PROPERTY LAW

Prepared by : Thayaga Silva.

LLB (London)MHR (Colombo).
Attorney at law. Notary Public ,
Commissioner of Oaths &
Company Secretary

DISPUTES AS TO THE SALE OF CO-OWNED PROPERTY

An obvious difficulty of using the trust as a mechanism for co-ownership is that

there may well be disputes between the co-owners as to whether the property
should be sold, retained for occupation by the equitable owners (or one of them) or
used to generate income. Admittedly, the difficulty is not as pressing as it was
prior to the 1996 Act – the trustees are no longer under a duty to sell – but the
potential remains for disputes and litigation. This is, particularly acute in
residential situations should the co-owners’ relationship break down, or one of the
co-owners goes bankrupt and his creditors want to sell the property to realise his
assets.
To deal with such disputes, section 14 of TOLATA 1996 provides that any trustee
of land, or any person having an interest in land subject to such a trust may apply
to the court for an order concerning ‘the exercise by the trustees of any of their
functions’ or declaring the nature and extent of a person’s equitable interest. In
many cases, the application is for an order for sale or sometimes possession and
sale.
S 15(1) places on a statutory footing a number of factors which the courts should
take into account when determining how to exercise its jurisdiction.
(These factors are similar to those which had been considered relevant by the
courts in exercising its jurisdiction in respect of trusts for sale under the old law
and therefore the case law deriving from it remains relevant today as the best guide
of how the courts would be likely to exercise its new powers)
It must be noted that the powers of the courts under S 14 are very wide and that the
court will not hesitate to use its powers widely, in order to achieve a sensible
solution in light of the facts as a whole (BAGUM V HAFIZ AND HAI).

The matters, which the courts are to have regard to in determining an application
for an order under s 14, include the following-
15(1)(a): the interests of the person or persons who created the trust(the settlor)
In BARCLAY V BARCLAY, the intention of the settlor was that upon his death
the property should be sold and the proceeds divided between five members of his
family. The beneficiary who was allowed to occupy the premises in the lifetime of
the settlor could not contest sale as the intention of the settlor took precedence.
15(1)(b): the purposes for which the property subject to trust is held;
In JONES V CHALLENGER, the property had been bought to be occupied as a
matrimonial home. The courts held that upon the breakdown of the marriage, the
purpose was no longer alive but had been dissolved and it therefore granted an
order for sale. However, if a collateral purpose of the trust is capable of being
fulfilled (such as providing a home for the children of the marriage), the court
might deny an order for sale of the property subject to the trust.
In STOTT V RATCLIFFE, the purpose of the trust property was to provide a
home for the surviving co-owner and the purpose was therefore upheld. In CHUN
V HO, sale was postponed to let the beneficiary complete her studies, as one of the
purposes of the trust was to provide her with a home close to where she was
attending college.

15(1)(c): the welfare of any minor who occupies or has the right to occupy the
property as his home;
In RE EVERS TRUST, the CA decided not to grant an immediate order for sale
on the grounds that the underlying purpose of the trust had been to provide a home
for the couple and their children and despite the breakdown of the marriage, the
children needed a home. However, this does not mean that the needs of any minors
will automatically prevail over all other considerations. The courts will have to
balance their interest against those of others interested in the land. Different weight
maybe given to the welfare of minors when the dispute is amongst co-owners and
where the dispute is between co-owners and creditors (mortgagees) seeking to
enforce their security.
15(1)(d): the interest of any secured creditor of any beneficiary;
In MORTGAGE CORPORATION V SHAIRE, NUEBERGER J asserted that
the criteria of s 15(1) should apply to cases where a mortgagee is seeking a sale of
the property without any automatic priority to the interest of the mortgagee. In
BANK OF IRELAND HOME MORTGAGES V BELL, the dictum of Shaire
was approved. However, in Bell, the CA was careful to point out that although the
interests of creditor will not take priority, they should still always be given very
powerful consideration, and that they are not to be lightly set aside. For e.g., in
Bell, the CA gave very little consideration to the welfare of a minor (the son of the
beneficiary, who was almost 18) because the application seeking an order for sale
was brought by a mortgagee and that carried more weight.

In PUTNAM & SONS V TAYLOR, the courts were clear that the creditor should
not be kept out of money indefinitely. In FRED PERRY V GENIS, the court
noted that although s 15 gave equal weight to all the factors, case law had
established that normally, a creditors application for sale would succeed. However,
where the courts feel that some other criterion weighs more than the interest of the
creditor, they may give precedence to it. For e.g., in EDWARDS V LLOYDS
TSB, a sale was postponed for five years as the needs of the debtor’s wife and
children took priority and in AMARI LIFESTYLE V WARNES (2017) ,a sale
was refused at the request of a creditor because it would be futile in the sense that
it would not contribute to the repayment of the debt.
Clearly, section 15 is designed to ensure that a court does not simply order sale of
the property as a quick route to a solution, but instead requires it to consider the
matter in its complete context. Thus, under sections 14 and 15, it is perfectly
possible for an application for an order for sale to be refused, or for sale to be
postponed until some date in the future.It was also the Law Commission’s view
when commenting on the introduction of sections 14 and 15 of TOLATA that
much of the pre-1996 case law developed in respect of the now repealed section 30
LPA 1925 (the forerunner of sections 14 and 15) would remain relevant. The
following are examples of factors considered by the court in deciding whether to
exercise its discretion as to a sale either under the old section 30 or under the rubric
provided by section 15 of TOLATA 1996.

1 Whether the property is still needed as a family home (Jones v. Challenger

(1961).
2 Whether the property is required to provide accommodation for the duration of
the lives of the co-owners, or that of the survivor (Harris v. Harris (1996) or until
the occurrence of any event. Thus, in Chun v. Ho (2001), sale was postponed until
the completion of the education of one of the co-owners.
3 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 section 15 of TOLATA 1996, the welfare of any minor occupying the land
as his home is made relevant expressly, thus resolving the doubts expressed in Re
Holliday (1981) and Re Evers’ Trust (1980). This criterion was decisive in
Edwards v. Lloyds TSB (2004), in which sale was postponed for five years in
order to safeguard a home for the children of the relationship, even though the
application for sale was made by a mortgagee whose mortgage took effect over
more than 50 per cent of the value of the property.
4 Whether the property is required in order that a business may continue, the land
having been purchased for that specific purpose, as in Bedson v. Bedson (1965).
5 Where the person seeking a sale is estopped from obtaining an order for sale,
having by word or action represented that a sale would not occur, such conduct
having been relied on by the other co-owner, or where a sale would be
unconscionable in all the circumstances: Holman v. Howes (2007).
6 Whether there has been any misconduct by the person applying for sale, or his
legal advisers, as in Halifax Mortgage Services v. Muirhead (1998), in which
sale was refused because the claimant’s solicitors had wrongly altered relevant
documents.
7 The general circumstances of the beneficiaries of the trust, including their age
and health, and the general suitability of the premises – Edwards v. Royal Bank
of Scotland (2010).
8 The clarity with which the intentions of parties are established, with a written
instrument having particular weight – Cawthorne v. Stephens-Dunn (2015).
9 Importantly, if the request for a sale comes from a creditor – such as a mortgagee
– the courts have taken the general view that a creditor should not be kept out of
his money unless there are clear reasons to refuse a sale: Bank of Ireland v. Bell
(2001). In Fred Perry v. Genis (2014), the court noted that although section 15
gave equal weight to all the factors, case law had established that normally a
creditor’s application for sale would succeed. So, although there are cases where a
creditor did not achieve an immediate sale – see Mortgage Corp v. Shaire (2001)
and Edwards v. Lloyds TSB (2004) – there is a clear preference for ordering a
sale so as to realise money to repay debts even though this will result in the loss of
a home for all the co-owners. See, for example, First National Bank v.
Achampong (2003), Pritchard Englefield v. Steinberg (2004) and Putnam &
Sons v. Taylor (2009), where a sale was ordered at the request of the mortgagee/
chargee even though the interests of the persons in occupation had priority to the
mortgagee as a matter of property law. This is considered more fully below.
10 Where one of the co-owners has been formally adjudged bankrupt and his
trustee in bankruptcy wants a sale on behalf of general creditors, section 15
TOLATA does not apply. Instead, the court must apply section 335A Insolvency
Act 1986. This section provides that a sale must take place unless the
circumstances are exceptional – see below.

When is a court likely to order sale?

Whether an application under section 14 of TOLATA for a sale will be granted

necessarily depends on the particular facts of each case.
Furthermore, under TOLATA 1996, there is no duty to sell the land – it is a trust of
land not a trust for sale of land – and pre1996 statements unequivocally favouring
a sale of co-owned property when in cases of dispute must be read with some care
and cannot be applied unthinkingly to applications under section 14 of TOLATA.
For example, in Banker’s Trust v. Namdar (1997), a sale was ordered under
section 30 of the LPA 1925, but Peter Gibson LJ thought that it was ‘unfortunate’
that TOLATA 1996 was not applicable (the case arose before TOLATA 1996
came into force) ‘as the result might have been different’.
What this means in practice is hard to quantify, but much may turn on precisely
who is requesting a sale under section 14.
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 (e.g. no children), as this supports the
alienability of the co-owned land. Again, a sale is likely to be ordered if the land
was purchased as an investment, rather than a home, or if it would be inequitable to
deny a co-owner their share of the capital value of land. Conversely, a sale may be
resisted if there are children living in the property, if the co-owner wanting a sale is
not in desperate financial straits, if all of the co-owners have agreed specifically
not to sell unless they all consent (Finch v. Hall (2013)), or if one co-owner has
special reasons for wishing to remain in occupation.
So, in Chun v. Ho (2001), a sale was postponed until one co-owner completed her
studies because the other co-owner had behaved inequitably, there was no real
evidence that the money was needed to pay his debts and the co-owner resisting
sale had provided most of the original purchase price.
Likewise in Dear v. Robinson (2001), in which the wishes of the beneficiaries
were critical (even though their consent to a sale was not required formally) and
the postponement of sale was in accordance with the original intentions of the
creator of the trust. Clearly, then, if the non-trustee equitable owner’s consent is
required before a sale takes place (e.g. where such requirement is imposed in the
original instrument creating the trust), a court will be careful before it dispenses
with such consent and actually orders a sale against their wishes.
Real difficulty arises in those cases (noted above) in which the rights of creditors
are in contest with the rights of the innocent co-owner (assuming no formal
bankruptcy). Thus, in Pritchard Englefield v. Steinberg (2004), a sale was
ordered at the request of a creditor holding a charging order despite the objections
of an equitable owner, and this followed a pattern established by TSB v. Marshall
(1998), confirmed by Bank of Ireland v. Bell (2001). Indeed, in both First
National Bank v. Achampong (2003) and Fred Perry v. Genis (2015), even the
fact that the non-consenting owner had priority over the creditor could not stave off
a sale. Likewise, in Putnam & Sons v. Taylor (2009), a sale was ordered at the
request of a claimant with a charging order over H’s share of the equitable interest
because, generally, a creditor should not be kept out of his money indefinitely,
although it may have been relevant in this case that, even after a sale and payment
of the debt, there would have been enough money left over to provide a house for
H and W. There is, therefore, a clear drift in favour of ordering a sale in such cases,
but there are exceptions. In Mortgage Corporation v. Shaire (2001), it was made
clear that the rights of creditors should not prevail automatically, in Edwards v.
Lloyds TSB (2004), a sale was postponed for five years because of the needs of
the children and family, even though this would keep the mortgagee out of its
security, and in Amari Lifestyle v. Warnes (2017), a sale was refused at the
request of a creditor because it would be futile in the sense of not contributing to
the repayment of the debt secured by the charge.
As is obvious then, the court’s approach to disputed sales will vary with the
circumstances, bearing in mind that there is no longer a default position under
section 14 in favour of sale. Sweeping generalisations about how TOLATA 1996
may have affected the court’s approach are probably best avoided – for example, in
Shaire and Edwards, much was said about sale under TOLATA no longer being
appropriate, and in Bell and Englefield, there was much talk about TOLATA being
used to realise the capital value of the land.
What is clear, however, is that a properly advised co-owner can act to ensure that
they are at least consulted before a sale takes place. In registered land, an equitable
co-owner may be able to place a Restriction on the title of the co-owned land,
which has the effect of limiting the legal owners’ (the trustees’) powers to act. If an
appropriate Restriction has been entered, this will ensure that no dealings can take
place unless the conditions specified in the Restriction are fulfilled: for example,
that there are indeed two trustees of the land for overreaching, or that the consent
of the equitable owners is required and obtained. Any attempt to deal with the land
contrary to the Restriction will be discovered and may trigger an application under
section 14 of TOLATA 1996 to try to prevent sale, or to ensure that it takes place
only on certain conditions.
Note finally that a court is empowered under section 14 of TOLATA 1996 to
revisit a previous application if circumstances change before a sale actually takes
place. So, in Dear v. Robinson (2001), a previous order for sale was rescinded
because circumstances had changed and a majority of the beneficiaries no longer
wanted an immediate sale.

The special case of bankruptcy

Section 15(4) TOLATA 1996 excludes the application of the criteria under s 15(1)
when the order under s 14 TOLATA is made by a trustee in bankruptcy of a
beneficiary.
In such cases, S 335(A) OF THE INSOLVENCY ACT 1986 applies as follows:
S 283 IA 1986: all property owned by a bankrupt beneficiary vests by the
operation of law in his/her trustee in bankruptcy.
S 305 IA 1986: the trustee in bankruptcy must realize and distribute all property to
satisfy the beneficiaries debts.
S 335(1)(A) IA 1986: an application for sale by the trustee in bankruptcy is heard
by the bankruptcy court.
S 335(A) IA 1986: the bankruptcy court is ordered to make such an order as it
thinks fit, just and reasonable having regard to the interests of the bankrupt’s
creditors and all other circumstances of the case except the needs of the bankrupt.
Where an application is made in respect of a dwelling house which has been the
home of the bankrupt, then the courts must also consider the conduct of the spouse
or former spouse so far as contributing to the bankruptcy, the needs and financial
resources of the spouse or former spouse and the needs of any children.
Upon an application for sale by the trustee in bankruptcy immediately after the title
has been vested in him, the courts may grant a limited adjustment period of one
year before sale is ordered.
Once the limited adjustment period expires, sale becomes compulsory. Where the
trustee in bankruptcy applies for a court order a year after title has vested in him,
then no limited adjustment period can be granted and sale becomes compulsory as
it is assumed that the interests of the creditors outweigh all other considerations.
Once sale becomes compulsory, it may be delayed only if the courts are able to
find exceptional circumstances in which sale may be postponed. Guidance as to the
meaning of ‘exceptional circumstances’ can be gained from earlier authorities. The
majority of the cases suggest that the courts will take a strict approach and the
debtor will surely have to face the ‘melancholy consequences of debt and
improvidence’(DEAN V STOUT)
RE CITRO: disruption to the family and difficulty with re-locating children in a
new school did not qualify as exceptional. The only circumstances which seem
likely to be regarded as ‘exceptional’ are illness or disability. •
RE BAILEY: WALTON J suggested that it might be an exceptional circumstance
if a house were specially adapted to meet the needs of a disabled child. •
RE RAVAL: an order for sale has been similarly refused after the expiry of the
limited adjustment period where the spouse of a beneficiary had been suffering
from paranoid schizophrenia.
CLAUGHTON V CHARALAMBOUS: an order for sale has also been refused
after the expiry of the limited adjustment period where the spouse of a beneficiary
suffered from renal failure and arthritis. •
RE BREMMER: where the bankrupt was suffering from terminal cancer with a
life expectancy of six months, sale was postponed even after the limited adjustment
period. •
EVERITT V BUDHRAM: the wife’s mental condition was sufficient to give rise
to exceptional circumstances.
RE HOLLIDAY (A BANKRUPT): an unusual case, which stands out. The
application for sale by the trustee in bankruptcy was refused and the interests of
children were given priority on the basis that the bankruptcy had been engineered
by the husband to enable the matrimonial home to be sold and the debts on which
the bankruptcy were based were relatively small in proportion to the value of the
property. Re Holliday was decided on the basis of its own facts and is not the
general authority.

EXTRA READING ON BANKRUPTCY -------

The list of factors in section 15 of TOLATA 1996 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 section 14 of TOLATA, but section 335A of the Insolvency Act
1986 provides the list of relevant factors that the court must consider.
If one of the persons interested in the co-owned land is made formally bankrupt
(whether they are a legal or equitable owner), their assets vest in a ‘trustee in
bankruptcy’.
The ‘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.
In a co-ownership situation, a trustee in bankruptcy will step into the shoes of the
legal or equitable owner who is bankrupt. 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 owner, who is
often the bankrupt’s relationship partner who wishes to stay in the house.
If a sale is resisted, the trustee in bankruptcy will apply to the court for an order for
sale under section 14 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 section
335A of the Insolvency Act 1986.

On its face, the section 14/section 335A procedure applies whether or not the co-
owners are married, or, indeed, in any personal relationship. However, it is only in
the case of spouses or civil partners (not unmarried couples) that spousal/civil
partner conduct and the needs of children are expressly mentioned as relevant
factors for the court’s consideration. However, we should not conclude that this
means that the needs of children of non-married couples are irrelevant.
Section 335A specifically permits the court to consider ‘all the circumstances of
the case other than the needs of the bankrupt’ and clearly this is wide enough to
include the interests of any person residing in the premises or indeed interested in
it.
Consequently, on hearing an application for sale by a trustee in bankruptcy, the
court is directed by section 335A to consider the following matters:
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 – but not the needs of the bankrupt.
However, if the application under section 14 of 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 court may well
delay sale so as to give the ‘innocent’ occupiers a chance to make alternative
arrangements.
However, the converse is not also true: it is not the case that the existence of
exceptional circumstances must mean postponement of a sale. They mean that the
interests of the creditors do not outweigh other factors, and the court must still
exercise a discretion taking all the (now equal) factors into account – Grant v.
Baker (2016), in which a sale was still ordered despite there being exceptional
circusmtances.
It is, of course, difficult to identify what my count as ‘exceptional’ and it is a
matter for the trial judge hearing all the evidence (Grant v. Baker). So, in
Harrington v. Bennett (2000), an application by the trustee in bankruptcy for sale
more than one year after the bankruptcy was granted by the court. 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 under a sale by the trustee in
bankruptcy. Nor is it exceptional that there might be a family who would lose their
home – Begum v. Cockerton (2015), although the medical condition of one of the
occupiers can be so serious as to generate an exceptional situation: Grant v. Baker
(daughter of bankrupt), Claughton v. Charalambous (bankrupt’s spouse) and Re
Bremner (bankrupt was terminally ill, which had to be disregarded, but this led to
exceptional circumstances for bankrupt’s spouse).
The overall effect of section 335A was considered at some length by Lawrence
Collins J in Dean v. Stout (2004). He summarised the position as follows.
First, the presence of exceptional circumstances is a necessary condition to
displace the presumption that the interests of the creditors in bankruptcy outweigh
all other considerations, but the presence of exceptional circumstances does not
debar the court from making an order for sale.
Second, typically the exceptional circumstances relate to the personal
circumstances of one of the joint owners, such as a medical condition.
Third, the categories of exceptional circumstances are not to be categorised or
defined and the court should make a value judgment after looking at all of the
circumstances.
Fourth, the circumstances must be truly exceptional and, as explained in Re Citro
(1991), this means matters that are outside the usual ‘melancholy consequences of
debt and improvidence’.
Fifth, it is not uncommon for a partner with children to be faced with eviction in
circumstances in which the sale will not produce enough to buy a comparable
home in the same neighbourhood or, indeed, elsewhere. Such circumstances cannot
be described as exceptional.
Sixth, for the purposes of weighing the interests of the creditors of the bankrupt,
the creditors have an interest in the order for sale being made, even if the whole of
the net proceeds will go towards the expenses of the bankruptcy, and the fact that
they will be swallowed up in paying those expenses is not an exceptional
circumstance.
To conclude then, it is apparent that section 335A of the Insolvency Act 1986
explicitly favours a sale at the request of the trustee in bankruptcy after one year
and there may well be sound commercial and equitable reasons why this should be
so. It is up to the person trying to prevent sale to adduce evidence of exceptional
circumstances – Begum v. Cockerton. Nevertheless, while we know from Dean v.
Stout what is not ‘exceptional’, it remains uncertain what actually will qualify so
as to justify a postponement of sale beyond the one-year period, although medical
conditions carry some weight.
Of particular interest in this regard is the case of Barca v. Mears (2004) in the
High Court. In this case, it was argued that a sale should be postponed for longer
than one year because of the special educational needs of the son. In the result, and
on the particular facts, this was not persuasive, but the Court did make some
important observations.
First, the Court confirmed that Re Citro did assimilate the position of married and
unmarried couples and its general approach would apply even if the co-owners
stood in no relationship at all.
Second, that as the law stood, the pressure for a sale at the request of the trustee in
bankruptcy was usually overwhelming.
Third, however, the Court held that the protection afforded by Article 8 of the
European Convention on Human Rights (ECHR), as implemented by the Human
Rights Act 1998, might require a rethink. It was arguable – indeed likely according
to the judge – that the near-automatic ordering of sale in bankruptcy cases after one
year could contravene the ECHR; the point being that a balance had to be struck
between the needs of the creditors and the requirements of Article 8. The
presumption of a sale after one year, save in exceptional circumstances, as this had
been interpreted, might not represent a sufficient balancing exercise. Consequently,
what the judge called a ‘shift in emphasis’ in the interpretation of section 335A
might be necessary to ensure compatibility with the ECHR.
This could be achieved by recognising that, in the normal case of ‘everyday’
bankruptcy, the creditors’ interests would outweigh all other interests, but also by
accepting that what was ‘exceptional’ should involve a proper consideration of the
facts without the presumption of bias in favour of creditors that was evident in the
pre-1998 case law.
Despite this, subsequent case law has not been as robust in its defence of the rights
of innocent co-owners: in Donohoe v. Ingram (2006), the court paid lip service to
the idea that the test within section 335A might have to be reinterpreted to make it
Convention-compliant by simply deciding that, even on that basis, there were no
exceptional circumstances. Further, in Nicholls v. Lan (2006) and Ford v.
Alexander (2012), the court found no incompatibility per se between the
provisions of the Insolvency Act 1986 and the Convention, thus neutralising the
concerns raised in Barca. However, we should remember two final points.
First, Barca reminds us that the Convention might have an impact on the
interpretation of section 335A and thus ‘exceptional’ does not mean ‘nearly never’.
Second, in Manchester City Council v. Pinnock (2010) and Hounslow LBC v.
Powell (2011), the Supreme Court make it clear that it is possible that the
enforcement of a proprietary claim (e.g. a trustee in bankruptcy’s claim under
section 14) could give way in the face of an Article 8 defence based on the
exceptional circumstances of the occupier. The need for proportionality between
the claims of the creditors and that of the home owner is recognised in Ford v.
Alexander, but the clear steer from that case is that section 335A almost always
ensures a proportionate result. Perhaps then it will be rare for human rights
concerns to prevent a sale after the one year’s grace, but not impossible.