Trusts – Land Law Unit 4

A trust is a relationship whereby property is held by one party (the trustee) for the benefit of
another (the beneficiary).

The trustee has legal title to the trust property, the beneficiaries have equitable title.

People create trusts today for arrangements for minors, co-ownership, finance and taxation,
succession planning.

3 ways in which trusts of land are formed.

1. Express trusts: Express trusts should be manifested in writing – s53(1)(b) LPA 1925.
2. Implied trusts (resulting and constructive): no formalities needed – s53(2) LPA1925. No
words. Resulting
a. Arise if someone who isn’t the legal owner contributes to the purchase price of the
land
3. Statutory trusts: Arise when 2 or more people are co-owners of land. Formalities are
those needed for creation or transfer of a legal estate. - S34(2) LPA 1925]

TOLATA and trusts of land

Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA” ) introduced the “trust of land”
which applies to all trusts which include land - the only way of creating new settlements.

How do you create a trust of land?

Express trusts should be manifested in writing – s53(1)(b) LPA 1925.

Implied trusts (resulting and constructive): no formalities needed – s53(2) LPA 1925.

Resulting trusts – a contribution to the purchase price that is not intended to be by way of gift or
loan. Creates an interest in proportion to the size of the non-legal owner’s contribution.

Contributions qualify for a resulting trust are payment of deposit on a property or payment of part of
purchase price on deposit. Mortgage payments not enough. Curley v Parkes [2004] EWCA Civ 1515.

Co-ownership can be express or implied.

Constructive trusts – Lloyds Bank plc v Rosset [1991] 1 AC 107:

1) Agreement, arrangement or understanding to share the equitable interest and detriment; or

2) Common intention to share the equitable interest and detriment.

Express (Statutory) Co-ownership

- People want to co-own land as partners in joint ventures or they are relatives for children.
Maximum of 4 trustees of the legal estate, must be over 18– s34(2) Law of Property Act 1925
(“LPA 1925”).
- Two types of co-ownership, joint tenancy and tenancy in common.
- The legal estate can only be held as a joint tenancy (s1(6) LPA 1925), the equitable interest can
be held as either

*Joint tenancy – no separate shares,

- Right of survivorship (He or she is not able to dispose of his or her interest by will or death, not
will tenancy pass on if no will is made.), intestacy
- Equal division of the proceeds of sale.
Trusts – Land Law Unit 4

*Tenancy in common

- undivided shares, no right of survivorship, division of proceeds of sale according to contribution.

when sold, co-owners get part of sale same to the % they owned.

The legal estate can only be held as a joint tenancy (s1(6) LPA 1925), the equitable interest can be
held as either

When advising clients who co-own property, how do you know whether they hold the equitable
interest as joint tenants or tenants in common?

The four tests:

1. Are the four unities present?

If they are, it will be a joint tenancy.
a. Interest = Same nature and duration. (all lease  leaseholders)
b. Title = All in same document.
c. Time = Interest must be at the same time.
d. Possession. = Must be entitled to the whole property. If no possession
2. Express declaration in the transfer or conveyance to the co-owners. Goodman v Gallan
[1968] Fam 106.
Does the express declaration of trust overrides the presumptions of tenancy in common
arising from unequal contributions and property. Restriction in the proprietorship register.
3. If the four unities are present but the documents are silent, are there words of
severance in the transfer/conveyance?
4. Or does equity presume a tenancy-in-common?
Business partners, co-lenders, unequal contributions to the purchase price.

Methods of severance (JOINT TENANCY)

1) Notice –s36(2) LPA 1925 Shall give a notice in writing to the other tenant Must show
immediate intention to server (Harris v Goddard) has to be where they live or where they
work s.196
- Notice must be correctly served and served on all other join tenants.
2) Alienation by one can do it unilateraly : sale, gift, mortgage, bankruptcy – s53(1)(c) LPA 1925
- These things have to be done in signed writing
- That severs only equitable interest.
3) Mutual agreement: express, implied by conduct or course of dealing – Burgess v Rawnsley
[1975] 3 All ER 142
- Must be more than an arbitrary ambivalent statement

Effect of severance
Trusts – Land Law Unit 4

Who gets what?

- They get an equal share in the equitable interest

Do all the joint tenants have to sever?

- Only the one who is doing the severance Unless it is one by mutual agreement

The powers of trustees and rights of beneficiaries

The trustees of land have in relation to the land subject to the trust all the powers of an absolute
owner. – s6(1) TOLATA.

In the interests of the trust, in compliance with the general rules of equity and law.

Consultation with beneficiaries of full age and beneficially entitled to an interest in possession in the
land – s11(1)(a) TOLATA.

Right of beneficiaries to occupy - s12 (& 13) TOLATA a) the purposes of the trust include making the
land available for his occupation (or for the occupation of beneficiaries of a class of which he is a
member or of beneficiaries in general), or (b) the land is held by the trustees so as to be so available.

Any person who is a trustee of land or has an interest in property subject to a trust of land may make
an application to the court for an order – s14 (&15) TOLATA

Overreaching: s2 and s27 of LPA 1925 – turning interest of land and into money

3 conditions for overreaching:

Buying a legal estate

Purchase money to all trustees

Minimum of two trustees

City of London Building Society v Flegg (1988)

- A property was conveyed to a husband and wife in fee simple upon trust for sale as joint
tenants. A substantial proportion of the purchase price was provided by the wife’s parents
and thus, despite the express trusts in the conveyance and in the register, the property was
held on trust for sale for all four as tenants in common.
- The parents were entitled to occupy the property by virtue of their beneficial interest in it
which on execution of the charge was overreached and became subject to the society’s right
to take possession.
- They were prejudicially affected by the breach of trust, not by the overreaching provisions.

Apply the legislation, to the facts (every factor that applies within the section)

Explain and apply the law.

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Trusts – Land Law Unit 4

Co owners of a legal estate are joint tenants (cannot be T in C) 1(6) LPA 1925

Prep Task 1:

Scenario 1

Jim and Andrea Hodges have been married for four years. They have two children, Anna aged 2 and
Jamie aged 6 months. They have been renting a flat since they got married so that they could save
for a deposit.

They are now buying their first home, 12 Linden Close, with the aid of a 95% mortgage from their
bank. Jim works full time and Andrea works five mornings a week. The mortgage will be paid out of
their joint account at the bank, into which they pay all their earnings.

Answer

Jim and Andrea Hodges should be advised to hold a equitable joint tenants. They are married with
young children, with joint responsibility for the mortgage and both contributing to financial well-
being of family. A joint tenancy provides protection of the family in the event of the death of one of
them. The other will become the sole legal and beneficial owner and will only have to produce the
other’s death certificate to prove this so this is the least stressful option in that situation.

Scenario 2
Trusts – Land Law Unit 4

Dan, Aroon and Rhiana are business partners in a small IT business. They started the business
working from their respective homes but they now want to expand and take on more staff. They are
buying a small unit in a business park.

Aroon and Rhiana are each contributing 35% of the purchase price and Dan is contributing 30%.

Answer

Dan, Aroon and Rhiana are partners in a business but do not appear to be related to each other in
any other way. They are buying business premises and making unequal contributions. They may
want to take in new owners and/adjust shares as they expand so they are going to need flexibility.
They should be advised to hold on a tenancy in common so they preserve the shares they have
contributed, can determine by will where their shares go should they die and have the maximum
flexibility in the arrangement.

Scenario 3

Jack Hargreaves and Alison Smith are setting up home together. They are both in their early 50s and
they are each selling a property so that they can each contribute £175,000 to the £350,000
purchase price. Therefore they will not need a mortgage.

Jack has two grown up children from a previous relationship. Alison doesn’t have any children, but
she is caring for her elderly mother who currently lives independently, but may have to move in with
Jack and Alison at a later stage. They would like to get married at some point in the future, but not
yet as Alison has a difficult relationship with Jack’s children.

Answer

The answer to this scenario is not so clear cut and will require careful discussion with Jack and
Andrea. They are not yet married but intend to be in the near future. However Jack has children
from a previous relationship. A tenancy-in common- enables him to protect his share for his children
if he dies before Alison, assuming he wants to do that. The children are grown up so he may feel
they do not need further support and that Alison will need it more. There is also a need to protect
Alison and her mother from Jack’s adult children on Jack’s death suggests. That would at first suggest
a joint tenancy but Alison may die first and probably would want her share to be used for her
mother if she is still alive at that point. She can only guarantee that if they hold as tenants-in-
common.

[Two practical points may be of interest here:

 This could lead to what is called by practitioners a “conflict of interest” situation where the
advice given to one person may not benefit the other. In such a case Jack and Andrea should
be advised to seek separate advice. You could advise one of them and suggest the other
speaks to an independent solicitor.

 There are variations possible so, for example, they could agree to be tenants-in-common
and Jack could leave a will leaving his share to Alison if she survives him to protect her from
his children but also control the destiny of his estate if she dies before him. She could do the
same but leave her share to him on trust for her mother if she survives Alison.

All of this is outside the scope of this module but is just to illustrate some issues that can arise in
practice].
Trusts – Land Law Unit 4