Экзамен зачет учебный год 2023 / Dixon, Modern Land Law

Modern Land Law

6Sixth, the trust of land as it governs successive interests is subject to the same overreaching machinery as when it governs concurrent

co-ownership interests. This is because the interests of the life tenant and persons entitled in remainder are equitable interests, and the legal title is held by the trustees, for example, where Z Bank plc holds land on trust for A for life, with the remainder to B. Necessarily, on sale of the land, it is the trustees who will have to transfer the legal title and it will be the beneficiaries (e.g. life tenants) who are susceptible to being defeated by a purchaser under the overreaching machinery. If the overreaching process is successful, the equitable interests will take effect in the purchase money – thus the tenant for life will receive the income from the capital sum for life, with the balance going to the person entitled in remainder on the death of that life tenant. However, should overreaching not occur (as in a rare case of there being only one trustee of a successive interest trust for land19), whether these equitable interests bind the purchaser is determined by the application of normal principles of registered or unregistered conveyancing as the case may be. In registered land, the interests of the beneficiaries might override if they are discoverable actual occupation of the land20 but they cannot be protected by an entry of a Notice on the register.21 Consequently, even in the absence of overreaching, the interests of a person not in discoverable actual occupation will not bind a purchaser,22 and the only way to ensure protection is by the entry of a Restriction on the register.23 In unregistered land, such an interest cannot be a land charge24 so in the absence of overreaching may take effect against a purchaser according to the doctrine of notice.

7Seventh, in addition to the overreaching provisions, the purchaser of land subject to a successive trust of land is given protection should the trustees sell the land in excess of their powers or in breach of the provisions of TOLATA 1996. In respect of land of unregistered title, the solution to such a problem depends on the particular violation

19A sole trustee who is a trust corporation (e.g. an authorised bank) is sufficient for overreaching (section 2 of the LPA 1925).

20Schedule 3, paragraph 2 of the Land Registration Act 2002.

21Section 33(a)(ii) of the Land Registration Act 2002.

22Section 29 of the Land Registration Act 2002.

23Although there is nothing in the LRA 2002 or the Land Registration Rules to prevent the entry of a restriction requiring consent in order to prevent a sale even if there are two trustees or a trust corporation, the Land Registry will refuse to enter such a restriction at the request of the equitable on the ground that overreaching should not be rendered ineffective. This has some backing from the courts (Coleman v. Bryant).

24Section 2 of the Land Charges Act 1972.

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committed by the trustees. In some cases (e.g. violation of the duty to consult), it seems that the purchaser will obtain a good title from the trustees, assuming overreaching, and the beneficiaries’ remedy lies against the trustees personally. In other cases, (e.g. non-compliance with a consent requirement), the purchaser will obtain a clean title, assuming overreaching, providing he did not have actual notice of the relevant limitation (section 16 of TOLATA 1996). In land of registered title, it is assumed that the limitation on the trustees’ powers (if any) will be entered on the register of title by way of restriction, thus preventing any disposition by the trustees unless the limitation is complied with. Necessarily, this will prevent a purchaser buying the land at all until the restriction is complied with. If for some very unusual reason (e.g. a solicitor’s failure to act properly), the limitation on the trustees’ powers is not entered on the register or the restriction is ignored, it seems likely that a purchaser who can overreach25 will obtain a clear title free of such interests despite the trustees’ non-compliance with a limitation. This is because in registered land, the person entered as proprietor has all the powers of an absolute owner, subject only to entries on the register.26

8Eighth, the tenant for life has a right to occupy the property – section 12 TOLATA 1996. The persons entitled in remainder also may have a right to occupy – sections 12(1)(a) and (b) and section 12(2) – but this would almost certainly be removed or modified under section 12(3) of the Act which permits the trustees to limit the right of occupation. Note also that section 13 provides that the trustee may impose reasonable conditions on the person occupying the property, including requiring the payment of expenses or outgoings in respect of the land. Likewise, if the trustees have exercised their powers to exclude or limit other beneficiaries’ rights to occupy, they may impose a requirement that the occupying beneficiary pay compensation for exclusive use of the land; for example, the life tenant might be ordered to pay a sum equivalent to the market rent of the land, or some proportion thereof, if only the life tenant is in occupation.27

9Lastly, any person with an interest in the land can make an application to the court under section 14 of TOLATA 1996 for a variety or orders in relation to the land. For example, an application

25Failure to overreach opens the purchaser to the possibility of being bound by an overriding interest through the discoverable actual occupation of the equitable interest holder.

26Sections 23 and 26 of the Land Registration Act 2002.

27Section 13(3).

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can be made for sale, to prohibit a proposed sale, to impose or override a consent requirement or for a declaration of the respective values or shares of the beneficial owners. Generally, such orders are made with reference to the criteria specified in section 15 of the Act, save only that section 15 does not apply in case of bankruptcy for which section 335A of the Insolvency Act 1986 provides a list of criteria.28

5.3Successive interests under the old regime: the strict settlement and the Settled Land Act 1925

As is now clear, the law of strict settlements will apply only to those successive interest trusts created before the entry into force of TOLATA 1996. Necessarily, this means that the complicated rules of the SLA 1925 will become less important. They are discussed below. Points of comparison with the regime of TOLATA 1996 should be kept in mind during this analysis.

The ‘strict settlement’ is not a creation of the 1925 property legislation and, indeed, one of the reasons for the SLA 1925 was to reform and regulate the pre-1926 rules that had previously governed the creation and operation of successive interests in land. That said, it is to the SLA 1925 that we must look for a comprehensive statement of the pre-TOLATA 1996 law. Unfortunately, the SLA 1925 – and the substantive law – is quite complicated, and it is not an accident that the strict settlement was, for many years, rarely deliberately created or that it has now been abolished for new successive interests. In general terms, a ‘strict settlement’ exists when land is left on trust (not being a trust for sale) for someone for life, with remainder to another, perhaps also with provision by way of rentcharges for the payment of a regular income to someone else (e.g. the widow of the settlor29). However, this is a simplified definition, and sections 1 and 2 of the SLA 1925 define ‘settled land’ in much more precise terms. Thus, according to the SLA 1925, and bearing in mind that this is not operative for any instrument establishing a new trust after 1 January 1997, settled land was either:

1land ‘limited in trust for any persons by way of succession’;

2land ‘limited in trust for any person in possession’ for an entailed interest (i.e. a fee tail, now abolished by TOLATA 1996) for an infant, for a determinable fee, or for a fee simple subject to an executory limitation;

28These issues have been discussed at greater length in Chapter 4 in respect of concurrent co-ownership.

29The person that created the trust.

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3land limited in trust for any person for an estate that was contingent upon the happening of any event; or

4land which was charged by way of a family arrangement with the payment of any sums for the benefit of any persons.30

There is no denying that this appears to be complicated, but the essential point to remember is that settled land is land where the estate of the owner in possession is ‘limited’ in some way. Thus, either the owner’s interest is limited to his life, or is tied to the happening of an event, or is charged with the payment of money. Importantly, land which was subject to ‘an immediate binding trust for sale’31 is excluded from the definition of settled land and falls outside the Settled Land Act 1925. Such land was already governed by the LPA 1925 and now takes effect under TOLATA 1996 as a trust of land.

5.3.1 The essential characteristics of settled land

Settled land is land held on trust. Consequently, there will be ‘trustees of the settlement’, and beneficiaries under the settlement. These beneficiaries may be the owner of a life interest and those persons entitled in remainder – being entitled when the life interest expires. The settlement will have been created by the settlor, by deed, and this deed will usually identify the trustees. Under the SLA 1925, a range of persons are given statutory powers to deal with the land and it is important to remember that the major purpose behind the grant of these powers is to ensure that the land itself can be freely dealt with; in other words, that the land is alienable and does not get tied up in the settlement. As with concurrent co-ownership, if the land is sold, the rights and interests of the beneficiaries will be transferred to the purchase money via the mechanism of overreaching.

5.3.2 The specific attributes of settled land

The person under the settlement who is of full age, and entitled to immediate possession of the settled land (or the whole income from it), is generally regarded as the ‘tenant for life’ (section 19 of the SLA 1925).

The tenant for life is holder of the legal estate in the land, and he holds that legal estate on trust for the beneficiaries under the settlement.32 In the great majority of cases, this tenant for life is also the person entitled to an equitable life interest in the property. In other words, the tenant for life often has two roles: holder of the legal estate in the land and owner of an equitable, but limited, ownership, such as a life interest. It is no accident that the person

30For example, Re Austen (1929).

31Section 1(7) of the SLA 1925.

32Sections 4 and 107 of the SLA 1925.

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in possession of the land should have the legal title. Before 1925, that legal title could be vested in several trustees, or split up among several beneficiaries, and this made dealing with settled land a laborious and expensive process. Under the SLA 1925, the legal title is vested solely in the tenant for life, for they are the person in immediate possession of the land, and they are the person who may best judge how to deal with it.

The tenant for life exercises most of the important statutory powers to deal with the settled land. These are found in Pt II of the SLA 1925 and effectively place the tenant for life in control of the land, and it is in his hands that the power to manage it for the best interests of all the beneficiaries is to be found. Thus, the strict settlement was ideally suited to ‘family’ property arrangements, where the present occupier of the land could have been expected to manage it for the good of the family with, of course, the ability to deal with the land (and sell it) if the need should arise. The settlement will also encompass ‘trustees of the settlement’, and although they rarely hold the legal title to the land, they exercise general supervisory functions over the settlement.33 Consequently, it is their responsibility to ensure that the rights and interests of all the beneficiaries under the settlement are protected, especially if the tenant for life misuses his statutory powers. The identity of the trustees is determined according to section 30 of the SLA 1925, although they will usually be named as such in the trust deeds.

If the person with the statutory powers chooses to sell the settled land, the interests of the beneficiaries are overreached if the purchase money is paid to the trustees of the settlement (who must be two in number, or a trust corporation), or into court. If overreaching occurs, the purchaser need not concern himself with the equitable interests, because these take effect in the purchase money. The purchaser obtains a clean and unencumbered title to the land. If overreaching does not occur, the tenant for life cannot make a good title to the purchaser, and the purchaser may be bound by the equitable interests according to the provisions of the SLA 1925.

5.3.3The creation of strict settlements under the Settled Land Act 1925

Under the SLA 1925, all strict settlements must be created by two deeds: a ‘trust instrument’ and a ‘principal vesting deed’ (sections 4 and 5 of the SLA 1925). The trust instrument declares the details of the settlement, appoints the trustees of it, and sets out any powers conferred by the settlement that are in addition to those provided automatically in the Act. The principal vesting deed is less comprehensive and describes the settled land itself, names the

33 Wheelwright v. Walker (1883).

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trustees, states the nature of any additional powers and, most importantly of all, declares that the settled land is vested in the person to whom the land is conveyed (the tenant for life) on the trusts of the settlement. The principal vesting deed is, in one sense, the statement of ownership of the tenant for life and it is with this that any purchaser will be concerned, not least because the equitable interests detailed in the trust instrument will be swept off the land by overreaching.

5.3.4 The position of the tenant for life and the statutory powers

As indicated above, the tenant for life is given statutory powers to deal with the land. These powers are subject to various controls, usually overseen by the trustees of the settlement in order to prevent the tenant for life from taking advantage of his dominant position. Certain controls are specific to certain powers, and these are noted below where appropriate. Furthermore, the tenant for life is trustee of his powers and must have regard to the interests of the other beneficiaries when he exercises them (section 107 of the SLA 1925):

1The tenant for life has power to sell the settled land, or to exchange it for other land (section 38 of the SLA 1925). However, he must obtain the best price that can be reasonably obtained and a court will take action to ensure this.34 This power is subject to the written notice procedure, as considered below.

2The tenant for life has power to grant and accept leases of the land, although for certain specific types of lease, the duration of the lease which the tenant for life may grant is limited (sections 41 and 53 of the SLA 1925). This power is also subject to the notice procedure.

3The tenant for life may mortgage or charge the land in order to raise money for specific purposes, these generally being purposes which would benefit the land per se, rather than any individual owner (section 71 of the SLA 1925). This power is also subject to the notice procedure.

4The tenant for life may grant options over the land, including granting a person an option to purchase the land, or an option to purchase a lease (section 51 of the SLA 1925). This power is also subject to the notice procedure.

5The tenant for life has various ancillary powers in relation to the settled land. This includes the power to dispose of the principal mansion house (section 65 of the SLA 1925), the power to cut and

34 Wheelwright v. Walker (No. 2) (1883).

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sell timber (section 66 of the SLA 1925), the power to compromise claims concerning the settled land (section 58 of the SLA 1925), and the power to sell and purchase chattels and family heirlooms (section 67 of the SLA 1925). These powers are subject to the tenant for life obtaining, variously, the consent of the trustees of the settlement or the leave of the court.

6The tenant for life may effect any other transaction for the benefit of the settled land under order of the court (section 64 of the SLA 1925).

7The trust deeds of the settlement may expressly confer additional powers on the tenant for life.

5.3.5The role of the trustees of the settlement in regulating the powers of the tenant for life

It has been indicated already that a major role of the ‘trustees of the settlement’ is to act in a general supervisory function in order to safeguard the rights of all persons entitled to an interest in the land. In addition to this, the most important powers of the tenant for life are subject to the provisions of section 101 of the SLA 1925. Under section 101, a tenant for life who intends to make a sale, exchange, lease, mortgage, or charge in respect of the land, or to grant an option over it, must give written notice to each of the trustees by registered post, and to the solicitor for the trustees, of his intention to exercise one of these powers. Each notice must be posted not less than one month before the proposed disposition and, if there are currently no trustees of the settlement, these powers cannot be exercised.35

These provisions are designed to ensure that the trustees are aware of all proposed major dealings with the land and are ready to activate the overreaching mechanism where appropriate. However, although at first sight this notice procedure appears perfectly adequate to protect all beneficiaries, the Settled Land Act itself weakens this protection considerably. Thus, a trustee is under no obligation to interfere with a proposed dealing with the settled land of which he has notice36 and, except for the power to mortgage or charge the land, the tenant for life may give notice of a general intention to exercise these powers, rather than specific notice on each occasion (section 101(2) of the SLA 1925). Furthermore, the trustees may, in writing, waive the notice requirement, or accept less than one month’s notice37 and, importantly, a person dealing with the tenant for life in good faith is not required to inquire

35Wheelwright v. Walker (1883).

36England v. Public Trustee (1967).

37Section 101(4) of the SLA 1925.

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whether these procedural safeguards have been observed (section 101(5) of the SLA 1925). Clearly then, much depends on the personal determination and interest of the trustees in supervising the tenant for life.

5.3.6 The fiduciary position of the tenant for life

According to section 107 of the SLA 1925, the tenant for life is trustee of his statutory powers for those entitled under the settlement, and ‘shall’ have regard to their interests when exercising those powers. This is meant to give further protection to those entitled to either the land or its monetary equivalent after the current tenant for life has departed. It has some practical consequences, albeit of a limited nature. For example, if the tenant for life sells the settled land, he must sell as fairly as a trustee would sell, which effectively means for the best price reasonably obtainable paying due regard to the interests of the people entitled in remainder.38 Moreover, the tenant for life cannot accept or keep a payment for exercising the powers because, as a trustee, he is under a duty not to profit from his trust.39 However, once again, the protection offered by the legislation promises more than it delivers, for it is clear that a court will not invalidate a sale simply because the tenant for life sells the property for a bad motive, or even if the tenant for life is simply uninterested in managing the land.40

5.3.7 Attempts to restrict the powers of the tenant for life

It should be apparent from the above that the tenant for life really is in control of the settled land and that the statutory powers he is given are not subject to serious control either by the trustees of the settlement or under the general law of trusts. Consequently, there is a temptation for settlors to attempt to control or restrict the tenant for life in the exercise of his powers by inserting some express limitation in the deeds of the settlement. Unfortunately, this cuts against the philosophy of the SLA 1925 given that the Act was designed to prevent just this sort of control being exercised over the settled land by the ‘dead hand’ of the settlor. Therefore, according to section 106 of the SLA 1925, any provision inserted in a settlement which purports or attempts to forbid a tenant for life to exercise a statutory power, or any provision which attempts, tends or is intended to induce the tenant for life not to exercise those powers, is void, as in Re Patten (1929). Likewise, in Re Orlebar (1936), the court discussed a so-called ‘residence condition’, which stipulated that the tenant for life should lose his interest under the settlement if he ceased to occupy the land,

38Wheelwright v. Walker (1883).

39Chandler v. Bradley (1897).

40Cardigan v. Curzon-Howe (1885).

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and decided that the tenant for life would not forfeit his interest if he left the land as a result of a proper exercise of a statutory power.41

Obviously, section 106 is a very powerful statutory provision and it is largely effective to prevent settlors avoiding the policy of the SLA 1925 by special drafting of the settlement. However, in Re Aberconway (1953), a majority of the court held that, if that which might be lost to the tenant for life through such a provision was not a benefit to him, section 106 did not apply to make that provision void. Taking a different approach, Lord Denning in his dissenting opinion was of the view that anything that even tended to restrict the tenant for life in the exercise of his powers was void and this does seem more consistent with the overall policy of the Act than the decision of the majority. Indeed, a simple reading of section 106 appears to confirm Lord Dennings’s view and it has an echo in section 104 of the Act that provides that any contract entered into by the tenant for life himself not to exercise a statutory power is void.

5.3.8 Protection for the beneficiaries

In a very general sense, the beneficiaries under the settlement are protected by both the notice procedures discussed above, the general supervisory role of the trustees of the settlement, and the overreaching machinery, especially if all they are concerned with is the income which the land may generate rather than the land itself. More importantly, a very powerful provision is found in section 13 of the SLA 1925. As noted above, expressly created, each settlement will comprise two deeds: the trust instrument and the vesting deed. Under section 13, if no vesting deed has been executed in favour of the tenant for life, any proposed dealing inter vivos by him with the legal estate operates only as a contract to carry out that transaction; it does not transfer the legal title to the prospective purchaser. In other words, in the absence of a vesting deed, dealings with the legal title are paralysed, except in four specified cases, the most important of which is a sale to a purchaser of a legal estate without notice of the absence of the vesting deed. Simply put, the absence of a vesting deed makes it difficult for the tenant for life to deal with the land. However, if he sells that land in violation of the settlement to an innocent purchaser (as most will be), that purchaser will obtain good legal title to the land. The protection of section 13 is thus fragile.

Once a vesting deed has been executed, section 13 no longer applies, and the beneficiaries must look to section 18 of the SLA 1925 for protection in the event of some fraud on the settlement. Under section 18, once a vesting deed has been executed, and until the settlement is discharged, any transaction that

41 It would be otherwise if the tenant for life vacated the land for his own private motives.

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is not ‘authorised’ by the SLA 1925 or other statute is void. Thus, any sale or mortgage, and so on, by the tenant for life that is outside his statutory powers is ineffective to convey legal title to the land. It would operate only in equity to the effect of conveying the tenant ‘s own equitable interest, but no more, to the purchaser.42 Of course, the existence of a vesting deed normally would inform the purchaser of all material facts in relation to the settlement – or at least indicate areas of concern where further enquiries might be made – and so a purchaser can have little complaint if he purchases the land after inspecting the vesting deed in what turns out to be an unauthorised transaction.

5.3.9 Protection for the purchaser of settled land

Once again, in a general sense, the purchaser of settled land is protected by the overreaching machinery. He need be concerned only with the vesting deed and can rely on the interests of the beneficiaries being overreached. However, things can, and do, go wrong. To meet this situation, section 110 of the SLA 1925 provides that a purchaser who deals in good faith with the tenant for life is, as regards the beneficiaries, deemed to have paid the best price and to have complied with all the requirements of the Act. Although it is sometimes thought that this provision sits uneasily with section 18 (which voids all unauthorised transactions), it seems that section 110 is concerned with matters of detail, not of principle. Thus, section 110 will not protect a purchaser if the transaction with the tenant for life is wholly unauthorised (for this falls within section 18), but it will protect him if there are omissions of detail in an otherwise authorised transaction.43

5.3.10 The overreaching machinery

Equitable interests under strict settlements are capable of being overreached on a sale of the settled land (section 2 LPA 1925). If successful, overreaching will confer legal title on a purchaser free of all equitable interests under the settlement. Of course, no legal rights are capable of being overreached and with three minor exceptions (annuities, limited owner’s charge, general equitable charge), neither are any equitable interests created prior to the settlement. As with all overreaching, the capital purchase money must be paid to at least two trustees of the settlement or a trust corporation. In unregistered land, failure to overreach may result in the equitable interests binding the purchaser through the doctrine of notice as such interests cannot be registered as a land charge.44 In land of registered title, when overreaching fails,

42Weston v. Henshaw (1950).

43Re Morgan’s Lease (1972).

44Section 2 of the Land Charges Act 1972.

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