LAND LAW
LEARNING CYCLE 2 – LAW AND EQUITY
Law and equity
The Trust
Trusts of Land and Appointment of Trustees Act (TLATA) 1996
1) LAW AND EQUITY
According to Ashburner and other theorists, these are two parallel streams of rights-
legal rights, and rights recognised by equity.
-Described by Maitland as being a ‘gloss’ on the common law.
How do we tell them apart? By reference to formalities (e.g., you can have a legal
estate in land provided that it complies with formalities but, if not, it could exist in
equity and be protected as a result).
Why is it important? Because of durability: there are different obligations for rights
recognised/existing at law and those recognised/existing in equity.
Principal creation of equity is the trust: this exists in all common law jurisdictions but
has a specific role in English land law.
-It’s simpler to describe it as division of ownership: legal owners are trustees and
those with rights recognised in equity are beneficiaries.
Is equity about fairness? NO, this is colloquialism not a legal equivalence.
Equity is a system of rules which are created as a result of the doctrine of precedent.
-Sometimes, as result of this doctrine, unfairness occurs.
-Fairness is subjective (justice to whom?): it should be fairness to the system of rules
created through the doctrine of precedent.
Equity works ‘in personam’.
Rights recognised by equity are durable (i.e., they’re effectively land rights/‘rights in
the thing’ and they do bind third parties).
-There is some discretion however (e.g., ‘clean hands’).
What does ‘in personam’ mean? Equity works on the conscience of the legal owner
(i.e., based on unconscionability).
-“Equity had come not to destroy the law, but to fulfil it.” (Maitland)
-The conscience of the legal owner requires them to do something beyond the full
exercise of their rights as legal owners; seen most clearly in the trust.
,2) THE TRUST
Division of ownership
Trustees are the legal owners of the land but, because their conscience is affected in
some way, they must give effect to the rights of the beneficiaries.
Who are the beneficiaries? Generally, these are the people who have paid the
purchase price or part of it; or people who have been led to believe they have an
interest in the land (and have done some act to demonstrate their belief).
“Equity did not say that the [beneficiary] was the owner of the land, it said that the
trustee was the owner of the land, but added that he was bound to hold the land for
the benefit of the [beneficiary].” (Maitland)
Co-ownership and Trust
When two or more people own an interest in the same piece of land, there will always be a
trust.
When two or more people own a legal interest in land, they will always own that as
joint tenants (NOT a lease, but a way of holding land).
When two or more people own an interest in land that is not legal, they will either
own it as joint tenants or tenants in common.
-If you’re a tenant in common, you have a precise share in property (e.g., if a couple
buys a property and one of them puts 40% into that property, then they will be
tenant in common of a 40% share).
-The alternative is that you own the whole thing (nobody owns a share): joint
tenancy (e.g., on death of one of the beneficial owners in joint tenancy, other person
will get the whole interest – known as ‘right of survivorship’ – and if tenants in
common, shares are inheritable rights, so previous example of 40% share can be
inherited by their child).
In real-life situation, when cohabitants buy a house together, a trust arises: both will likely
be trustees AND beneficiaries (i.e., both will be legal owners but also have beneficial
interests in property).
-Most people are unaware of this, and problems arise especially if they break up or if
something happens to the land.
So how do we as land lawyers manage this relationship between trustees and beneficiaries?
Through TLATA.
3) TRUSTS OF LAND AND APPOINTMENT OF TRUSTEES ACT (TLATA) 1996
Background to TLATA:
In LPA 1925, there were provisions that required land held on trust for sale.
This created a duty on trustees to sell the land (but also had the power to postpone
a sale).
It made sense at time but problems arose during 20th century.
, -There was an evolution of understandings, as we transitioned away from rented
housing to owning housing as part of our personal social welfare; land was thought
less about something to be sold and more about being a home.
-This created a problem as, if the trustee’s primary duty is to sell the property, and if
the beneficial interest is only to the proceeds of the sale, do beneficiaries have
property rights?
-During the 20th century, the judiciary largely manufactured a solution to the
problem so that beneficiaries DID have property rights; courts somewhat created a
discretionary jurisdiction in which they could prevent sale based on, for example,
the intentions of the person who set up the trust, the purposes for which trust was
created, whether children were involved… lenders also became interested in these
types of questions.
What does TLATA do? It’s a balancing act.
It recognises social reality (reverses the preposition: trustees have power to sell but
NOT duty to sell).
Seeks to balance the rights of beneficiaries and obligations of trustees.
-Beneficiaries are given rights of occupation of the trust property (creating land law
rights) and trustees are given management rights and obligations (including a
dispute settlement role, e.g., in relation to the occupation of land).
In s. 6 of TLATA, it says that trustees have all the powers of an absolute owner, which
includes management, sale, other dispositions (e.g., mortgage), and dispute
resolution role.
In s. 12 of TLATA, it says that the rights of the beneficiaries are to occupy the trust
property (subject to exceptions, exclusions and restrictions: s. 13; e.g., the occupant
is required to pay property bills or an occupation fee) and to be consulted by the
trustee before they exercise their powers (but this is a weak right).
What happens if there’s a dispute (e.g., between trustees and beneficiaries, trustees and
lender…) that can’t be resolved by trustees?
Any person interested in the trust property can apply to court (s. 14, TLATA).
Court has general discretion but must consider:
(a) the intentions of the person or persons (if any) who created the trust
(b) the purposes for which the property, subject to the trust, was held
(c) the welfare of any minor who occupies or might reasonably be expected
to occupy any land subject to the trust as his home, and
(d) the interests of any secured creditor of any beneficiary.
(s. 15(1), TLATA)
See also s. 15(2) (Disputes over occupation) and (3) (all other disputes)
So, which of these criteria should take preference over the others?
The law commission responsible for TLATA understood that no preference should be
established: it should be a matter of balance for the court.
, Bank of Ireland v Bell [2001] 2 FLR 809 (CA)
The Facts:
Mr and Mrs Bell co-owned their home (they lived in it with their son)- a trust.
The Bank of Ireland took a charge on this property: a (purported) legal mortgage.
It was purported because Mr Bell (probably) forged Mrs Bell’s signature.
There was a mortgage default, so the BoI wanted the possession and sale of the
property on the basis of this- they issued a claim in 1992, trial was in 1999.
If a forgery occurs, the mortgage is not recognised at law: therefore, in this case, it can’t
affect Mrs Bell’s beneficial interest and only Mr Bell’s beneficial interest is affected.
-Mr Bell had run off and Mrs Bell was still living in the property with their son.
KEY ISSUE: Can the BoI get an order for sale under TLATA?
The trial judge said a sale should NOT be ordered; his justification for this, after
applying the criteria, was that:
1) It was a family home, which was still being occupied by Mrs Bell and her son.
2) Mrs Bell was in poor health.
3) There was a second mortgage which could be affected by the sale.
As a general rule, the Court of Appeal doesn’t interfere with the exercise of discretion by the
trial judge (because the trial judge hears all the evidence and the Court of Appeal do not
hear evidence- they only hear arguments on points of law).
However, Nicholls VC said that the trial judge had erred by arguing that:
-The bank was entitled to the protection of its charge: [25]
-Mrs Bell’s interest was only about 10% of the value of the property; the bank had
about 300K outstanding and “and increasing daily, no payment of either capital or
interest having been received from Mr Bell (or Mrs Bell for that matter) since June
1992”: [26]
-No “equity” left in the property (i.e., negative equity: the value outstanding on the
mortgage was more than the value of the property)– the bank would take all the
proceeds of sale, “a most material consideration”.
-Mr B had left the home – intention/purpose ceased: [27]
-Son in occupation not far short of 18, so only a slight consideration: [28]
-Ms B’s poor health relevant, but only a reason for postponing sale: [29]
He then draws a distinction between the law under the LPA 1925 and the 1996 Act:
“Prior to the 1996 Act the courts under section 30 of the Law of Property Act 1925
would order the sale of a matrimonial [i.e., relating to marriage] home at the request
of the trustee in bankruptcy of a spouse or at the request of the creditor chargee of a
spouse, considering that the creditors' interest should prevail over that of the other
spouse and the spouse's family save in exceptional circumstances. The 1996 Act, by
requiring the court to have regard to the particular matters specified in section 15,
appears to me to have given scope for some change in the court's practice.
Nevertheless, a powerful consideration is and ought to be whether the creditor is
receiving proper recompense for being kept out of his money, repayment of which is
