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Principles of Land Law

The payment of compensation for exclusive use

Under s 13 of the TOLATA 1996, a co-owner enjoying exclusive use of the land (that is, where the other or others are excluded) can be required to pay compensation for such use. This had been the position under the old trust for sale (Re Pavlou (1993)).

The express creation of co-ownership

Any land may be deliberately conveyed to two or more people. In such circumstances, the persons to whom legal title is transferred will be the legal owners (joint tenant trustees) and, in the absence of any statement to the contrary, they will also be the equitable owners. This conveyance may also expressly declare who are the equitable owners and the nature of their ownership and this is conclusive for those parties (Goodman v Gallant (1986)).

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

The legal owner (A) may expressly declare in writing (s 53(1) of the LPA 1925) that he holds the land on trust for the claimant (B) or, more usually, a person may claim an equitable interest through the operation of resulting or constructive trusts, viz:

(a)a resulting trust arises where the claimant has contributed to the purchase price of the property, either initially or by way of mortgage payments.Also, they may have made financial contributions to the cost of running the household, the value of which may have enabled the legal owner to pay thepurchasepriceoftheproperty,althoughthis‘indirect’methodisdisputed. The size of the claimant’s share will either be directly related to the proportion of the purchase price she has paid or be calculated according to the actual agreement of the parties;

(b)a constructive trust arises where the legal owner makes an express oral promise to, or express oral agreement with, the claimant that they ‘own’ the property or have a share in it, provided this is relied on by the claimant to their detriment. The size of the share may be equivalent to the interest that was promised or agreed or calculated by reference to the whole course of dealings between the parties.

Severance

Severance is the process of turning an equitable joint tenancy into an equitable tenancy in common, usually in order to avoid the effect of the

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right of survivorship. (A legal joint tenancy cannot be severed.) Severance occurs either by statutory written notice under s 36(2) of the LPA 1925; or by the act of a co-owner operating on his own share (for example, mortgaging it); or where the joint tenants decide to sever by ‘mutual agreement’; or where an intention to sever is manifested by the ‘mutual conduct’ of the joint tenants.

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CHAPTER 5

SUCCESSIVE INTERESTS IN LAND

5.1What is successive ownership of land?

In the previous chapter, we examined one way in which two or more persons could share in the ownership of land: viz, the simultaneous enjoyment of land bytwoormorepeopleunderthelawofconcurrentco-ownership.Thereisanother method by which two or more people can have ‘ownership’ rights over land at the same time, albeit that (unlike concurrent co-ownership) only one of them is entitled to immediate physical possession of the property. This is the law relating to successive ownership of land, whereby one person has an estate in the land for life and another, or others, have rights which ‘fall into’ possession after the life interest has ended. For example, it was once quite common for property to be left to one person for their life, then to another, then to another, and so on, as where Blackacre is left to A for life, with remainder to B for life, remainder to C in fee simple. In such a case, A has a life interest in possession (and is known, somewhat confusingly, as the ‘life tenant’), B has a life interest in remainder (and will be the life tenant when A dies) and C has a fee simple in remainder (and will become the absolute owner on the death ofAand B). The reason for creating successive interests in land was primarily to ‘keep land in the family’ by limiting itsownershiptosuccessiveheirs(forexample,myson,myson’sson,etc),although it could also be used for business or commercial arrangements.

5.2Successive interests: in general

The Trusts of Land and Appointment of Trustees Act (TOLATA) 1996 has had a profound impact on the law relating to successive interests in land. Prior to the Act, there were two methods of creating successive interests: first, under a settlement (or strict settlement, as it is known) governed by the Settled Land Act (SLA) 1925; and secondly, under a trust for sale governed by the Law of Property Act (LPA) 1925. However, now that the TOLATA 1996 has come into force (1 January 1997), the picture has changed dramatically. The TOLATA1996 changes fundamentally the way in which successive interests can, in future, be created (that is, as from 1 January 1997), with the express aim of simplifying the law and making dealings with land subject to life interests more transparent. The principal effects of the TOLATA 1996 are as follows:

(a)it has not been possible to create any new strict settlements since 1 January 1997. The concept has been abandoned for all new successive interests (s

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2). The obvious consequence is that no new land can be made subject to the regime of the SLA 1925, and, over time, the influence of this creaking statutory regime will diminish;

(b)existing strict settlements will remain effective and be governed by the SLA 1925 (s 2) as will resettlements of existing settled land. Inevitably, however, much existing settled land will fall into absolute ownership (that is, all the life interests will terminate on the death of the life tenants), and the land will cease to be ‘settled land’. Note, however, that if the ‘old’ settlement is perpetuated by the creation of new life interests before the termination of the existing settlement, the land continues to be ‘settled land’ and remains subject to the SLA 1925. If, by way of contrast, the settlement does indeed terminate, and no land or heirlooms remain subject to it, any subsequent attempt to create a life interest in that land really is a ‘new’ creation, and will be governed by the TOLATA 1996;

(c)all new attempts to create successive interests in land must take effect under the rubric of the ‘trust of land’ (largely replacing the trust of sale) as specified in the TOLATA1996 (ss 4 and 5). However, even though all ‘new’ successive interests will be governed by the TOLATA 1996, and most will be ‘pure’ trusts of land, it remains possible to create expressly a ‘trust for sale’ to regulate successive interests on or after 1 January 1997. Yet, as noted in Chapter 4, even if the settlor chooses to use a trust for sale as the device for regulating successive interests, it will still be governed by the TOLATA1996, and the practical differences between it and a ‘pure’ trust of land are minimal. (For example, the definition of a ‘trust of land’ includes a trust for sale of land: s 1 of the TOLATA 1996.) It is very doubtful whether many (indeed any?) express trusts for sale will be created after December 1996 as, under the TOLATA 1996, very little would be gained;

(d)for those existing successive interests not governed by the SLA1925—being those created deliberately as ‘trusts for sale’—TOLATA1996 will now apply andtheywillbegovernedbythe‘trustofland’rubric.Ifthesuccessiveinterest trust for sale has been created expressly, technically, it will continue to be a ‘trust for sale’, albeit subject to the TOLATA 1996. If the trust for sale arose by operation of statute, it will be converted into a ‘pure’ trust of land. In fact, the practical differences between the concept of a ‘pure’ trust of land and a ‘trust for sale’ trust of land are likely to prove minimal: the important point is that the successive interest is governed by the TOLATA 1996.

5.2.1Successive interests under the Trusts of Land and Appointment of Trustees Act 1996

As we have seen in the previous chapter, the TOLATA1996 abolished the concept of the trust for sale and replaces it with the trust of land. Furthermore, as noted above, the Act also ensures that all future successive interests shall take effect as trusts of land under the TOLATA 1996 rubric. In fact, the great majority of the provisions of the TOLATA 1996 will be more applicable to cases of successive

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ownership of land than for concurrent co-ownership (Chapter 4). This is because, in cases of successive ownership, it is likely (indeed, almost inevitable) that the trustees of the land will be completely different persons from the person who is to occupy the land for life (the life tenant), or the persons who are entitled in remaindershouldthelifetenantdie.Thetrusteesmaywellbeabankorindependent advisers, and the life tenant will be the person most intimately connected with theland—say,theeldestsonofthesettlor(hewhocreatedthesuccessiveinterests). Necessarily,insuchtypicalcasesofsuccessiveinterests,thelifetenantwillusually wish to occupy the land (not the trustees: see s 12 of the TOLATA 1996), and the life tenant may be exactly the person who should exercise the powers given to the trustees under the TOLATA 1996 in order to manage the land effectively— hence the trustees’ ability to delegate their powers under s 9 of the TOLATA1996. The trustees will hold a ‘watching brief’, and allow the tenant for life to use the land as befits his limited ownership. To sum up then, for successive interests created on or after 1 January 1997 and for those previously existing as ‘trusts for sale’, the legal regime governing control and use of the land is that found in the TOLATA 1996. The principal features of this regime are as follows:

(a)first, as noted above, it will not be possible to create new strict settlements of land and the entailed interest is abolished (s 2 and Sched 1). All future successive interests will operate under the umbrella of the trust of land. Existing settlements will remain valid. All successive interests by way of trust for sale are converted into trusts of land. The net effect of this reform is that there is to be one set of rules governing the creation and operation of successive interests, the only exception being pre-1 January 1997 strict settlements which will continue to operate under the SLA 1925 until expiry;

(b)secondly, the doctrine of conversion is abolished, effective for all new and nearly all existing trusts of land (s 3). The doctrine of conversion was an ancient property law doctrine applicable to certain property concepts whereby the interests of the persons entitled (for example, in our case, the life tenant) were treated not as interests in the relevant land, but as interests in the proceeds of sale of that land. Hence, the rights were technically ‘personalty’ and not ‘realty’. Thus, a will leaving ‘my personal property’ to X, would actually pass the interests so converted, even though they looked like interests in land. Its abolition means, in effect that the interests of persons under the trust of land (including expressly created trusts for sale) are to be regarded as interests in the land, rather than its monetary equivalent.As is the case with concurrent co-ownership (Chapter 4), this is more a recognition of reality than a change likely to have wide ranging effects. The exception is for trusts for sale created by a will of a person dying before 1 January 1997 for the simple reason that such a testator may have ordered his affairs precisely on the basis that the doctrine of conversion was applicable;

(c)thirdly, the legal title to the land will be vested in the trustees and they will have all the powers of an absolute owner: s 6(1) of the TOLATA 1996.

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The life tenant and persons entitled in remainder will have equitable interests in the land. However, the trustees’ powers are given in virtue of their status as trustees and consequently are subject to the general equitable jurisdiction in relation to the exercise of trustees’ powers. More specifically, the trustees may delegate certain powers to the life tenant (or other person) and their powers may be restricted by the instrument that establishes the trust (see generally ss 6–9 of the TOLATA1996). Given that trusts concerning successive interests are usually created deliberately and with considerable formality, it is likely that the trustees will intend from the outset to delegate powers of management of the land to the tenant for life, including the power of sale. However, only the trustees can give a valid receipt for purchase money, hence preserving their role in overreaching;

(d)fourthly, the trustees must consult with the persons interested in the successive interests, both the life tenant and persons entitled in remainder. They should give effect to their wishes in so far as is consistent with the purposes of the trust of land (s 11. This raises similar issues to those considered in relation to concurrent co-ownership considered in Chapter 4);

(e)fifthly, the trustees’ powers may be made subject to the consent of the equitable owners (for example, the life tenant, persons entitled in remainder), but only if stated in the instrument creating the trusts (ss 8 and 10) or if imposed by the court under a s 14 of the TOLATA 1996 application. This may have consequences when a sale is proposed. Given the formality attending creations of successive interests, it is quite likely that consent requirements will be imposed. In this respect, it is worth noting that it is quite difficult for successive interest trusts of land to be created accidentally, although this can sometimes be the result of a successful claim of constructive trust or proprietary estoppel, as contemplated by Ungarian v Lesnoff (1990) (see Chapter 4, constructive trust) and Dent v Dent (1996) (see Chapter 9, proprietary estoppel);

(f)sixthly, the successive interest trust of land is subject to the same overreaching machinery as concurrent co-ownership trusts of land. 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, 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 (for example, life tenants) who are susceptible to being defeated by a purchaser from the trustees under the overreaching machinery. If the overreaching process is successful, the equitable interests will take effect in the purchase money: for example, the tenant for life will receive the income from the capital sum for life, balance to the person entitled in remainder on the death of that life tenant. This works in the same way as for concurrent co-ownership, considered in Chapter 4. However, should overreaching not occur (as in a rare case

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of there being only one trustee of a successive interest trust for land), whether these equitable interests bind the purchaser is determined by the application of normal principles of registered or unregistered conveyancing. In registered land, the interests of the beneficiaries, under a TOLATA 1996 successive interest trust, can be protected as either a minor interest or as an overriding interest (of course, assuming no overreaching). In unregistered land, such an interest cannot be a land charge (s 2 of the Land Charges Act 1972), so may take effect against a purchaser according to the doctrine of notice (assuming no overreaching). In essence, the position is the same as with concurrent co-ownership interests considered in the previous chapter, and the ability of the trustees to overreach is subject to the same considerations as those prevailing for concurrent trusts of land (see Chapter 4), including issues as to the effectiveness of consent requirements;

(g)seventhly, 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 breach of their functions, or in breach of the provisions of the TOLATA 1996 (see s 16 of the Act). In general terms for unregistered land, the answer depends on the particular provision violated by the trustees. In some cases (for example, violation of the duty to consult), it seems that the purchaser will obtain a good title, assuming overreaching. In these circumstances, the remedy of the beneficiaries lies against the trustees personally. In other cases, (for example, noncompliance with a consent requirement), the purchase will obtain a clean title, assuming overreaching, providing he did not have actual notice of the relevant limitation (s 16 of the TOLATA 1996). In registered land, 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 unless the restriction is complied with. If for some very unusual reason (for example, a solicitor’s failure to act properly), the limitation on the trustees powers is not entered on the register, it seems likely that a purchaser will still obtain a clear title free of such interests if overreaching occurs. Although this result has been contested (see Chapter 4), it is consistent with the purposes of the legislation. If overreaching does not occur, then the normal rules concerning the bindingness of third party rights in registered land would prevail;

(h)eighthly, the tenant for life has a right to occupy the property (s 12). The persons entitled in remainder may have a right to occupy (see s 12(1)(a) and (b) and s 12(2) of the TOLATA 1996), but this would almost certainly be restricted under s 13. Compensation may be ordered for exclusive use of the land by one co-owner, for example, the life tenant might be ordered to pay a sum equivalent to the market rent of the land, or some proportion thereof;

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(i)lastly, any person with an interest in the land can make an application to the court under s 14 for a variety or 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.

5.3Successive interests under the old regime: the strict settlement

As is now clear, in general terms, the law of strict settlements will apply only tothosesuccessiveinteresttrustscreatedbeforetheentryintoforceoftheTOLATA 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 the TOLATA1996 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 which 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—are 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 (for example, the widow of the ‘settlor’, that being the person who created the settlement). However, this is a simplified definition, and ss 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 effective after the TOLATA 1996, settled land was either:

(a)land ‘limited in trust for any persons by way of succession’; or

(b)land ‘limited in trust for any person in possession’ for an entailed interest (that is, a fee tail, now abolished—TOLATA 1996), for an infant, for a determinable fee, or for a fee simple subject to an executory limitation; or

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

(d)land which was charged by way of a family arrangement with the payment of any sums for the benefit of any persons (for example, Re Austen (1929)).

Importantly, land which was subject to ‘an immediate binding trust for sale’ (s 1(7) of the SLA 1925) is excluded from the definition of settled land and falls outside the SLA 1925. Such land is already governed by the LPA 1925 and the TOLATA 1996 and now takes effect behind a trust of land.

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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

5.3.1The 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, that is, after the life interest has expired. 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.

5.3.2The 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’ (s 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 (ss 4 and 107 of the SLA1925). 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 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 painful 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

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