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Principles of Land Law

The first question is always whether overreaching has occurred and, if not, is the purchaser or mortgagee bound by the equitable interests (see above, 4.9.7). If overreaching has not occurred and the purchaser is bound, the problem has gone away. The equitable owners remain entitled to use the land, save only that a purchaser could apply to have the land sold under s 14 of the TOLATA1996. The court is unlikely to order such a sale, given that the equitable owners have priority, although it is clear that they may do so in an exceptional case, as in Bank ofBaroda v Dhillon (1997) and Bank of Ireland v Bell (2001) and see above, 4.9.3.

If overreaching has occurred, the fundamental rule is that the equitable owners have no claim against the purchaser or mortgagee to remain in possession of the land (City of London Building Society v Flegg (1988)). They are overreached and their interest now takes effect in the purchase money. If, therefore, the legal owners have absconded or are unable to pay, the equitable owners will have only the normal remedies for breach of trust, for example, a personal action, a tracing claim. Unfortunately, all this may be of little comfort to an equitable owner who did not want to have the land sold, especially as their share of the proceeds (for example, one half) may not be sufficient to pay for alternative accommodation. This is particularly acute in cases where the property has been used as a family home, and the rationale for overreaching disappears completely if no purchase money was actually payable on the transaction (Sood). Thus, in response to the decision in Flegg, and as a way of limiting the effect of overreaching on an ‘unwilling equitable owner’, the Law Commission once suggested three alternative reforms (Report No 188):

(a)that overreaching should not be possible unless one of the trustees (legal owners) is a solicitor or licensed conveyancer. The idea is simply that such a person might offer protection to an equitable owner by looking after their interests and possibly objecting to a sale. This is a poor solution, as it would make conveyancing more expensive, as well as requiring an ‘outsider’ to become involved in personal affairs. Moreover, would it work? Does a solicitor have the time or inclination to be the guardian of the equitable owner?;

(b)that overreaching should not be possible if the equitable owner had registered their equitable interest. This is superficially attractive, as the register could be relied on by the purchaser to indicate whether it was safe to proceed and the equitable owner would be protected. Unfortunately, however, this ‘solution’ presupposes that equitable owners are prepared to register, even if they know they must register. For example, given that many of these equitable interests arise informally, without writing or solicitors, will a housewife know that she should register her interest ‘against’ her husband’s land? Will she be prepared to register, especially as this might be regarded as a hostile act? It is no accident that, where there is no overreaching, these equitable rights are,

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at present, capable of being overriding interests which bind without the need for registration. In fact, this result might be achieved by an equitable owner obtaining a consent requirement under s 14 of the TOLATA 1996;

(c)that overreaching should not be possible without the consent of all the equitable owners who are of full age and in possession of the property. The first point is that this would certainly work. An equitable owner’s right to the land would be safe from overreaching under this proposal. However, what this also does is to destroy the entire overreaching mechanism of the LPA 1925. The whole point behind the abolition of legal tenancies in common, the institution of the joint tenant trusteeship and the concept of overreaching is precisely that a purchaser should be able to buy co-owned land without having to search for every legal and equitable owner and obtain their consent. This proposal very nearly returns to the pre-1926 law, and it would be much easier to reinstate legal tenancies in common if that is what is wanted. That said, it will be obvious from the above discussion of the effect of the TOLATA 1996 that some form of ‘consent requirement’ may now exist. This may not actually prevent a sale by two trustees (see above, 4.9.5), but it could trigger an application under s 14 of the Act. 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 s 14.

4.9.9The position of the equitable owners faced with overreaching: the problem in perspective

If none of the solutions once proposed by the Law Commission (but now abandoned) deal satisfactorily with the problem of overreaching (even allowing for the effect of the 1996 Act), what is to be done?

If there is one trustee for sale, 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 (overriding interest or registered interest) and unregistered land (the doctrine of notice). There is no problem for the equitable owner, save the relatively remote possibility of a sale against their wishes after a purchaser’s or mortgagee’s application under s 14 of the TOLATA 1996. Even then, the equitable owner would be paid the full value of their share before any claim of the mortgagee.

Iftherearetwotrusteesforsale,overreachingcanoccur,but,inmostresidential property cases (that is, where the Law Commission once believed the problem to exist), 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 problem, because either party can object to a sale in their capacity as legal

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owner. In any event, an application to prevent sale may be made under s 14 of the TOLATA 1996.

So, then, it is only where there are two trustees for sale and different equitable owners that the problem really occurs. Such was the case in Flegg, where the property was held by the married couple on trust for themselves and one set of parents, that is, two trustees and four equitable owners. Yet, the question the Law Commission did not ask themselves 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? Perhaps Flegg raises an exceptional factual scenario, not a normal one. Should the law be changed to meet the ‘hard case’? One view is that all that needs to be done is to prevent single trustees from appointing 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. Moreover, with the arrival of the TOLATA 1996, equitable owners in the Flegg position may apply, under s 14, for an order preventing sale, and the court will exercise its discretion to see which interest shall prevail—those of the two legal owners, or those of the non-legal equitable owners.

4.9.10 The question of possession

Prior to the TOLATA 1996, the question of who had a right to occupy the coowned land caused unnecessary difficulty. There was no doubt that the legal owners (the trustees) had a right to occupy the land (subject to the trust instrument)—they had a legal estate in the land, with all the rights this entailed. If the land was held for investment purposes, the trustees may have chosen to relinquish possession to another (or it may have have been impliedly or expressly excluded), but theirs was the right by virtue of their legal estate. However, in reality, most co-ownership situations concern property purchased for residential purposes, and if all the co-owners were also legal owners (for example, man and woman), each could occupy by virtue of their legal estate. Unfortunately, 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 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 the 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. However, not only does the Act abolish the doctrine of conversion, and effectively

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declare that the equitable owners shall be regarded as having rights in the land (s 3 of the TOLATA 1996), it also provides in s 12 that an equitable owner has a right to occupy the land if this was the purpose for which the trust came into existence (as demonstrated by Chun v Ho (2001)). Such a right can be excluded by the trustees in exceptional circumstances, under s 13, if there are two persons entitled to occupy, but this will be rare in domestic cases and cannot, in any event, result in the removal of a person already occupying land unless they consent (s 13(7)). The TOLATA 1996 has effectively solved any problem that might remain in this regard—as it was intended to do.

4.9.11 The payment of rent

Once again, before the 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 coowner 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. 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 was in possession of the property was because of a breakdown in their domestic relationship. Fortunately, even prior to the 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 (Re Pavlou (A Bankrupt) (1993)). Now, s 13 of the TOLATA 1996 provides that compensation may be paid by one co-owner occupying the land to the exclusion of the other if certain conditions, specified in s 13, are met. Note, however, that this 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.

4.9.12A summary of the Trusts of Land and Appointment of Trustees Act 1996

The effect of the TOLATA1996 has been woven into the preceding text and the picture presented there is of how trusts of land will work since 1 January 1997. The following is a short summary of how the Act changed the original 1925 co-ownership scheme:

(a)it will not be possible to create new strict settlements of land (see Chapter 5) and the entailed interest is abolished (see s 2 and Sched 1). Existing settlements will remain valid;

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(b)the doctrine of conversion is abolished, effective for all new and nearly all existing trusts of land (s 3);

(c)unless a trust for sale has been created expressly, existing trusts for sale of land become trusts of land (ss 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 the TOLATA 1996, there is very little to be gained practically;

(d)the trustees have all the powers of an absolute owner, but may delegate these to an equitable owner (ss 6–9). Only the trustee can give a valid receipt for purchase money, hence preserving their role in overreaching;

(e)the 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 (s 11);

(f)the trustees’ powers may be made subject to the consent of the beneficiaries, but only if stated in the instrument creating the trusts (s 10), or if imposed by the court under a s 14 application. This may have consequences when a sale is proposed;

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

(h)any person with an interest in the land can make an application to the court under s 14 for a variety of orders, for example, sale, no sale, override consent requirement, impose consent requirements. The criteria specified in s 15 do not apply in cases of bankruptcy (see s 335A of the Insolvency Act 1986).

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 (that is, in the formal conveyance) will be the legal owners. In the absence of any

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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 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:

(a)in order for a trust of land to be valid, it must satisfy s 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 it is ‘manifested and proved by some writing’. Usually, the ‘writing’ is the deed of conveyance to the co-owners. However, there is one 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, s 53(2) of the LPA 1925 (see below, 4.10.2). Note, also, that even in the absence of an express declaration of the beneficial interests in the land (that is, that no trust is declared), the very conveyance of the land to two or more people will be strong evidence of joint ownership in law and in equity (Roy) 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 (Goodman v Carlton (2001));

(b)if 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. Moreover, Roy also suggests that any of the parties to a conveyance which does not actually declare the trusts—but merely records the transfer of the land to them—may also rely on resulting or constructive trusts to prove an enlarged share.

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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 the land is owned by that person. However, what happens if someone else (for example, a spouse or a lover) 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 on their own? The answer is provided by the law of resulting and constructive trusts. Before considering the matter in detail, 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. According to 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 himself and B in equity. In other words, there is one trustee of the land, but at least two co-owners in equity. 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 it) cannot rely on overreaching to give them priority over any equitable owners. Thus, the purchaser may be bound by B’s equitable interest according to the rules of registered and unregistered land. Moreover, because B’s equitable interest has arisen informally under the rules of resulting and constructive trusts, without writing, the purchaser may be unable to discover its existence, and may fail to take avoiding action before completing the purchase.

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. Often, the man will have legal title and the woman will be a claimant, but the law is the same whatever the factual matrix (for example, Tinsley v Milligan (1993), two women; Babic v Thompson (1999), two businessmen). 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 interest on a sale or mortgage. Bearing this in mind, it is possible to categorise the methods by which

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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.

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 by means of an express trust. In short, the legal owner (A) may declare expressly and in writing (as required by s 53(1) of the LPA1925) 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 its terms. 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.

4.10.5The immediate, the deferred and the indirect ‘purchase money’ resulting trust

Asecond 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 loan (as in Bradbury v Hoolin (1998)), the claimant will 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 (Tinsley v Milligan (1993)). 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 deposit (Halifax Building Society v Brown (1995)) and in certain circumstances may include a notional payment because of a ‘right to buy’ discount off the purchase price—Mumford v Ashe (2000). Note, however, that the contribution must be made to the acquisition of property, not merely to its repair (Bank of India v Mody (1998)), and it seems that an interest will not arise if there is evidence that no common intention as to joint ownership in fact existed (First National Bank v Wadhwani (1998)).

As a variation on this, an equitable interest may arise in much the same way when a financial contribution is made to the purchase price over a

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period of time. Thus, where a person contributes to a mortgage which has been used to purchase the property, this can be regarded as a deferred contribution to the purchase price, thereby generating an interest under a resulting trust. Subject to what will be said below concerning constructive trusts, the interest thus acquired, as a matter of principle, is directly related to the amount of deferred contributions. Of course, there may be problems of quantification (for example, who paid what and when), but as the basis of the claim is a payment towards the purchase price, the interest should be related to this.

Finally under the rubric of resulting trusts, we must consider those cases where the claimant makes a financial contribution to the cost of running the household, the value of which may have enabled the legal owner to pay the purchase price of the property. Although it is more doubtful, perhaps even these may be regarded as an indirect means of helping to purchase the property. An example is where the woman pays all the regular domestic outgoings and the man pays the mortgage. Providing that such indirect financial contributions are evidence of a common intention as to ownership (Wadhwani), the claimant has a chance to establish an interest in the property under a resulting trust as with the right to buy discount cases: Springette v Defoe (1992). However, it is not enough that financial contributions to the running of the household simply have been made (Lloyds Bank v Rosset (1991)). It seems that they may give rise to an interest only if made in circumstances that enabled the legal owner to purchase the property. This is very difficult to prove and the claimant is unlikely to succeed in all but the most obvious cases. Such a claim failed in Burns v Burns (1984), and appears to be rejected as a matter of principle in the allimportant judgment of Lord Bridge in Rosset.

It has been assumed above that if a claimant establishes a resulting trust— by payments to the purchase price—their interest in the property is to be quantified in direct proportion. So, a contribution of 25% entitles the claimant to a 25% interest, and so on. However, it now seems possible that if a claimant has established an interest by means of a payment to the purchase price, the court may be free to quantify that interest by taking into account the whole course of dealings between the parties. It is as if the payment to the purchase price opens the door to an interest, but once through the door, the interest can be out of proportion to the payment. In Midland Bank v Cooke (1995), the claimant paid just under 6.5% of the purchase price, but the Court of Appeal felt able to expand this into a 50% share because the subsequent conduct of the parties revealed that this was their true intention. To a purist, this seems rather awkward, as it confuses principles of resulting and constructive trusts (see below. Note also Drake v Whipp (1995), arguing for a distinction between the concepts). However, it does seem to be the way forward and it has been expressly followed in LF v LF (2001) where the whole conduct of the parties was relevant in quantifying the interest. It would be supportable if the expanded interest is based on a real intention of the parties as manifested by their words

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or conduct (of which the small payment to the purchase price is merely evidence) and not some ‘intention’ manufactured by the court in its infinite wisdom. So, if the claimant pays 10% of the purchase price (by whatever method), but there is evidence of a real intention that the property should be held (say) 50:50, then the court might be justified in quantifying the interest on the basis of the intention, not the contribution. While this may be acceptable, it would be unfortunate, and the cause of great uncertainty, if the courts were to follow Cooke in all respects and permit the expansion of a ‘payment interest’ on the basis of what the parties would have intended had they actually thought about it. In Cooke, for example, the parties were honest about the fact that they had no real intention as to ownership. In other words, to expand a proportional interest on the basis of a real intention is defensible, to expand it on the basis of an intention supplied by the court is not. Adoption of this broadest of approaches has now been rejected in constructive trust cases, and the same should follow here (see below, 4.10.6).

4.10.6 The constructive trust

Asecond method of establishing an interest is through the ‘constructive trust’. In these cases, the legal owner may have made an oral promise or assurance to the claimant that they ‘owned’ the property or had a share in it. If the claimant then relies on this to their detriment, the legal owner will not be able to deny the interest promised (Lloyds Bank v Rosset (1991); Grant v Edwards (1986)).Again, this is a form of ‘common intention’, and proof of an absence of such intention may be fatal (Wadhwani). There are three elements to a successful claim:

(a)apromiseorassurancemade.Inmanycases,thepromisewillbetrulyexpress, as where A says to B: ‘Of course half this house is yours’ or ‘This house is as much yours as mine’. However, promises are also expressly made for the purpose of establishing a constructive trust when the legal owner makes a statement reassuring the claimant that they have a stake in the property. This can take many forms and is, ultimately, a matter for construction in each case. For example, does ‘this will always be your home’ or ‘I would never sell without your agreement’ imply a promise as to ownership? If it does, a constructive trust is a possibility. Moreover, it appears that such a promise can be enough to trigger a constructive trust case, even if it is not meant. So, in Eves v Eves (1975), a promise was held to have been made where the legal owner said, by way of excuse, that the only reason that the property was not conveyed originally to the woman was because she was too young. Likewise, telling the claimant that the property will be conveyed to them in due course can be a promise, even if it is a lie. The only rule is that an express assurance must be made, in whatever form, and it matters not that this occurs after the legal owner has acquired the property (Clough v Kelly (1996));

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