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Principles of Land Law

property. Among other things, such an order may be for sale of the property. Unless the application is made by a trustee in bankruptcy in respect of property in which a bankrupt has an interest (see below, 4.9.3), when considering the application, 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 (s 15 of the TOLATA 1996; as considered in Chun v Ho (2001)). This list of factors is generally thought to be all-inclusive and is likely to cover most situations. Importantly, these factors mirror many of the factors developed by the courts when interpreting the old s 30 of the LPA 1925 (which had no statutory list). Thus, it is the Law Commission’s view that much of the pre1996 case law will be relevant in interpreting ss 14 and 15 of the TOLATA 1996. The following are examples of factors considered by the court in deciding whether to exercise its discretion under the old s 30. They now fall within s 15 of the TOLATA 1996:

(a)whether the property is needed for the maintenance of a matrimonial home (Jones v Challenger (1961)). A fortiori, maintenance of a home for a stable unmarried couple;

(b)whether 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 (Chun v Ho (2001), completion of education of one co-owner);

(c)whether 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 s 15 of the TOLATA1996, the welfare of any minor occupying the land as his home is made relevant expressly, resolving the doubts expressed in Re Holliday (1981) and Re Evers’ Trust (1980);

(d)whether the property is required to continue a business for which the land was purchased (Bedson v Bedson (1965));

(e)where the person seeking a sale may be estopped from obtaining an order for sale by their conduct, this having been relied upon to detriment by other co-owners. This is a manifestation of the principle of proprietary estoppel (Re Buchanan-Wollaston’s Conveyance (1939); and see Chun v Ho (2001));

(f)whether there has been any misconduct by the person applying for sale, or his legal advisers, as in Halifax Mortgage Services v Muirhead (1998),where sale was refused because the claimant’s solicitors had wrongly altered relevant documents;

(g)the general desire not to keep a creditor out of its money: Bank of Ireland v Bell (2001), although this is not always paramount (Mortgage Corp v Shaire (2001)).

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

Apart from the special case of bankruptcy, the old law, of s 30 of the LPA 1925, indicates when a court would be minded to order a sale. There is no doubt that these precedents will remain useful, subject to one very important proviso. Before the 1996 Act, as we have seen, co-owned land was subject to a trust for sale, with 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 applications made under the old s 30. Consequently, pre-1996 statements unequivocally favouring a sale of co-owned property in cases of dispute must be read with some care and cannot apply to applications under the new s 14, where there is no presumption of sale in default. So, in Banker’s Trust v Namdar (1997), a sale was ordered under s 30 of the LPA 1925, but Peter Gibson LJ thought that it was ‘unfortunate’ that the TOLATA 1996 was not applicable (the case arose before the TOLATA 1996 came into force) ‘as the result might have been different’. In TSB v Marshall (1998), the county court judge used pre-TOLATA 1996 principles to assess an application under ss 14 and 15. 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 (for example, no children), as this supports the alienability of the co-owned land. Conversely, no sale is likely if there are children living in the property and the co-owner wanting a sale is not in desperate financial straits and in Chun v Ho (2001) sale was postponed until the co-owner completed her studies, not least because the other co-owner had behaved inequitably, there was no real evidence that the money was needed to pay debts and the co-owner resisting sale had provided most of the original purchase price. A sale is likely if the land was purchased as an investment, rather than a home, or if it would be inequitable to deny a coowner their share of the capital value of land (cf Barclay v Barclay (1970)). Again, a sale might be favoured if the rights of creditors are in issue (for a non-bankrupt), but only if there are no countervailing circumstances (Bank of Ireland v Bell (2001), but contrast Mortgage Corp v Shaire (2001)) and only if the rights of the creditors would be prejudiced by not ordering sale (Chun v Ho (2001)). Clearly, if the non-trustee equitable owners’ consent is required before a sale takes place (for example, where such requirement is required by the conveyance to the trustees), a court will be careful before it dispenses with such consent and actually orders a sale against their wishes. Likewise in Dear v Robinson (2001) where the wishes of the beneficiaries were critical (even though they had no consent powers), especially as a postponement of sale was also in accordance with the original intention of the creator of the trust. Moreover, even if the equitable owners’ consent is not a requirement of a sale or mortgage by the trustees, their wishes are relevant (see s 11 of the TOLATA 1996), although it is unlikely that they will be pivotal. As is obvious, the court’s approach to a s 14 application will vary according to the circumstances. It may have altered the emphasis against a sale (Shaire) or it may not (Bell) although the decision in Chun Ho (2001) indicates a more

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sympathetic attitude to the position of occupying co-owners. What we can be sure of, however, is that, in registered land, an equitable owner will be able to place a restriction on the title of the co-owned land in order to influence any proposed dealings. If then alerted by the restriction of an attempt to deal with the land, the non-trustee equitable owner can then utilise s 14 of the TOLATA 1996 to try to prevent sale, or to ensure that it proceeds only on certain conditions. If a restriction has been entered, this will ensure that no dealings take place unless the conditions specified in the restriction are fulfilled, for example, that there are indeed two trustees of the land (that is, overreaching) or that the consents of the equitable owners (if required) are, in fact, obtained. Note finally, that a court is empowered under s 14 of the TOLATA 1996 to revisit a previous application if circumstances change prior to 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 did not want an immediate sale.

4.9.3The special case of bankruptcy

The list of factors in s 15 of the TOLATA1996 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 s 14 of the TOLATA 1996, but s 335A of the Insolvency Act 1996 provides the list of relevant factors (see s 15(4) of the TOLATA 1996). Section 335A of the Insolvency Act 1986 is inserted by the TOLATA 1996 (see Sched 3), and replaces the similar (but not identical) s 336(3) of the Insolvency Act 1986.

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’. A 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, and, to that end, becomes vested with his property. In a co-ownership situation, therefore, a trustee in bankruptcy will step into the shoes of a legal or equitable owner. 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, often the bankrupt’s domestic 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 s 14 of the TOLATA 1996, 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 s 335A of the Insolvency Act 1986.

On hearing an application for sale by a trustee in bankruptcy, the court must consider a number of factors, such as 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 order as it thinks just and reasonable. However, if the

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application under s 14 of the 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 matter could go either way. So, in Harrington v Bennett (2000) an application for sale by the trustee in bankruptcy more than one year after the bankruptcy was granted. 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 by the bankruptcy trustee. On its face, the s 14/s 335A procedure applies whether or not the coowners were married, or, indeed, in any emotional relationship. This is different from the repealed s 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 scales. It is not clear whether this means that the needs of children of non-married couples are irrelevant under the statute (surely not: see s 335A(c)), but, in any event, the law relating to unmarried couples was assimilated to the old s 336(3) by Re Citro (1991), and this should remain the case for the new s 335A.

Summary

It is convenient at this stage to summarise the position in respect of the court’s approach when an application is made under s 14 of the TOLATA1996. In most cases, the court must consider the factors listed in s 15 of the 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 s 355A of the 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:

(a)In 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)), that the land is partitioned etc. It is likely that that there will be much less emphasis on a sale in these circumstances. Under the TOLATA1996, the trust of land is no longer a trust for sale of land.

(b)In disputes between a co-owners and a third party secured creditor (for example, a mortgagee), it is important to assess why the creditor wishes a sale. It is worth noting here that a mortgage does not have to resort to s 14 for a sale if the mortgagee has overreached the beneficial interests by paying

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capital money to two or more trustees or otherwise takes free of the mortgage (for example, having obtain relevant consents). In such cases, like City of London Building Society v Flegg (1988) (overreaching) and LF v LF (2001) (consent), the mortgagee may sell in virtue of its paramount mortgage powers. Consequently, a mortgagee using s 14 of the TOLATA 1996 is by definition a mortgagee bound as a matter of property law by the prior right of one of the co-owners. This may be important as the court legitimately may ask why it should deprive a co-owner of possession of the land when the co-owner’s right is paramount to that of the creditor. Consequently, a creditor may not get an order for sale under s 14 where they simply have failed to protect themselves adequately (as in Boland). Nevertheless, a sale has been ordered in favour of a ‘bound’ creditor where it seems unjust to keep the creditor out of its funds, especially where the ‘unjustness’ is that the bank believed that all the co-owners had consented to the mortgage but where this was untrue because of a fraud by one co-owner in forging the consent of the others (Bank of Ireland v Bell (2001); Bankers Trust v Namdar

(1997)). Of course, the court may well conclude that even this is not sufficient to justify a sale, at least not without terms and conditions to protect the innocent co-owners (Mortgage Corp v Shaire (2001)).

(c)Where one of the co-owners goes bankrupt and his trustee in bankruptcy applies for an order for sale, it will take very exceptional circumstances for a sale to be postponed for more than a year. Such a postponement will be rare indeed, see Harrington v Bennett (2000).

(d)It is open to a mortgagee (a secured creditor) who cannot get a sale themselves under s 14 to make a co-owner bankrupt. This will mean the mortgagee giving up its secured status—and becoming an ‘ordinary’ creditor losing its priority right over the property—but it is likely to generate a sale under the more powerful bankruptcy rules. Although this appears to be getting in by the back door—after all, the mortgagee could not themselves get a sale under s 14—it is not an abuse of the process and will not be prevented by the court, as made clear in Alliance & Leicester v Slayford (2001).

4.9.4The position of a purchaser who buys co-owned land: when overreaching occurs

If a purchaser buys co-owned land from two or more legal owners (that is, there are two or more trustees of land), then the interests of the equitable owners are overreached. The effect is that their co-ownership interest is transferred from the land and takes effect in the purchase money. The purchaser obtains the land free from their rights (City of London Building Society v Flegg (1988); Birmingham Midshires Building Society v Saberhawal

(2000)). This is the same in registered and unregistered land. Usually, of course, the two trustees will be the man and woman who together own the

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home in its entirety, both also being the only equitable owners. In such cases, there is no difficulty, as the equitable owner could have objected to the sale in their capacity as a legal owner. However, in some cases, the equitable owners will be different from the legal owners, and if there are two legal owners (trustees), overreaching can still occur. In that situation, the purchaser still obtains the land free from the equitable rights, and those equitable rights still take effect in the purchase money, even if the equitable owners objected to the sale (City of London Building Society v Flegg (1988)). In other words, overreaching can occur against the wishes of the equitable owners: they lose their rights to occupy the land, although they do receive their share of the purchase money (assuming, of course, that purchase money is payable on the overreaching transaction: see State Bank of India v Sood (1997); Chapter 2). This is the position even though, under s 11 of the TOLATA 1996, the trustees under the trust of land must consult the equitable owners and ‘in so far as is consistent with the general interest of the trust’ give effect to such wishes. Section 11 imposes a duty to consult and pay attention to such wishes, not to follow them slavishly, and the duty does not affect the overreaching effect of conveyances. Not surprisingly, the powerful effect of overreaching has caused some concern, and the Law Commission once proposed alternative ways of protecting the equitable owner. These proposals are considered below but, for now, it is important to consider the impact of the TOLATA 1996 on the effectiveness of overreaching. As we have seen, it is now possible for a settlor (that is, the person who sets up the trust of co-owned land) to provide that the exercise of the trustees’ powers should be subject to the consent of the beneficiaries (s 10 of the TOLATA 1996) and, further, that any interested person (for example, non-legal equitable owner) may make an application for an order ‘relating to the exercise by the trustees of any of their functions’ (s 14). How does this effect the ‘trump card’ of overreaching when there are two or more trustees of the land?

4.9.5If consents are required

If the disposition originally conveying the land to the co-owners makes the trustees’ powers (for example, of sale or mortgage) dependent on obtaining the prior consent of the equitable owners (as envisaged by s 10 of the TOLATA 1996), there is a potential conflict with the ability of the trustees to sell the land and overreach the equitable interests. For example, what is the position if the land is sold by the two trustees, but the required consents are not obtained? Is the purchaser bound by the equitable interests, or are they overreached? This is not such an easy question to answer, as the new Act is not entirely clear on this point. Although it will be rare for consent requirements to be built into a trust of residential property that is co-owned (because the trustees/ equitable owners will usually be the same people), the matter will not be settled

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conclusively until there has been some case law. Moreover, it should also be remembered that trustees can apply under s 14 of the TOLATA1996 for removal of a consent requirement just as equitable owners can apply for one to be imposed.

With these qualifications in mind, the TOLATA 1996 appears to envisage the following results if land is sold by two or more trustees of land by a proper overreaching transaction, yet in violation of a consent requirement. In registered land, because the consent requirement must, first, be expressed in the ‘disposition’ establishing the trust (that is, it will be written into the conveyance to the two trustees: s 10 of the TOLATA 1996), there is every chance that the consent requirement will be entered on the register in the form of a restriction against dealings. This means that no dealings with the land can occur until the conditions of the restriction (that is, obtaining consent) have been complied with. If, by some chance, no restriction is entered (most unlikely), the marginally better view is that the purchaser obtains a good title to land, the equitable interests are overreached, and the equitable owners are left to sue the trustees for breach of trust. This is despite s 8 of the TOLATA 1996, which says that the power of sale ‘may not be exercised without that consent’. Although there has been some academic criticism of this view, there is no doubt that TOLATA 1996 was not intended to restrict the power of overreaching and such case law as there is supports the primacy of overreaching in these circumstances (Birmingham Midshires Building Society v Saberhawal (2000)). This is also the Law Commission’s view and any lingering doubts have been dealt with by s 26 of the Land Registration Act (LRA) 2002. Overreaching is effective save where some restriction is entered on the title, even if a sale by the trustees violates some term of the trust. Note finally that a consent requirement granted by reason of an order of the court under s 14 of the TOLATA 1996 of necessity will be registered as a restriction consequent on the court order.

In unregistered land, although any deliberate consent requirement will again be expressly declared in the disposition establishing the trust, there is no mechanism to register it under the Land Charges Act (LCA) 1972: these are not land charges falling within Classes A-F, nor does a consent requirement appear to fall within any of the other registers of the LCA 1972. However, s 16 of the TOLATA 1996 (which applies only to unregistered land) says that a purchaser is not affected by the trustees’ failure to observe a consent requirement included in a disposition provided that the purchaser had no actual knowledge of the consent requirement. In other words, if the purchaser (or his legal adviser) did not actually know that the land was being conveyed in breach of a consent requirement, then overreaching remains effective. By analogy, the same rule should apply if a consent requirement is imposed as a result of an application under s 14 of the TOLATA 1996 (although the Act does not address this possibility). This means that the position in registered and unregistered land is broadly similar in effect. Note, however, that the chances of consents being required in unregistered land is minimal—new trusts will

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usually take effect in registered land, and rare will be the circumstances when a consent requirement is imposed on an existing trust in unregistered land (see below, 4.9.8).

4.9.6If consents are not initially required

If no consents are required, then, clearly, the matter is straightforward— overreaching takes its usual course. However, we need to be aware of two possibilities which arise, even when a consent requirement is not required by the original disposition. First, an equitable owner may apply under s 14 of the TOLATA 1996 for a court order that the trustees seek his consent before a sale. This is not precluded by s 14, which says that the court may make any order ‘relating to the exercise by the trustees of any of their functions’. The court may have to develop criteria to determine whether a consent requirement should be imposed. If that happens, the position should be as above, 4.9.5. Note, however, that s 8 of the TOLATA 1996 talks only of a consent requirement imposed by the disposition creating the trust, that is, for original and express consent requirements. It could be that consent requirements imposed under s 14 will be treated differently. Secondly, if the co-owned land is registered land, an equitable owner who does not enjoy the protection of a consent requirement may place a caution (or a unilateral notice under the LRA 2002) against dealings on the title, thus ensuring that the Registrar will alert her to any proposed dealing with the land by the two trustees. If that happens and the caution is activated the equitable owner may apply to the court under s 14 for an order postponing sale or requiring other conditions to be met.

4.9.7When overreaching does not occur

The usual reason why overreaching does not occur is that there is only one trustee (legal owner) of the property (Williams and Glyn’s Bank v Boland (1981)). This, in turn, is usually caused by someone else gaining an equitable interest in the property under the Pettitt v Pettitt (1970)/Lloyds Bank v Rosset (1991) rules after it has been conveyed into one person’s name alone. For example, where a single woman buys a house (which is conveyed to her name alone) and then she invites her lover to live with her, the lover may acquire an equitable interest under the principles (discussed below, 4.10). If that happens, a trust of land arises (Bull v Bull (1955)), but there is only one legal owner. If the purchaser buys the property (or a bank lends money on it), but pays the purchase money to the single trustee only, then the purchaser cannot rely on overreaching to protect him from the rights of the equitable owners: the purchaser may be bound by the rights of the equitable owners and his use of the land severely restricted or completely disrupted. In fact, in the absence of overreaching, the normal rules of registered or unregistered land (as the

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case may be) take over. Thus, in registered land, if the equitable owner is a person in actual occupation of the property at the time of the purchase or mortgage (Abbey National Building Society v Cann (1991)), he will have an overriding interest against that purchaser or mortgagee (currently s 70(1)(g) of the LRA1925). Alternatively, he may have registered his interest as a minor interest, and so secured its priority. However, if neither of these has occurred, the purchaser takes the land free of the equitable interests, in the same way that he would for any other unprotected equitable interest.

In unregistered land, these equitable interests cannot be registered as land charges under the LCA: see s 2(4) of the LCA 1972. Consequently, whether they bind a purchaser or mortgagee who has not overreached depends on the old doctrine of notice (this being one of the very few cases where it is relevant). Usually, if the equitable owner is residing in the property, the purchaser or mortgagee will be deemed to have constructive notice of their interest, and be bound by it (Kingsnorth Trust v Tizard (1986)).

However, in both registered and unregistered land, a purchaser who has failed to overreach, and is presumptively bound by the equitable interest according to the above rules, may be able to plead that the equitable owner has expressly or impliedly consented to the sale/mortgage taking place. In such cases, although it appears that the purchaser should have been bound, a court of equity will respect the express or implied consent of the equitable owner with the consequence that the purchaser gains priority over their interest (Paddington Building Society v Mendelson (1985) (registered land); Bristol and West Building Society v Henning (1985) (unregistered land)). In order to give the purchaser this relief, the court must be satisfied that the expressed or implied consent is real: it does not exist simply through knowledge of the proposed sale or mortgage (Skipton Building Society v Clayton (1993)). So, for example, if the legal owner attempts to mortgage the land to a bank and his lover (the equitable owner) signs a consent form postponing her interest to that of the bank, we need to be sure that (in the absence of undue influence) the consent was real. Likewise, even in the absence of a signature on a consent form, the lover may have so acted in relation to the mortgage (for example, attending the bank, explaining the need for a mortgage to the bank’s employee) that her consent can be implied and is beyond doubt. Likewise, clear consent to one mortgage will be taken to be effective in favour of a different mortgagee that provides funds to pay off the first mortgage (at least up to the value of the first mortgage) on the basis that the equitable owner should not benefit merely because of a change in identity of the lender (Equity and Home Loans v Prestige (1992); LF v LF (2001)). On the other hand, an equitable owner who knows that the legal owner is about to mortgage, but who does not consent expressly or impliedly, does not, thereby, lose her interest. It is up to the bank to seek consent, not for the equitable owner to offer it. In practice, most mortgagees will ensure that all possible equitable owners sign a consent form, thus securing the priority that is not available through overreaching.

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However, in Woolwich Building Society v Dickman (1996), the Court ofAppeal reconsidered the principle that a purchaser may plead the consent of an equitable owner as a means of taking the land free of the interest. In a surprising decision, the court seems to suggest that such consents can have no effect (that is, will not aid a purchaser) unless they are ‘expressed on the register’, at least when the person alleged to have consented is in actual occupation of the property, and could otherwise claim an overriding interest under s 70(1)(g) of the LRA 1925. Previous cases have not suggested that such consents have to be entered against the title in order to be effective and it is submitted that this decision misreads s 70(1) of the LRA 1925. Under that section, the purchaser’s land is subject to certain rights unless such is ‘expressed on the register’, but only for rights ‘for the time being subsisting in reference’ to the land. The giving of consent by the equitable owner means that the right no longer ‘subsists in reference’ to the land in respect of the purchaser to whom the consent is given. Hence, s 70(1)(g) is not relevant, because there is no right that could bind that purchaser. Dickman itself can be justified on other grounds— the relevant right being protected under the RentAct 1977. In Gracegrove Estates v Boeteng (1997), the Court of Appeal upheld the validity of an express consent in registered land where it had not been registered against the title. In fact, the Dickman view was not even considered, and it is now very doubtful whether Dickman is correct on this point (see also Saberhawal (2000)). The Law Commission has expressed the view (Report No 254) that these consents are effective to postpone the rights of the equitable owner without the need to enter them on the register of title.

4.9.8The position of the equitable owners: problems and proposals

We have noted above that if a purchaser pays the purchase price to two trustees (legal owners) of the property, the equitable owners’ rights are overreached. This meansthattheequitablerightsareautomaticallytransferredtothepurchasemoney and the trustees hold that money on trust for the equitable owners in the same way as they held the land, that is, as tenants in common or joint tenants. Often, the sale would have been caused by one or all of the co-owners wishing to realise their investment and it is quite likely that the money will be distributed and the trust brought to an end. Alternatively, where the legal and equitable owners are the same people (for example, husband and wife), the money may be used to finance the purchase of a new property, which will then become co-owned.

Of course, these are the ‘normal’ cases and the great majority of dealings with residential co-owned land follow this smooth path. However, there will always be some legal owners who decide to sell without telling the equitable owners, perhaps in order to abscond with the proceeds, or raise a loan (mortgage) on the property for their own purposes. What happens then?

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