Экзамен зачет учебный год 2023 / Dixon, Modern Land Law

Modern Land Law

the position is more complex. Equitable interests under an SLA 1925 settlement cannot be overriding interests45 nor may they be protected by the entry of a Notice against the title.46 In consequence, the beneficiaries must either be content to rely on the protective sections of the SLA itself (sections 13 and 18 above) or have had the foresight to enter a restriction against the title effectively preventing a sale of the land at all unless the conditions for overreaching are in fact complied with.47

5.3.11 The duties of the trustees of the settlement

The supervisory duties of the trustees of the settlement, and their role in regulating the tenant for life in the exercise of his statutory powers, have been mentioned already. In addition to this, the SLA 1925 gives the trustees other responsibilities, not least receipt of the capital sum in order to facilitate overreaching. More specifically, the trustees may actually act as ‘statutory owner’ (with all the powers of a tenant for life) if there is no tenant for life, or the tenant for life is an infant and, under section 24 of the Act, the court may authorise the trustees to exercise the powers of the tenant for life (in his name) if the tenant has ceased to have a substantial interest in the land, or has refused (but not merely neglected) to exercise those powers.48

5.4 The trust for sale of land: pre-TOLATA 1996

The second method of regulating successive interests in land before the entry into force of TOLATA 1996 was the trust for sale of land. Although trusts for sale expressly created before or after 1 January 1997 may continue to exist in name, as noted above they will take effect under the regime of TOLATA 1996 and there will be little practical difference between these as the more common trust of land. Further, any trusts in relation to land that had been, or will be, imposed by statute will take effect as a simple trust of land subject to the TOLATA 1996 regime. This will include any trusts created impliedly by reason of the application of the principles of resulting or constructive trusts. Consequently, in terms of pre-1997 law, the other method of creating a trust for successive interests (the old trust for sale) comes under the TOLATA 1996 regime as equivalent to a trust of land. The principal features of this regime have been discussed above.

45Schedule 3, paragraph 2 of the LRA 2002.

46Section 33(a)(ii) of the LRA 2002.

47The entry of a restriction preventing sale unless there are two trustees or a trust corporation would have been normal when the strict settlement was created deliberately. Note that the effect of such a restriction is to ensure that overreaching occurs – thus forcing the equitable owners to take their interests in money.

48As explained in Re 90 Thornhill Road (1970).

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5.5A comparison between the strict settlement under the Settled Land Act 1925 and the regime of the Trusts of Land and Appointment of Trustees Act 1996

As noted at the outset of this chapter, pre-1997 existing successive interest trusts for sale, and all new attempts to create successive interests in land, will take effect under TOLATA 1996. This is regardless of whether they take effect as the common trust of land, or whether they retain their trust for sale label, having been created as such expressly. Again, as noted above, the difference between the two is minimal, as it is the provisions of TOLATA 1996 that are important and these apply equally to both versions of the trust concept. Consequently, in order to appreciate more fully the difference that the obligatory application of TOLATA 1996 has made to the law of successive interests, a comparison with the ‘old’ law of strict settlements of the Settled Land Act 1925 is appropriate.

1Settled land is governed by the complicated provisions of the SLA 1925. The trust of land under TOLATA 1996 is relatively easy to understand and operate (and this includes expressly created trusts for sale). The abolition of the strict settlement for new successive interests should mean less litigation and less cost.

2The strict settlement was ideally suited to keeping land ‘in the family’, especially where the tenant for life may have wished to occupy the land and consequently declined to exercise his power of sale. This was perfectly legitimate, even if those entitled on his death saw the value of their prospective interests dwindle. The machinery of TOLATA 1996 can ensure occupation by interested persons (i.e. the tenant for life), but also has the flexibility to ensure that the land is sold if this is in the best interests of every equitable owner (see section 14 of TOLATA 1996).

3Under a strict settlement, the tenant for life has legal title and is in effective control of the land. Under TOLATA 1996, the trustees have legal title, and have all the powers of an absolute owner. They will control the land unless they choose to delegate powers to the person with the life interest or other person interested. They will not divest themselves of legal title unless the land subject to the trust is sold.

4The tenant for life under the SLA 1925 is constrained by the fact that his powers and the legal estate are held on trust. Moreover, certain powers are subject to notice procedures or the consent of the trustees of the settlement. The trustees of land under TOLATA 1996 are obliged to consult the beneficiaries (e.g. the person with a life interest), and should endeavour to give effect to his wishes. However, they are not bound to do so. Under TOLATA 1996, the trustees may have delegated their powers irrevocably, and the

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exercise of the powers by the trustees may be made subject to the consent of some other person interested in the land.49

5On the death of a life tenant under a strict settlement, the legal estate can be transferred only by means of the expensive and time-consuming process of obtaining a vesting deed. On the death of a trustee of land under TOLATA 1996, legal title simply accrues to the remaining trustees (being joint tenants of the legal estate) under the right of survivorship. No cost, no documents and no fuss.

6The position of a purchaser of land subject to a strict settlement was not always clear, but was generally quite favourable. Under TOLATA 1996, a purchaser may be bound by equitable interests taking effect as overriding interests, but only if overreaching does not occur. In both the strict settlement and the trust of land, a restriction may be placed on the register of title restricting the ability of the registered proprietor in his dealings with the land unless the conditions for overreaching are complied with.

49 For example, the life tenant to whom delegated powers have not been given.

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SUCCESSIVE INTERESTS IN LAND

What is successive ownership of land?

Successive ownership of land occurs when one person has an estate in the land for life and another (or others) has (have) rights which ‘fall into’ possession after the ‘life interest’ has ended. There are two ways in which land can be held subject to successive interests. First, for successive interests created before 1 January 1997, a settlement (or ‘strict settlement’) may be used. Such land is called settled land and falls within the machinery of the SLA 1925. Second, for successive interests created on or after 1 January 1997, TOLATA 1996 requires that a trust of land be used. No new strict settlements can be created after this date, save for resettlements of existing settled land.

The strict settlement and settled land

A ‘strict settlement’ will exist in a number of (complicated) circumstances, but the most common are where land is ‘limited in trust for any persons by way of succession’ or where land which is charged by way of a family arrangement with the payment of any sums for the benefit of any persons.

The essential characteristics 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 and holds that estate on trust for the beneficiaries under the settlement (sections 4 and 107 of the SLA 1925). The tenant for life exercises most of the important statutory powers to deal with the settled land. These effectively place the tenant for life in control of the land. There are also ‘trustees of the settlement’ and they exercise general supervisory functions over the settlement. Where 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.

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The position of the tenant for life and the statutory powers

The tenant for life will usually have various powers to deal with the settled land, including the power to sell it, grant a lease of it and mortgage it for specific purposes. These powers are subject to the consent of the trustees of the settlement or the leave of the court, although the 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). The trusts of the settlement may expressly confer additional powers on the tenant for life. Under section 106 of the SLA 1925, any provision inserted in the settlement that purports or attempts to forbid a tenant for life to exercise a statutory power, or any provision that attempts, tends or is intended to induce the tenant for life not to exercise those powers, is void.

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

Under section 101 of the SLA 1925, 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.

The fiduciary position of the tenant for life

Under section 107 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.

Protection for the beneficiaries

In addition to the notice procedure, the general supervisory role of the trustees of the settlement and the overreaching machinery, the beneficiaries are protected by sections 13 and 18 of the SLA 1925. These sections can paralyse dealings with the land in certain circumstances.

Protection for the purchaser of settled land

Section 110 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 of the requirements of the Act. This is concerned with matters of detail and section 110 will not protect

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a purchaser if the transaction with the tenant for life is wholly unauthorised (section 18).

The overreaching machinery

Equitable interests under strict settlements are capable of being overreached on a sale of the settled land (section 2 LPA 1925). No legal rights are capable of being overreached.

The trust for sale of land and TOLATA 1996

TOLATA 1996 regulates all successive interests of land (except resettlements) created on or after 1 January 1997. Legal title is vested in the trustees who have all the powers to deal with the land. The life tenant and others entitled will have equitable interests. The trustees may delegate their powers (except the power to overreach) to any person and may well give some powers to the person in occupation of the land, usually the tenant for life. The trustees must consult the beneficiaries before dealing with the land, but only in limited circumstances will they have to obtain the consent of the beneficiaries before exercising their powers. The tenant for life (and other beneficiaries) has a right to occupy the land, although this can be excluded. Usually, only the tenant for life will occupy. A sale (including a mortgage) by the trustees will overreach the equitable owners, providing the conditions for statutory overreaching are met. Any person interested in the trust of land may apply to the court under section 14 of TOLATA 1996 for an order concerning the land.

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CHAPTER 6

LEASES

6.1 The nature of a lease

The leasehold is one of the two estates identified in section 1 of the Law of Property Act (LPA) 1925 as capable of existing as either a ‘legal’ or ‘equitable’ interest. As we shall see, whether any given lease is legal or equitable will depend primarily on the way in which it is created. However, irrespective of whether a leasehold is legal or equitable, there is no doubt that it is one of the most versatile concepts known in the law of real property. Even the terminology of leases reflects the many purposes to which they may be put. The ‘term of years’, ‘tenancy’, ‘sublease’ and ‘leasehold estate’ are all terms in common use, and all of them describe the existence of a ‘landlord’ and ‘tenant’ relationship. For example, a ‘lease’ or ‘term of years’ is most often used to describe a commercial or long-term letting, whereas the description ‘tenancy’ is used for residential or short-term lets. This variety does not mean that different substantive rules apply to different types of lease (although this may be the case where a statute applies only to one kind of lease), but it does indicate the importance that the leasehold plays in the world of commercial and residential property management. In this respect, three fundamental features of the leasehold should be noted at the outset.

First, the leasehold allows two or more persons to enjoy the benefits of owning an estate in the same piece of land at the same time: the freeholder will receive the rent and profits, and the leaseholder will enjoy physical possession and occupation of the property. Indeed, if a ‘subtenancy’ (also known as an ‘underlease’) is created, being where a shorter lease is carved out of the ‘headlease’, the number of people enjoying the land or its fruits increases further. For example, if a freeholder (A) grants a 99 year lease to B, and B grants a 50 year subtenancy to C, then A receives rent from B, B receives rent from C and C enjoys physical possession of the land. In theory, there is no limit to the number of underleases that can be created out of a freehold estate, and each intermediate person will be the tenant of their superior landlord and the landlord of their own tenant. It is the ability of the leasehold to facilitate this multiple enjoyment of land that gives it its unique character. It allows the landlord to generate an income through rent (thus employing land as an investment vehicle), while at the same time the tenant ‘buys’ an estate in land through the payment of that rent.

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Second, it is in principle inherent in the leasehold estate that both the landlord and tenant (and all subtenants) have a proprietary right in the land.1 Thus, the tenant owns the lease, and the landlord owns the ‘reversion expectant on the lease’ – that is, the right to possession of the property when the lease ends. Importantly, both of these proprietary rights can be sold or transferred after the lease is created. The tenant may sell his lease to a person who becomes the new tenant (an ‘assignee’ of the lease), and the landlord may sell his reversion to a person who becomes the new landlord (an assignee of the reversion). Likewise, the assignees of the lease and reversion may assign (i.e. sell or transfer) their interests further. The result is that the current landlord and current tenant under a lease may be far removed from the original landlord and tenant who actually negotiated its creation. Nevertheless, as explained below, the landlord and tenant currently ‘in possession’ may well be bound by the terms of the lease as originally agreed. Figure 6.1 represents this diagrammatically.

Figure 6.1

Third, all leases will contain covenants (or promises) whereby the landlord and tenant promise to do, or not to do, certain things in relation to the land. These may either be ‘express covenants’, as where they are agreed between landlord and tenant and written deliberately into the lease; ‘implied covenants’, being covenants read into the lease as a matter of law (e.g. the repairing covenant implied in certain leases by section 11 of the Landlord and Tenant Act 1985); or ‘usual’ covenants, being those that are not expressly mentioned but are so common in the landlord and tenant relationship that they are taken to be part of the lease unless clearly excluded, for example, the tenant’s obligation to pay rent under an equitable lease (Shiloh Spinners v. Harding (1973)). Typical examples of express covenants are the landlord’s

1 But note Bruton v. London and Quadrant Housing Trust (1999), below.

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covenant to repair the buildings and the tenant’s covenant to pay rent or not to carry on a trade on the premises. All these types of covenant are enforceable between the original landlord and tenant and, as we shall see, in many circumstances also between assignees of the lease or reversion. The particular rules concerning the enforceability of leasehold covenants are discussed below in paragraph 6.4, but the important point is that the ability to make rights and obligations ‘run’ with the land is a special feature of the landlord and tenant relationship. It is the reason why the leasehold estate is a particularly useful investment vehicle because the freeholder can generate an income while, at the same time, preserving the value of the land through properly drafted covenants (e.g. that the tenant must repair, may not keep pets, etc.), which will bind the original tenant and any subsequent assignees. Moreover, given that both the benefit of a leasehold covenant (the right to enforce it) and its burden (the obligation to observe it) can run with the land, the use of a leasehold with appropriate covenants can achieve what covenants affecting freehold land cannot; that is, with a landlord and tenant relationship, even positive obligations can be made to run with the burdened estate.2

6.2 The essential characteristics of a lease

There are various definitions of a lease, both in statute3 and in common law, but probably the most commonly cited is that of Lord Templeman in Street v. Mountford (1985). In his now famous judgment, Lord Templeman identifies the essential qualities of a lease as that arrangement which gives a person the right of exclusive possession of land, for a term, at a rent. These three elements are commonly regarded as the indicia of a leasehold estate, irrespective of the purpose for which the estate is created.4 They have been affirmed many times in a residential context,5 a commercial context,6 where the landlord is a private individual7 and a public or semi-public authority.8 These three indicia will be examined in turn.

6.2.1 Exclusive possession

A lease is an estate in the land; it signifies a form of ‘ownership’ of the land for a stated and defined period of time. However, there are many other ways

2Contrast the position in respect of freehold covenants in Chapter 8.

3For example, section 205 of the LPA 1925.

4Note the absence of an obligation to pay rent does not necessarily imply that there is no lease, see section 6.2.5.

5Aslan v. Murphy (1989)

6Clear Channel UK v. Manchester City Council (2004); Vandersteen v. Angus (1997)

7Antionades v. Villiers, AG Securities v. Vauhan.

8Westminster City Council v. Clarke (no lease), Bruton v. London & Quadrant Housing Trust

(lease).

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