Trusts of land—overview

See: Trusts of land—overview topic to browse all of our content on trusts of land.

Creation

Trusts of land may:

1. •

   be created expressly

2. •

   arise from the parties' conduct, or

3. •

   be imposed by statute

Since 1 January 1997 property acquired or held by co-owners is held on a trust of land. A trust of land involves a power to sell coupled with a power to retain. Beneficiaries have an interest in land, not just an interest in the proceeds of sale.

A transfer by trustees of land to a purchaser of a legal estate in land overreaches any equitable interest affecting that estate if the sale proceeds are paid to or applied by the direction of at least two trustees or a trust corporation. It will also overreach any overriding interests.

Survivorship and severance

Where land is co-owned legal title is always held as joint tenants, and the presumption is that beneficial or equitable ownership is also as joint tenants. Each joint tenant has an identical interest in the whole land and the interest of one passes automatically on death to the survivor. When the survivor becomes sole legal and beneficial owner the trust ends.

Where the beneficial interest is held as tenants in common, interests can be unequal, and the share of one does not pass to the survivor but is part of the deceased estate. A joint tenancy is severed automatically on the bankruptcy of a beneficiary. A joint tenancy can also be severed by notice or clear conduct.

Where a tenancy in common is indicated the Land Registry will enter a 'Form A restriction' on the title that no disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.

Creating trusts

In the absence of fraud or mistake, an express declaration of trust defining the extent of the beneficial interests is conclusive. If beneficial ownership is not apparent from the title documentation - that is there is no express declaration of trust—there may be an implied trust. An implied trust (either resulting or constructive) may be inferred from:

1. •

   financial contributions

2. •

   conduct, and

3. •

   circumstances

A person who knows that land was transferred to him as a trustee cannot rely on the lack of writing to claim it as his own.

Resulting Trusts

Where parties buy property in joint names:

1. •

   without making an express declaration as to their beneficial interests, and

2. •

   contribute towards the purchase money or property in equal shares

they hold the property as beneficial joint tenants, unless there is evidence of a contrary intention at the time of the purchase. If they contributed to the purchase money in unequal shares, they are tenants in common in proportion to their contributions, although this may be rebutted by evidence or circumstances.

Financial contributions which determine the beneficial interest are payment of the:

1. •

   deposit

2. •

   premium, or

3. •

   mortgage instalment

but not rent or other outgoings.

In the absence of fraud or mistake a specific declaration in the transfer as to the parties' interests will prevail, even if one party contributes more to the purchase or mortgage payments.

In Jones v Kernott [2011] UKSC 53, the Supreme Court confirmed that this does not apply to the ascertainment of interests in a family home. There is no presumption of a resulting trust arising from a couple having contributed to the deposit (or the rest of the purchase price) in unequal shares. The presumption, which can be rebutted, is that equity follows the law and they are joint tenants, entitled to equal shares, in both law and equity.

See Practice Note: Resulting trusts.

Constructive trust

A constructive trust arises where one party's conduct means it would be inequitable to allow him to deny to the other party a beneficial interest in the property—eg where there was a common intention that both parties should have a beneficial interest, and the claimant has acted to his detriment in the belief that he was acquiring a beneficial interest. The burden is on the person seeking to show that the parties did intend their beneficial interests to be different from their legal interests, and in what way.

An implied trust can arise where there is a pre-existing agreement between two parties not to compete against each other for a property at auction. It is the existence of the advantage to the one, or detriment to the other, gained or suffered as a consequence of the arrangement or understanding, which leads to the conclusion that it would be inequitable or unconscionable to allow the acquiring party to retain the property for himself, in a manner inconsistent with the arrangement or understanding which enabled him to acquire it.

See Practice Note: Constructive trusts.

Statutory trusts - potential traps

Statutory intervention sometimes results in the creation of a trust that is not readily apparent from title investigations. A particular trap occurs where land acquired for development was previously a school site, covered by statutory 'reverter' provisions under which the land would go back to the estate of the original grantor when school use ceased. Reverter of Sites Act 1987 altered the law, so that the proceeds of any disposal of the land are held on trust for the estate of the original owner, rather than the land itself 'reverting'.

Since claims against a trustee are not time limited, there is potentially an open ended liability to account for the proceeds of sale should it prove that a site sold for development was covered by School Sites Act 1841 regime.

Protection of beneficial interests

Where the property is registered a restriction may be entered on the register that no disposition can take place without the consent of named persons. The application requires the consent of the registered owners or confirmation of entitlement.

See Practice Notes: Establishing a beneficial interest and Land Registration - protecting beneficial interests.

Variation, revocation or setting aside

Once established a trust is generally binding and irrevocable whether or not it was created for valuable consideration, unless a power of revocation is expressly reserved. Generally any amendment or indeed the ending of a trust requires the agreement of all beneficiaries.

The court also has power to alter trusts in some circumstances under Trustee Act 1925 and Variation of Trusts Act 1958 and orders available under Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996) may have this result.

A transfer of property into trust may be set aside as a transaction at an undervalue where the creator of the trust becomes insolvent or under the general statutory rules against dispositions designed to defraud or put assets beyond the reach of creditors, or on the ground that the disposition was induced by fraud, duress or undue influence.

See Practice Note: Variation of trusts.

Beneficiaries' right to occupy under TOLATA 1996

TOLATA 1996 provides a statutory right for beneficiaries with an interest in possession to occupy the land (if suitable for occupation) if:

1. •

   the purposes of the trust include making the land available for his occupation (or for a class of beneficiaries of which he is a member), or

2. •

   the land is held by the trustees so as to be so available

However this right is subject to the trustees' right to exclude or restrict the entitlement of one or more (but not all) of the beneficiaries. The trustees should consider:

1. •

   the intentions of the person or persons (if any) who created the trust

2. •

   the purposes for which the land is held

3. •

   the circumstances and wishes of each of the beneficiaries who is (or apart from any previous exercise by the trustees of those powers would be) entitled to occupy the land

The trustees must not unreasonably exclude or restrict a beneficiary's entitlement to occupy. Reasonable conditions may be imposed - eg:

1. •

   requiring one party to take responsibility for outgoings, expenses or other obligations relating to the land, or

2. •

   to compensate the excluded/restricted beneficiary by way of occupation rent

Trustees cannot exclude a beneficiary who is occupying the property unless that person consents or the court approves.

Court orders under TOLATA 1996

Where a dispute arises as to sale of the land or appropriate occupation of it, an application may be made to the county court by a trustee, a beneficiary or any person with an interest in the property.

The court may make an order:

1. •

   relating to the exercise by the trustees of any of their functions

2. •

   declaring the nature or extent of a person's interest in property subject to the trust

The court must have regard to:

1. •

   the intentions of the person or persons (if any) who created the trust

2. •

   the purposes for which the property is held

3. •

   the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home

4. •

   the interests of any secured creditor of any beneficiary

5. •

   the wishes of the beneficiaries, in particular where an application is made to exclude occupation

Links to content in this sub-topic

See: Trusts of land topic to browse all of our content on trusts of land, which includes:

1. •

   Practice Notes on Constructive trusts, Resulting trusts, Appointment of trustees, Variation of trusts and Trusts in commercial transactions and issues arising

2. •

   Precedents on Declaration of trust, Solicitor’s advice letter to buyers—co-ownership, Declaration of simple trust of land on severance of joint tenancy of property subject to a mortgage, Declaration that property held by trustees for themselves as joint tenants and Notice of severance of joint tenancy.

3. •

   Checklists on Changing charity trustees—checklist.