Trustees in Land Lecture
This chapter of the guide on land law deals with trustees of land (alternatively called “trustees in land”; there is no real difference and the phrases are interchangeable). It is intended to assist you as a one-stop guide to all of the relevant aspects of trustees when dealing with land. The first section deals with their appointment: it explains who may be appointed as a trustee of land, who may appoint them, the minimum and maximum number of trustees of land that may be appointed, cases involving a sole trustee and a purported sale, and the powers of beneficiaries regarding the appointment and removal of trustees.
The second section addresses the powers of the trustee, and the powers of the beneficiaries. As shall be seen, certain rights of either party - beneficiary or trustee - are checked by equivalent rights of the other party or by certain legal test, for example rights of occupation for beneficiaries are given limited breadth as a result of particular legal tests.
Section three addresses breaches of trust, meaning what happens if a trustee has breached their obligations as trustees of land. It examines what happens to attempted sales by a trustee where the trustee has failed to comply with certain requirements.
The fourth section of this chapter will examine the general principles and rules pertaining to trustees in bankruptcy. Finally, as with all of the other chapters in this guide, this chapter will include various cases in focus, and will conclude with a set of hands-on examples to help you better understand the principles which apply to trustees of land.
SECTION ONE: APPOINTMENT OF TRUSTEES
A trustee in land can be appointed by the beneficiaries as per s.19 of the Trusts of Land and Appointment of Trustees Act (TOLATA) 1996. This section in TOLATA 1996 gives beneficiaries who are over 18, have mental capacity, and are absolutely entitled to the trust property, the ability to appoint a named new trustee. The section only becomes applicable where no trustee is named in the original trust deed. Likewise, any attempt to transfer a legal estate to a minor would be ineffective; instead, it would constitute a declaration that the land is held legally by the purported transferor, albeit on trust for the minor (TOLATA 1996, s.2(1)(6), Schedule 1 para 1(1)(b)).
Wherever a trust intends to nominate a selection of persons as the trustees, the maximum number of trustees in land, acting for the purposes of the documentation as joint tenants of the land, shall be generally limited to four (Trustee Act 1925, s.34(2); Law of Property Act 1925, s.34(2)). The reason for this cap is for ease of conveyancing purposes. Where there is overreaching of the equitable interests lying behind a trust of land, this can only occur on a disposition of the legal estate which is effected by ‘trustees of land’, with trustees being always in the plural (Law of Property Act 1925, s.2(1)(ii)).
By restricting the number of trustees to four, it will be easier for dealings over the estate to take place with the consensus of all trustees. Unity of all trustees in the management of the estate is compulsory, meaning its management is, at first glance at least, simpler and easier than if a greater number of trustees were permitted. The cap also means that where a purchaser seeks to investigate title, it will be easier for the purchaser to investigate because there is a limit on the fragmentation of the disparate interests of the shareholders. In other words, fewer interests means quicker and easier investigations of title. Note that the limit of trustees to four does not apply for land vested in trustees for charitable, ecclesiastical, or public purposes (Trustee Act 1925, s.34(3)).
If a trust instrument purports to transfer the legal estate to more than four trustees, statute compels a vesting of the legal title by way of joint tenancy in the first four persons named in the transfer, whilst the remaining persons are relegated to having a beneficial ownership only (Law of Property Act 1925, s.34(2)).
Conversely, there is technically no minimum number of trustees who may hold the legal estate under a trust of land. However, there is a strand of legal policy, envisaged in the TOLATA 1996 and the Land Registration Act 2002, for the legal estate associated with a trust of land to be held by at least two trustees. This policy can be construed from various provisions. For example, no overreaching conveyance can be effected without the signatures of fewer than two trustees of land (Law of Property Act 1925, s.2(1)(ii), s.27(2)). Further, a sole trustee cannot give a valid receipt for the proceeds of sale or other capital money which arises under a trust of land; that, too, requires at least two trustees (Trustee Act 1925, s.14(2)(a)). The problem with this so-called ‘two trustee’ rule is that although it is intended to act as a safeguard, in certain scenarios it actually turns out to be ‘no safeguard at all’ (per Peter Gibson LJ, State Bank of India v Sood  Ch 276, CA).
Case in focus: State Bank of India v Sood 
Mr and Mrs Sood were registered proprietors of the freehold property in question, and they held the property on trust for themselves and five others. All seven were in actual occupation of the property. Mr and Mrs Sood charged the legal estate to the bank by way of a legal mortgage. The charge in turn was registered for the standard purpose of securing any future borrowing on bank overdrafts for business loans. Money was later paid by the bank via the overdraft facility. When the debt exceeded £1 million, the bank called in the debt, and sought possession by way of having secured an interest over the property. The Court of Appeal held that, despite the fact that the payment of loan money did not occur simultaneously with the execution of the legal charge, nevertheless the equitable interests of the beneficiaries had been overreached, and the bank’s status as charge was unaffected. Overreaching would have already arisen, according to Peter Gibson LJ, even if the overdraft moneys were otherwise paid by the two trustees.
- The trustees were also beneficiaries of the trust in land, and like all the other beneficiaries were in actual occupation.
- The trustees had charged the property to the bank, thereby rendering the bank as a secured creditor over the land subject to the trust.
- When the trustees’ debt to the bank was called in and the bank sought possession, the equitable interests of the beneficiaries (and trustees) were all overreached by the bank having taken good legal title.
Given that these are scenarios involving multiple trustees, this discussion raises the question of what to do where there is a sole trustee in cases which have arisen by implication rather than by design; cases which have produced a resulting or constructive trust would fall into this category. The equitable ownership which arises in these cases of course has no documentary trace, but that is the nature of resulting and constructive trusts. The trust in question is implied.
As a result, the legal owner of the land is unaware (or at least has not intended to be) a trustee of the land, and therefore the need for another trustee will not have been envisaged in their case. Unfortunately for a purchaser, they are still subject to the ‘two trustees’ rule: if purchaser A seeks to purchase land from its owner, B, but B is later found to be holding the land on resulting or constructive trust for C, then A cannot overreach the beneficial interests behind the trust.
A court also has the power to appoint trustees as per s.41 of the Trustee Act 1925. The court may exercise this power whenever it is expedient to appoint a new trustee and it would otherwise be ‘inexpedient, difficult or impracticable’ for the appointment to take place without the court’s assistance.
Finally, as their appointment pertains to a trust of land, the trust is enforceable only if it is ‘manifested and proved’ by some writing, produced and signed by the testator (Law of Property Act 1925, s.53(1)(b)). If that formality of putting the trust into writing is not complied with, the purported trust becomes a ‘merely voluntary declaration of trust’ and is thus ‘unenforceable for want of writing’ (Gissing v Gissing  AC 886, HL per Lord Diplock).
Beneficiaries’ powers of appointment and removal
Where a beneficiary is absolutely entitled to trust property, they can themselves determine who the trustees are where the trust instrument itself a) fails to nominate persons as trustees and b) does not exclude the right of beneficiaries to appoint trustees (TOLATA 1996, ss.19(1), 21(5)). Beneficiaries also have powers of dismissal. So long as they are unanimous, the beneficiaries - provided they have attained majority and have capacity - can produce written directions for one or more of the trustees to retire from the trust, or that the current trustee(s) should appoint in their place a designated person as an additional or replacement trustee (TOLATA 1996, ss. 19(2), 21(1) - (2)).
Examination Consideration: We have seen that the appointment of trustees will depend greatly on the capacity the person nominated as the trustee, and will also depend the number of trustees sought to be appointed, either by design or by implication. We also have a kind of legal test for when the court may appoint trustees. Can you recall the wording of that test? And can you remember what happens if there is only one trustee due to the imposition of a resulting or constructive trust?
SECTION TWO: POWERS OF TRUSTEE
The powers of trustees of land are many and varied. The powers can be summarised as below. Trustees have the power to:
- Sell, lease or charge the legal estate in the trust land;
- Acquire freehold or leasehold land in any part of the UK as per the Trustee Act 200 s.8, whether or not that property is occupied by a trust beneficiary (TOLATA 1996, s.6(3)), subject to which the trustee must exercise a duty of care when exercising such a power unless that duty is expressly disapplied via the trust (Trustee Act 2000, s.2, Schedule 1, paras 2 and 7);
- Partition the trust land between beneficiaries of full age where the beneficiaries are absolutely entitled to the trust land (TOLATA 1996, s.7(1));
- Exclude or restrict the occupation right of one or more (but not all) of the beneficiaries (TOLATA 1996, s.13(1));
- Apply for a court order resolving disputes over the trust land (TOLATA 1996, s.14(1)); and
- Delegate any of the trustees’ statutory functions to any one (or some, or all) of the beneficiaries of full age where they are entitled to an interest in possession in the trust land (TOLATA 1996, s.9(1)) - the duty of care mentioned above at b) will apply to their decision whether to delegate, and to their responsibility to keep the delegation under constant review (TOLATA 1996 s.9A (1) - (3) as inserted by the Trustee Act 2000, s.40(1), Schedule 2, paragraph 47).
With all that being said, these powers cannot be exercised indiscriminately. The exercise of these powers must be done ‘with regard to the rights of the beneficiaries’ (TOLATA 1996, s.6(5)). So where the trustees are selling the land subject to the trust, they have a duty to the beneficiaries to obtain the best price which is reasonably attainable. Further, whenever exercising their powers, the trustee(s) - in the absence of a contrary provision in the trust instrument - have a duty to ‘consult the beneficiaries of full age’ and, so far as is consistent with the ‘general interest of the trust’, to give effect to the ‘wishes of those beneficiaries, or (where there is a dispute) the wishes of the majority (according to the value of their combined interests)’ (TOLATA 1996, s.11(1) - (2))
Rights of beneficiaries as against the trustees
Trustees of land do not, as we have seen, have an unfettered discretion in the exercise of their powers. For example, where the beneficiaries are in occupation of the land subject to the trust, the court has come to recognise this occupation constitutes an equitable ownership (Bull v Bull  1 QB 234, CA; Williams & Glyn’s Bank Ltd v Boland  AC 487, HL; City of London Building Society v Flegg  AC 54, HL). Further, this position has been enshrined in statute: TOLATA 1996, s.12(1) confers on beneficiaries a general ‘right to occupy’ the trust land, so long as they are ‘beneficially entitled to an interest in possession’ of the trust land.
Right of Occupation
That being said, the right to occupy under s.12(1) of TOLATA 1996 is subject to certain limitations and exemptions, such as:
- The purpose of the trust must among its objects includes ‘making the land available’ for occupation purposes (s.12(1)(a));
- If the premises are ‘unavailable or unsuitable’ for occupation by the beneficiary, they may not occupy it (s.12(2)). If for example the beneficiary seeks to occupy a house, and its facilities are disproportionate to the beneficiary’s needs, it may be deemed unsuitable (Chan Pui Chun v Leung Kam Ho  EWCA Civ 1075);
- The trustee(s) may exercise a right to exclude or restrict some (but, crucially, not all) of the beneficiaries regarding their rights of occupation of the property. The reason is it is limited is because being able to exclude all beneficiaries would ‘make no sense’ (Rodway v Landy  EWCA Civ 471 per Peter Gibson LJ).
In regards to c), there are constraints and further dimensions on how and when the trustee may exercise this power:
- The trustees cannot act unreasonably in the exercise of their discretion to exclude or restrict the right of occupation (TOLATA 1996, s.13(1) - (2)). In exercising this power, trustees must have regard to the ‘circumstances and wishes’ of all (note, not some) of the beneficiaries (TOLATA 1996, s.13(4)).
- The trustees may impose a variety of conditions, including financial conditions, as the price the beneficiary must pay for occupying the property (TOLATA 1996, s.13(5) - (6)). Where this imposition takes place - effectively, the charging of rent - the trustee can require the payment of ‘compensation’ to any beneficiary whose enjoyment of the land has been precluded or restricted (TOLATA 1996, s.13(6)(a)).
- Where the building can be physically partitioned, the trustees’ discretion is wide enough to allow them to designate different parts of the building to be occupied by the various beneficiaries respectively (Rodway v Landy per Peter Gibson LJ).
- Where a beneficiary is already in occupation prior to the exercise of the trustee’s power, that occupation has an overriding status which cannot be displaced without either the consent of that beneficiary or the leave of the court (TOLATA 1996, s. 13(7)).
Other powers of beneficiaries relating to trustees
- Right to be consulted: Trust beneficiaries have a right to be consulted as the trustee seeks to exercise their functions (TOLATA 1996, s.11(1)). However, this right is not absolute and binding: trustees can override the wishes of beneficiaries if the trustee believes they are acting ‘in the general interest of the trust’, and they are under no duty to consult a beneficiary if the beneficiary is also a trustee (Notting Hill Housing Trust v Brackley  EWCA Civ 601 per Peter Gibson LJ). According to case law, there is a limited degree of control that a beneficiary can exercise against a trustee if the trustee intends to act contrary to the wishes of the trustee, namely where a trustee is attempting to complete a sale without having first consulted the beneficiary (Waller v Waller  1 WLR 451, ChD).
- Right to require that consent be obtained: The creator of an express trust can choose to impose a requirement that certain, specified acts on the part of the trustees, for example efforts towards a sale, must be subject to a right of consent on the part of the beneficiary or some other person (usually, it will be one of the trust beneficiaries). Furthermore, this requirement in the trust can be strengthened by a ‘restriction’ entry in the land registry for the particular estate (Land Registration Act 2002, s.40(2) and (3)(b)).
- Right to apply for a court order: All beneficiaries as a class have the right to apply under TOLATA 1996 to the court for an order. The order can be means of settling many types of dispute in relation to the trust land (TOLATA 1996, s.14(1)).
- Right to an appropriate interest in the proceeds of capital: Where there is a disposition of the legal estate in the trust land (meaning the trust land has been sold by the trustee(s) to a third party purchaser), the beneficiary is entitled to the proceeds of sale. If the disposition of the legal estate takes the form of a mortgage charge, the trust beneficiaries’ equitable interests are deflected on to the equity of redemption, which is the legal estate now subject to the mortgage charge. The rights of the beneficiaries are, as a result, attached to the now-encumbered legal estate (City of London Building Society v Flegg; State Bank of India v Sood  per Peter Gibson LJ). As compensation for their interest now being encumbered, the trust beneficiaries are regarded as having entitlements in the loan money provided to the trustees.
Examination Consideration: It is easy to imagine an essay question that effectively pits the powers of trustees - such as the power to exclude a number of the beneficiaries from the land - against the rights of beneficiaries, such as the right to be consulted on the exercise of the trustee’s powers. It is therefore helpful, when looking at these powers and rights, to consider how they might be undercut, either by a legal test or by the rights/powers of the other party.
SECTION THREE: BREACHES OF TRUST
When the disponee takes the legal title of a registered estate, they are not hindered by any limitation of the disponor’s powers where that limitation is not indicated by some entry in the disponor’s register of title or imposed by or under the Land Registration Act (LRA) 2002 (LRA 2002, s.26). This can mean the disponee’s title is unlikely to be affected even where the disponor has been part of a breach of trust. The disponee’s title is insulated from the disponor’s breach of trust because there is a public policy concern for protecting the interests of innocent purchasers.
That said, the disponee, whilst receiving a good legal title, may yet be compromised by equitable interests that rank as ‘overriding’ (Williams & Glyn’s Bank Ltd v Boland  A.C. 487). Further, if the disponee consciously and knowingly participates in a transaction that would be deemed improper and inequitable may render themselves liable to the trust beneficiaries on the ground of ‘knowing receipt’ of trust property (LRA 2002, s.26(3)).
The consequences which flow from a breach of trust of land, when the land is unregistered, are similar to those of breaches of trust of registered land. Where trustees have conveyed unregistered land in contravention of any given statute, or rule of law, or rule of equity, or is in breach of some limitation on their powers of disposition, that disposition is not invalid where the purchaser has ‘no actual notice’ of the contravention or limitation (TOLATA 1996, s.16(2) - (3)).
As a result of this rule, it appears that if a trustee of land fails to secure the required consent to the conveyance, even if it is illicit on their part (TOLATA 1996, s.8(2)), this would not invalidate the transaction with the purchaser, so long as the purchaser does not have ‘actual notice’ of the trustee’s breach. Therefore, the purchaser would be able to overreach beneficial interests in the land as per the Law of Property Act 1925, s.2(1)(ii), so long as the preconditions for statutory overreaching are satisfied.
This is similar to where a disposition is made by a single trustee of land in breach of their trust obligations, with such breach being evidenced by the trustee being unable to produce a valid receipt for the capital money arising on the disposition (Trustee Act 1925, s.14(2)(a)). The fact that the trustee’s disposition is in breach of trust does not render the conveyance invalid as a disposition. However, unlike registered land, the conveyance cannot overreach the equitable interests. This is because, according to the evidence (i.e. a lack of a valid receipt) the capital money has not been provided to the trustees of land. As a result, the purchaser, though taking the estate with good legal title, may find they are bound by actual or constructive notice of the equitable rights of the trust beneficiaries, which due to the land being unregistered cannot be overreached (Caunce v Caunce  1 WLR 286, ChD; Kingsnorth Finance Co Ltd v Tizard  1 WLR 783, ChD).
Judicial resolution of disputes over trust land
TOLATA 1996 provides various methods of resolution to disputes that arise in relation to trusts of land. As we have seen, trustees have (and beneficiaries may also have) the power to ask a court to resolve such disputes. What is also worth mentioning is that other parties with this power include chargee or mortgagees and trustees in bankruptcy (of which more below in Section Four).
The court has the power to make any order which it thinks fit when considering how the trustees have exercised their powers (or have omitted from doing so), and can make any order to make a declaration regarding the ‘nature or extent’ of any given person’s interest in the trust land and/or its proceeds (TOLATA 1996, ss.14(2), 17(2)). What the court cannot do is vary the amount (the “quantum”) of any beneficially entitlement under the trust (Mortgage Corporation v Shaire  Ch 743, ChD).
The types of disputes which a court may consider are:
- Disputes relating to the trustee’s allocation between the beneficiaries of their right to occupy;
- Whether a trustee can be excused from having to consult the beneficiaries or from having to obtain the requisite consent from the beneficiaries as provided for by the trust instrument;
- Disagreements between the trustees as to whether to sell the land;
- Attempts by one or more of the beneficiaries to either prevent or compel a sale by the trustees; and
- Applications by creditors for the sale of the trust land.
There are a range of criteria that a court will consider when addressing any of the above disputes. Those criteria, as specified by TOLATA 1996, s.15(1), are as follows:
- The intentions of the person(s) who created the trust;
- The purposes for which the trust land is held (e.g. occupancy or to provide maximum returns to the beneficiaries);
- The welfare of any minor who occupies, or who might reasonably be expected to occupy, the trust land as their home; and
- The interests of any secured creditor of any of the beneficiaries.
Where the court is looking to determine questions on the trustee’s allocation of the beneficiaries and their right to occupy, the court must (as opposed to may) have regard to not only the criteria set out above but also to ‘the circumstances and wishes of each of the beneficiaries’, where those beneficiaries are those who would normally be entitled to occupy the land (TOLATA 1996, s.15(2)).
General principles regarding disputes over sale
Where a court is considering questions of whether or not the trust land is to be sold, the criteria set out above are a ‘consolidation and rationalisation’ of all the jurisprudence developed under the Law of Property Act 1925, s.30 (A v B (1997) unreported, Fam Div per Cazalet J) and that the principles guiding earlier legislation still influence the criteria set out above. It is understood that all parties are likely to have reasonable concerns - retaining a place to live, versus maximising the value of the trust, in effect deciding what is in the interests of the beneficiaries. It therefore falls to the court to adjudicate the matter and decide what is the ‘right and proper’ response in equity (Re Buchanan-Wollaston’s Conveyance per Sir Wilfred Greene MR).
Central to resolving disputes of sale is the doctrine of ‘collateral purpose’: that is, if the original or ‘collateral’ purpose of the trust is still capable of being fulfilled at the time of the intended sale, it is likely to be wrong to order a sale of the trust property (Jones v Challenger  1 QB 176 per Devlin LJ). For example, if a house purchased as a family home is to be sold, and the family relationships have been irretrievably broken, it may be argued that the collateral purpose of the trust (i.e. housing the family) no longer applies. But the welfare of minor children must be considered (TOLATA 1996 s.15(1)(c)) and thus their continued need for a home to occupy, particularly the place which the children recognise to be their family home, may mean the collateral purpose still subsists (Williams (JW) v Williams (MA)  Ch 278, CA).
Case in focus: Re Buchanan-Wollaston’s Conveyance
Four individuals, each owning separate adjacent properties, took a purchase as joint tenants of another adjacent portion of land. They intended to keep the jointly purchased land as an open space from which they could preserve the view of the sea. The parties entered into a covenant not to part with the co-owned land except either by unanimous consent or majority vote. One of the individuals, upon selling his own property, sought to instruct his trustees to join with him in a sale of the co-owned open land, however the Court of Appeal refused to grant the order for sale. They did so on the grounds that the individual could not act in a manner that was inconsistent with the terms of the covenant. The sale could only be ordered where the collateral purpose had fallen away and the parties agreed by unanimous or majority vote to end the covenant.
- The land was purchased between several individuals for an express purpose.
- This purpose stood as the ‘collateral purpose.’
- Given the purpose for which the land was purchased, no-one could attempt to sell the land without a vote of the co-owners.
- When one of the individuals attempted to do so, acting with their trustee, he and the trustee were prevented by the court from doing so because the collateral purpose subsisted.
Examination Consideration: As you will have seen, this section has addressed trustees and breaches of trust. When will a breach of trust actually act to bind a purchaser according to the rights of the trust’s beneficiaries? We saw above in Section Two that certain powers on the part of the beneficiaries, for example the right to require that their consent be given to a disposition, is nevertheless overreached by a bona fide purchaser for valuable consideration without notice. Think what this does to the rights of beneficiaries to prevent sales.
SECTION FOUR: TRUSTEES-IN-BANKRUPTCY
Where a trustee-in-bankruptcy, usually appointed by the bankrupt’s creditors, seeks to order a sale of the land, the considerations in TOLATA 1996, s.15(1) - such as the welfare of minors living in the property - become inferior considerations. Instead, the interests of the creditor(s) become paramount (TOLATA 1996 s.15(4)).
When the trustee-in-bankruptcy seeks an order for sale, the matter is decided by the bankruptcy court, and in that instance the court is directed to make such order as it thinks ‘just and reasonable.’ The court will first have regard to the interests of the creditors, and then to other factors including (as per Insolvency Act 1986, s.335A (2)):
- The conduct of the bankrupt’s (former) spouse or civil partner, so far as that conduct caused or contributed to the bankruptcy;
- The needs and the financial resources of the bankrupt’s (former) spouse or civil partner;
- The needs of any children; and
- All the circumstances of the case other than the needs of the bankrupt.
(It is worth noting that the bankrupt’s needs are absolutely not to be considered).
Where the application for the order for sale is made a year or more after the appointment of the trustee-in-bankruptcy, the interests of the creditor are almost overwhelming, and unless the circumstances of the case are ‘exceptional’, it is the case that ‘the interests of the bankrupt’s creditors outweigh all other considerations’ (Insolvency Act 1986, s.335A (3)). Circumstances which are said to be exceptional include severe - or terminal - ill-health affecting the bankrupt or member of their family (Claughton v Charalambous  1 FLR 740, ChD; Donohoe v Ingram  EWHC 282 (Ch)). Even where the circumstances are ‘exceptional’, such a finding does little more than give extra time before a sale will be ordered (such as in Nicholls v Lan  1 FLR 744 in which the court imposed a maximum 18 month delay on sale).
Case in focus: Bank of Ireland Home Mortgages Ltd v Bell  2 All ER (Comm) 920, CA
Mrs Bell owned a 10% beneficial stake in the matrimonial home that was co-owned by herself and her husband. The husband forged Mrs Bell’s signature on a mortgage of the legal estate in favour of the claimant bank; given the forgery, the bank ranked as having only an equitable charge of the husband’s interest in the home. The husband then left the home to live and work abroad. The husband neglected to maintain the monthly payments, yet the wife and their children continued to live in the property. When the Court of Appeal heard the case, the debt owed to the bank was in excess of £300,000. The Court of Appeal indicated it would be ‘plainly wrong’ not to order sale of the property, saying that a ‘powerful consideration is and ought to be whether the creditor is receiving proper recompense for being kept out of their money.’ Despite evidence of the needs of the children to continue living in the property, and despite evidence of the wife’s ill-health, the Court of Appeal deemed it would be ‘very unfair’ if the bank were forced to ‘go on waiting for its money’, noting that the ever-increasing debt meant that whatever proceeds are realised on the sale might already be exceeded by the value of the debt (per Peter Gibson LJ).
- The debt arose as a result of a forged signature of the occupant.
- The debt at the time the case was heard was significantly high and continued to grow.
- The welfare of the minors in occupation, and the interests of the mother, were far exceeded by the interests of the creditors.
- Given the continually growing size of the debt, it was apparent that the absentee debtor husband would not service the debt, and therefore unless it had the property sold the equitable chargee had no recourse.
Examination Consideration: The appointment of a trustee-in-bankruptcy will heavily influence the likelihood that an order for sale is made. Can you recall how long time will elapse until the interests of the creditors are deemed to be paramount? And what examples can you think of which constitute ‘exceptional’ circumstances for delaying that paramountcy?
TRUSTEES OF LAND: HANDS-ON EXAMPLES
The sections set out above discuss various parts of the law for trustees of land. Those areas include the appointment of trustees, the powers trustees wield and how those powers are managed, and what happens where there is a breach of trust by the trustees. The following questions are designed to test your knowledge on these most important aspects of trustees of land. The answers to the questions can be found at the bottom of the page, however you are encouraged to attempt to answer the questions first based on your own recall or notes of the topic before looking at the answers.
Always think about the facts, the relevant statutory provision, the cases that interpret that provision, and what the outcome will be based on how those principles and cases apply to the question. As you may have gathered, the TOLATA 1996 is especially important, not least where it grants powers to trustees over their beneficiaries and the land, so be sure to highlight provisions from that Act and have it to hand when you are dealing with questions relating to trusts of land. Although you would not be expected to give the full citations of cases you cite (just the names of the parties and the year is usually sufficient, the name of the judge giving the ratio is even better!), you will be expected to accurately cite the relevant sections and subsections of the TOLATA 1996 and other legislation. Simply reciting the name of the statute in your exam without the corresponding section and subsection will not be sufficient.
Q1. Amalgamated Properties Ltd is hoping to purchase Blackacre from Bert. Bert assures them that he is the sole legal owner of the property, and the land searches appear to bear out this assertion. However, Amalgamated Properties Ltd are subsequently contacted by Cheryl, who informs Amalgamated that she is actually the beneficial owner and occupant of the land, and tells Amalgamated that they cannot purchase the property. Amalgamated do some further investigation, and found out that Bert is indeed a sole trustee of the property, and Cheryl has the beneficial interest. There is no one else holding the land on trust. Amalgamated ask you if they can nevertheless overreach her interest.
Q2. You are appointed as trustee of a trust of land, which includes as its beneficiaries Fanny, Gareth and Helen. The trust instrument requires you to consult with all of the beneficiaries before exercising your powers. Helen begins to cause problems for Fanny and Gareth by continually taking up space with ever-more elaborate gym equipment, and Fanny and Gareth ask you if you can do anything about the situation. Further: what if you took action without consulting Helen?
Q3. Julia nominates Kevin as her trustee to execute the trust over Greenacre, transferring the estate to Hannah. After Julia passes away, Kevin falls into a coma and his doctors conclude that he will not be coming out of his coma for a significant period of time. Leonard, aged 15, wants to move into Greenacre as a matter of urgency. He comes to you for legal advice, asking if he can put herself forward as trustee, alternatively if the court can nominate one for him.
Q4. Mike forges the signature of his wife, Noreen, on a mortgage document with the bank Oweusmoney plc. After Mike is declared bankrupt, he absconds from the property, leaving Noreen alone with their children. Mike cannot be traced. The debt to Oweusmoney plc goes unpaid, and the debt continues to increase. The bank appoints a trustee-in-bankruptcy to manage Mike’s debts. Fourteen months pass after that appointment, at which point the trustee-in-bankruptcy makes an application for the property to be sold. Noreen is worried because she has recently fallen extremely ill, and her diagnosis is said to be terminal. Advise Noreen.
A1. The clue here lies in the fact that Bert is said to be the sole and only trustee. It is not clear whether he is unaware of his status or as a trustee, but in any event the question is whether in the circumstances he as sole trustee can sell the property to Amalgamated. As you will recall from the discussions on the number of trustees, there must be at least two trustees involved in the signing of certain documentation for a conveyance of land. Where there is only one trustee, and their status has arisen due to a resulting or constructive trust, there is no recourse for the purchaser.
A2. This is to do with the powers of trustees. As you will recall, trustees have the power to exclude some but not all beneficiaries from occupation of the land. Further, trustees may be required to consult the beneficiaries. If you as trustee were to exclude Helen without first consulting her, then you would be in breach of your obligation and she would be entitled to compensation.
A3. This deals with the appointment of trustees, and the circumstances in which the beneficiary can put themselves forward as trustee or where the court can nominate a trustee on the beneficiary’s behalf. Sections 19 and 41 of TOLATA 1996 deal respectively with these situations. Leonard cannot put himself forward as trustee as he lacks majority, meaning he is under the required age of 18. Under s.41 of TOLATA the court would acknowledge that it is expedient to appoint a new trustee, given that the nominated trustee lacks capacity (he is in a coma).
A4. This is a like-for-like replica of Bank of Ireland v Bell. You will recall that a ‘powerful consideration’ for the court in these circumstances is whether the debt will never be satisfied if the bank refrains from seeking an order for sale. Given the length of time, the bank’s interests are now paramount and overwhelming. Noreen is terminally ill and this could mean a moratorium on when the order for sale will be made, but it ultimately cannot be prevented.
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