Экзамен зачет учебный год 2023 / Dixon, Modern Land Law

Modern Land Law

In essence, then, a partial ‘consent bar’ may have been created by the 1996 Act, not entirely deliberately, and whose effect is not necessarily to prevent a sale by two trustees, but to trigger the intervention of the court under section 14.

4.9.10The position of the equitable owners faced with overreaching: the problem in perspective

From the above discussion, we might be left with the impression that the lot of the equitable owner is a poor one. The law appears to favour the purchaser at every turn. However, what is the reality? First, if there is one trustee of the land, overreaching cannot occur. In the very great majority of cases, this will mean that the purchaser is bound by the rights of the equitable owners, both in registered land (as an overriding interest) and unregistered land (through the doctrine of notice). Thus, the equitable owner is secure, save for the possibility of a sale against their wishes if the purchaser or mortgagee applies under section 14 of TOLATA 1996. Even then, the equitable owner would be paid the full value of their share before any claim of the mortgagee or creditor.

Second, if there are two trustees of the land, overreaching can occur, but in most residential property cases, the two trustees will also be the only two equitable owners; for example, where man and woman hold the house on trust for themselves. Again, there is no difficulty, because either co-owner can object to a sale in their capacity as legal owner. In any event, an application to prevent sale may be made under section 14 of TOLATA 1996.

Third, it appears then that it is only where there are two trustees of land and different equitable owners that problems really occur. Such was the case in Flegg. Yet the question the Law Commission did not ask themselves when producing their now-defunct report and the question we must ask now is, how often does this factual situation occur in the context of residential property? How often, in a domestic context, will there be two legal owners and different or additional equitable owners? The simple fact that the facts of Flegg did not arise until some 70 years after the LPA 1925 gives us a clue! There is much to suggest that Flegg raises an exceptional factual scenario, not a normal one.101 Should the law be changed to meet the ‘hard case’? One view is that all that needs to be done is to prevent a single trustee from appointing

101Another example is Birmingham Midshires BS v. Saberhawal. The point is not that this scenario never occurs, but rather that it is relatively rare.

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a second trustee (in order to overreach) without the leave of the court or the consent of the equitable owners. Such a move would prevent the artificial creation of a ‘two trustee’ situation by a knowledgeable legal owner preparing to sell or mortgage the property. This may be achieved in registered land by the entry of a suitably worded restriction against the title.102 Moreover, with the entry into force of TOLATA 1996, equitable owners in the Flegg position may apply, under section 14, for an order preventing sale, and the court can exercise its discretion in order to determine which interest shall prevail – those of the two legal owners, or those of the non-legal equitable owners.103

4.9.11 The question of possession

Prior to TOLATA 1996, the question of who had a right to occupy the co-owned land caused unnecessary difficulty. There was no doubt that the legal owners had a right to occupy the land, subject to the terms of the trust instrument, for they had a legal estate with all the rights this entailed. If the land was held for investment purposes, the trustees were likely to have relinquished possession to another (or their possession may have been impliedly or expressly excluded by the original trust instrument), but that would be because of the specific nature of their trust and not because of any inherent limitation on their powers. With residential co-owned land, if all the co-owners were also legal owners, each could occupy by virtue of their legal estate. Unfortunately, however, problems did arise for non-legal equitable owners. In theory, such persons had only an interest in the proceeds of sale of the land, not the land itself, and consequently could be denied possession. Obviously, this misrepresented the reality of the situation and cases such as

Bull v. Bull (1955) and then Williams and Glyn’s Bank v. Boland (1981) ignored the theory and recognised that the equitable owners had an effective right to possess, enforceable against the legal owners and (in the absence of overreaching) against a purchaser. This situation has now been regularised by TOLATA 1996. The Act has not altered the trustees’ position as legal owners of the land, as they have all the powers of an absolute owner unless restricted by the trust instrument or an entry on the register of title.104 However, not only does the Act abolish the doctrine of conversion and effectively declare that the equitable owners shall be regarded as having rights in the

102Remember also the possibility of using a restriction to prevent a sale of mortgage by two trustees without the consent of some named person – possibly the equitable owner.

103Of course, this would have to be done before a sale or mortgage and it may well be that the equitable owners have no clue that the legal owners are proposing to act.

104See also sections 23, 26 of the LRA 2002.

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land (section 3), it also provides in section 12 that an equitable owner has a right to occupy the land if this was the purpose for which the trust came into existence.105 Such a right can be excluded by the trustees in exceptional circumstances, under section 13, but this will be rare in residential property cases and cannot, in any event, result in the removal of a person already occupying land unless they consent (section 13(7)). In reality then, TOLATA 1996 has effectively solved any problem that might remain in this regard – as it was intended to do.106

4.9.12 The payment of rent

Once again, before TOLATA 1996, there were difficulties in requiring one co-owner to pay rent to the other if only one enjoyed occupation of the property. This was because the nature of co-ownership meant that each co-owner was, in theory, entitled to occupy the whole property (not any defined share) and could not be made to ‘pay’ for enjoying that to which they were already entitled. This is the unity of possession. So, if one co-owner did not occupy, the other could not be forced to pay them ‘rent’ or ‘compensation’ by way of recompense for the sole use. This could have meant hardship for the ‘ousted’ co-owner, especially if the reason why only one of them was in possession of the property was because of a breakdown in their domestic relationship. Fortunately, even prior to TOLATA 1996, the courts took a pragmatic view and would order the payment of a monetary sum where it was equitable to do so, irrespective of the theoretical niceties.107 Now, section 13 of TOLATA 1996 provides that compensation may be paid by one co-owner occupying the land to the exclusion of another if certain conditions are met. Of course, the payment of compensation for sole use by way of occupation rent will not be automatic. In Chun v. Ho (2001) the co-owner was not required to pay rent to the non-occupying co-owner because the latter had had the benefit of the large amount of money that the occupying co-owner had contributed to the purchase price.

105This was enforced in Chun v. Ho (2001) against the wishes of the other co-owner who wished the property sold.

106Note also the court’s power to regulate occupation under the Family Law Act 1996 in respect of ‘matrimonial home’ rights. Such rights of occupation are a creation of statute and do not depend on the claimant owning any interest in the land. They may be entered on the register of title by means of an Agreed Notice to ensure protection should the land be sold. They may not override.

107Re Pavlou (A Bankrupt) (1993). An equitable co-owner could also be made to account for ‘rent’ in favour of a trustee in bankruptcy who had succeeded to the interest of the other co-owner, Re Byford (2003).

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4.9.13A summary of the Trusts of Land and Appointment of Trustees Act 1996

The effect of TOLATA 1996 has been woven into the preceding text and the picture presented there is of how trusts of land will work from 1 January 1997. The following is a short summary of how the Act changed the original 1925 co-ownership scheme:

1It is not possible to create new strict settlements of land (see Chapter 5) and the entailed interest is abolished (see section 2 and Schedule 1 of TOLATA 1996). Existing strict settlements will remain valid, but will eventually run their course and disappear.

2The doctrine of conversion is abolished, effective for all new and nearly all existing trusts of land (section 3).

3Unless a trust for sale has been created expressly, existing trusts for sale of land become trusts of land (sections 4 and 5) and trusts of land will become the model for all future trusts. There is no duty to sell the land. It remains possible deliberately and unequivocally to create a ‘trust for sale’ of land, but, given that even these deliberate creations are subject to TOLATA 1996, there is very little to be gained practically.

4The trustees have all the powers of an absolute owner, but may delegate these to an equitable owner (sections 6–9). They may do this when it is expedient to give the person in possession of the land the power to manage it. However, only the trustees can give a valid receipt for purchase money, hence preserving their role in overreaching.

5The trustees must consult with the equitable owners and give effect to their wishes in so far as is consistent with the purposes of the trust of land (section 11).

6The trustees’ powers may be made subject to the consent of the beneficiaries or some other person, but only if stated in the instrument creating the trust (section 10), or if imposed by the court under a section 14 application. This may have consequences when a sale is proposed.

7The equitable owners have a right to occupy the property (section 12), which can be modified subject to safeguards (section 13). Compensation may be ordered for exclusive use of the land by one co-owner.

8Any person with an interest in the land can make an application to the court under section 14 for a variety of orders, based on the criteria identified in section 15; for example, sale, no sale, override consent requirement, impose consent requirement. The criteria specified in section 15 do not apply in cases of bankruptcy

(see section 335A of the Insolvency Act 1986).

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4.10The express and implied creation of co-ownership in practice: express, resulting and constructive trusts

So far, we have considered the nature of co-ownership in general and the statutory machinery that governs it. Much has been said about the existence of two trustees or one trustee and the rights of the equitable owners. Now it is time to examine the way in which this co-ownership can come about. Put simply, how is it that land becomes ‘co-owned’ so that the panoply of legal rules just discussed come into play?

4.10.1 Express creation

Any land may be deliberately conveyed to two or more people, a typical example being the purchase of a new house by a couple. In such circumstances, the persons to whom legal title is transferred (i.e. by formal conveyance taking effect as a registered disposition under the LRA 2002) will be the legal owners. In the absence of any statement to the contrary, these legal owners will also be taken to be the equitable owners. The result is that land conveyed to A and B as legal owners will be held on trust by them for themselves as either joint tenants or tenants in common. This was effectively the case in Roy v. Roy (1996), where two brothers were held bound by the joint ownership of a house that had been transferred to them both. As we shall see, this presumption that the legal owners (or owner) are also the only equitable owners may be challenged by proof of a ‘resulting’ or ‘constructive’ trust.

Before we come to that, however, it is important to note that it is quite possible for a conveyance of land expressly to declare who are the equitable owners, and also the nature of their ownership. Thus, land might be conveyed ‘to A and B as legal owners on trust for A and B beneficially as tenants in common’ or ‘to A and B as legal owners on trust for A, B, C and D as tenants in common’. In these cases, both where the legal and equitable owners are the same people, and when they are not, the trust of land and the equitable ownership is ‘expressly declared’. Two points are of importance here:

1In order for an express trust of land to be valid, it must satisfy section 53(1) of the LPA 1925. This means that an express declaration of the beneficial (equitable) interests of the co-owners can only be relied upon to establish ownership if such declaration is ‘manifested and proved by some writing’. In other words, as a matter of general principle,108 a purely oral declaration of co-ownership will not be effective. Usually, the ‘writing’ is the deed of conveyance to the

108 As ever, there are exceptions.

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co-owners, but whatever form it takes, it must amount to a declaration of the equitable interest rather than be for some other purpose. Thus, in Stack v. Dowden (2007), the House of Lords held that a statement in the conveyance that a surviving trustee could give a valid receipt for any capital monies could not be taken as a declaration of the nature of the equitable interest.109 However, there is a vital exception to the requirement of writing, namely that a person who is not a party to any valid express declaration of trust may establish a beneficial interest in the property by proving a resulting or constructive trust. This is specifically provided for in section 53(2) of the LPA 1925 which exempts resulting and constructive trusts from the need for writing.110 Importantly, as discussed immediately below, it is only if a person is not a party to a written declaration of trust that they can rely on the doctrine of resulting or constructive trusts. We should also be aware that even in the absence of an express declaration of the beneficial interests in the land (i.e. that no trust is declared), the very conveyance of the land to two or more people will be strong evidence of co-ownership in equity (Roy, Stack) unless it is clear that the conveyance to two persons was merely administrative in order to enable the single ‘true’ owner to purchase the land in the first place.111

2If the beneficial interests are expressly declared in writing, this is conclusive as to the beneficial ownership for the parties to that express declaration – Goodman v. Gallant (1986). In other words, persons who are parties to the writing that establishes the trust cannot, thereafter, plead a resulting or constructive trust to establish different interests. The only exception to this is if the express declaration has been procured by fraud or some other vitiating factor such as undue influence. Of course, persons not party to the express written declaration of the trust may rely on resulting or constructive trusts. A typical example would be where a claimant to an interest alleges that they have a share by reason of conduct occurring after the legal title was transferred to the registered proprietor – as where a man already owns a house and his new wife or lover claims an equitable share at a later date. Moreover, Stack makes it clear that any of the

109The clause was, simply, to ensure that a surviving joint tenant and now sole trustee could sell when all other trustees had died.

110See section 4.10.2. Consider also the possibility of an interest arising orally through proprietary estoppel which is not specifically exempted from section 53(1) of the LPA – see section 4.10.7.

111Goodman v. Carlton (2001). See also Abbey National v. Stringer (2006).

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parties to a conveyance that does not actually declare the trusts, but rather merely records the transfer of the land to them, may also rely on resulting or constructive trusts to prove an enlarged share. This seems correct because section 53(1) of the LPA 1925 talks of the express declaration of a trust of land, not merely the normal conveyance of land to two or more people. So, if a conveyance merely records a transfer to A and B without declaring the extent of their equitable ownership, it is possible for either A or B to use resulting or constructive trusts to claim an enlarged or even total

share of the equity. Such was the case in McKenzie v. McKenzie where the father was declared the sole owner in equity under a resulting trust even though legal title was held jointly by both father and son, there being no express written declaration of the extent of the equitable co-ownership, and in Stack itself where Ms Dowden achieved more than a 60 per cent share even though she and

Mr Stack were joint legal owners.

4.10.2Creation of co-ownership even though the legal title is in one name only

It often happens that property is bought by one person and conveyed into their sole name. Of course, this has nothing to do with co-ownership for that person owns the land absolutely. However, what happens if someone else (e.g. a spouse, a lover, a friend) comes to live in that property, or makes some contribution to its purchase price? Is it possible that this new person may acquire an equitable interest in the house which is legally owned by the other? To put the question another way, even though legal title to the land is held by its original owner, in what circumstances may some other person gain a share in that ownership; which interest must necessarily be an equitable interest, given that the original owner is already holding the legal title? The law of resulting and constructive trusts provides the answer.112 Before considering the matter in detail, however, it is vital to understand why it is so important to determine whether such an equitable interest is created.

Although there is only one legal owner (A) (the person who originally purchased the property), the fact that another person (B) has established an equitable interest means that in equity the property is co-owned. As made clear by Bull v. Bull (1955), this means that a trust of the land comes into existence whereby the original legal owner (A) holds the property on trust for

112There may also be an overlap with doctrine of proprietary estoppel – see especially

Oxley v. Hiscock (2004).

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himself and B in equity. In other words, there is one trustee of the land, but two co-owners in equity.113 Because there is only one trustee, a person who wishes to buy the property from the sole legal owner (or a bank that lends money to that owner on the security of the land) cannot rely on overreaching to give them priority over any equitable owner. Thus, the purchaser/mortgagee may be bound by B’s equitable interest according to the rules of registered and unregistered conveyancing.114 Moreover, because B’s equitable interest has arisen informally under the rules of resulting and constructive trusts, without writing, the purchaser may be unaware of its existence and may fail to take avoiding action before completing the purchase.115

4.10.3 Establishing the equitable interest

The rules considered below are applicable whenever a person seeks to establish a share of ownership in land, legal title to which is held by someone else. Usually, legal title will be held by one person and the claimant will be their partner or former partner in a domestic relationship, but there is no need for any romantic relationship between the parties for these rules to apply. Often, the man will have legal title and the woman will be a claimant, but the law is the same whatever the factual matrix.116 Likewise, although the disputed property is most often residential property, it need not be, and in Lloyd v. Pickering (2004) the successful claim by Ms Lloyd was to a half share in a business that was legally in the sole name of Mr Pickering. These rules are also equally applicable when legal title is held by two, three or four people, the only difference being that the legal owners would then be able to overreach the new equitable owner on a sale or mortgage.

Bearing these points in mind, it is possible to categorise the methods by which an equitable interest may be claimed. However, it is to be remembered that while these categories are convenient for the purposes of exposition, in reality, the claimant’s and defendant’s lives tend to be much more complicated and much less susceptible to objective, forensic analysis than land lawyers would like! The need to rely on possibly half-remembered conversations or disputed facts makes this area of the law a breeding ground

113The number of equitable co-owners is not limited to only one claimant so, in theory at least, can be many.

114Overriding interests and the doctrine of notice respectively.

115Of course, to be an overriding interest under paragraph 2 of Schedule 3 LRA 2002, the equitable interest must be discoverable – but that does not mean that the purchaser or mortgagee necessarily discovered it.

116For example, Tinsley v. Milligan (1993), two women; Babic v. Thompson (1999), two businessmen.

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for litigation. In this litigation, it is not always possible or desirable to be as ‘black and white’ as the rules presented below appear to be. This is, in essence, the thrust of the House of Lords decision in Stack v. Dowden which emphasises the need for a flexible approach in the light of the complex way in which lives are run.

4.10.4 The express trust

Although it rarely occurs, it is perfectly possible for the legal owner (or owners) deliberately to generate an interest in the land for another person by means of an express trust. In short, the legal owner (A) may declare expressly and in writing (as required by section 53(1) of the LPA 1925) that he holds the land on trust for the claimant (B), usually in co-ownership with himself. As an express trust, the equitable co-ownership thereby created is conclusive according to the terms of the written declaration, subject only to rectification in the event of fraud or forgery. It is also possible for the legal owner actually to convey the legal title to himself and another, in which case there will be co-ownership of the legal and equitable title. This is even rarer, for it involves additional expense and the need to re-register the legal title at the land registry.

4.10.5 The ‘purchase money’ resulting trust

A second means by which a person may claim an equitable interest in another’s property – thereby triggering co-ownership – is by contributing to the purchase price of the property, despite the fact that their name is not on the legal title. Unless it can be established that the money was given to the legal owner by way of gift or loan117 the claimant may have an equitable interest in the land in direct proportion to their contribution to the purchase price. This is the resulting trust. It is said to arise from the ‘common intention’ of the legal owner and the claimant that the latter should have an interest in the property, as manifested by their contribution to the acquisition of the property through part provision of the purchase price.118 A typical example is where the intended legal owner provides some of the purchase price and the balance is provided by a husband, wife or other partner. In such cases, legal ownership is in one person and equitable ownership is shared among the contributors, usually on the basis of a tenancy in common in proportion to the contribution provided. The principles are the same if all that is provided is the deposit119 and in certain circumstances may include a notional payment

117For example, Bradbury v. Hoolin (1998).

118Tinsley v. Milligan, Laskar v. Laskar (2008).

119Halifax Building Society v. Brown (1995).

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because of a ‘right to buy’ discount off the purchase price.120 Note, however, that the contribution must be made to the acquisition of property, not merely to its repair121 and it seems that an interest will not arise even if a payment is made if there is evidence that no common intention as to joint ownership in fact existed.122

As a variation on this, it is not clear whether an equitable interest may arise if the financial contribution is made to the purchase price over a period of time. The typical scenario would be where the non-legal owner contributes to the repayment or financing of a mortgage that in its turn has been used to purchase the property. Classic theory dictates that a resulting trust can arise only if payments are made at the time of the acquisition of the property and clearly post-acquisition mortgage payments are not of this character. Also, it is factually true that repayment of mortgage monies is not a payment to the seller of the property at all; it is to the lender who has already provided the balance of the purchase price in full and, with an endowment mortgage, is not even repayment of the principal sum borrowed.123 Thus, in Curley v. Parkes,124 the Court of Appeal denied Mr Curley an interest in the property because such mortgage repayments as he did make were made after the date of acquisition of the property.125 This is clearly a narrow view of the role of resulting trusts and it is not immediately apparent why repayment of a mortgage (or the financing of its debt if the mortgage is interest only) which was used to purchase the property cannot be regarded as making a contribution to its acquisition at the relevant time. It takes only a little imagination to regard the mortgagee as the agent of the purchasers, paying at the time of purchase, with the mortgagee being repaid as agent with interest by the contributors. Indeed, cases before Curley have rather assumed that payment of mortgage instalments would suffice. In Carlton v. Goodman and McKenzie v. McKenzie, both claimants were actually mortgagors, having undertaken mortgage liability in order to secure the relevant finance for the purchase of

120Mumford v. Ashe (2000), Laskar v. Laskar (2008).

121Bank of India v. Mody (1998). If the couple are married, contributions to repairs might squeeze in section 37 of the Matrimonial Proceedings and Property Act 1970 as an ‘improvement’ generating an interest: see below.

122First National Bank v. Wadhwani (1998). See also Lightfoot v. Lightfoot Brown (2004) although the cases were argued on the basis of constructive trusts. On the overlap between the resulting and constructive trust, see below.

123Under an endowment mortgage, the monthly repayments are of only the interest on the debt and the capital is repaid by some other means, usually the cashing in of an ‘endowment’ or savings plan. A repayment mortgage does include repayment of the capital as part of each monthly instalment,

124[2004] EWCA Civ 1515, 25 October 2004.

125He also claimed to have made some lump sum payments but these also were post-acquisition.

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