child who occupies or might occupy the property as his home, the interests of a secured creditor, the wishes of any beneficiaries), but in cases of bankruptcy must consider instead those factors listed in section 355A Insolvency Act 1986 (the interests of the creditors, for dwelling houses the interests and conduct of the bankrupt’s spouse, the needs and resources of the spouse, the needs of any children, the requirement to sell after one year barring exceptional circumstances). Importantly, much may turn on who is making the application.

1In disputes purely between co-owners, without the intervention of any third party, the court may well be happy to postpone sale and make some other order; for example, that one co-owner pays rent to another (or does not have to: Chun v. Ho (2001)); or that the land is partitioned (Rodway v. Landy); or that sale is postponed indefinitely to such time as the person in possession does indeed consent (Holman v. Howes). Under TOLATA 1996, the trust of land is no longer a trust for sale of land and so it is likely that that there will be much less emphasis on a sale in these circumstances. This is even more so if there are children of the relationship or there is some other pressing reason why a sale should be postponed, bearing in mind that this necessarily keeps one co-owner out of their money.

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