LawTeacher logo
LawTeacher The law essay professionals
0115 966 7966 Today's Opening Times 10:00 - 20:00 (GMT)

5.2.2 Trustees in Land Lecture

INTRODUCTION

This chapter of the guide on land law deals with trustees of land (alternatively called “trustees in land”).

SECTION ONE: APPOINTMENT OF TRUSTEES

A trustee in land can be appointed by the beneficiaries as per s.19 of the Trustees of Land and Appointment of Trustees Act (TOLATA) 1996. The section only becomes applicable where no trustee is named in the original trust deed.

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)).

By restricting the number of trustees, it will be easier for dealings over the estate to take place with the consensus of all trustees. 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.

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.

Case in focus: State Bank of India v Sood [1997]

Given that in Sood 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. 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.

A court also has the power to appoint trustees as per s.41 of the Trustee Act 1925.

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 [1971] AC 886, HL).

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)).

SECTION TWO: POWERS OF TRUSTEE

The powers of trustees of land are many and varied. Trustees have the power to:

  1. Sell, lease or charge the legal estate in the trust land;
  1. 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);
  1. Partition the trust land between beneficiaries of full age where the beneficiaries are absolutely entitled to the trust land (TOLATA 1996, s.7(1));
  1. Exclude or restrict the occupation right of one or more (but not all) of the beneficiaries (TOLATA 1996, s.13(1));
  1. Apply for a court order resolving disputes over the trust land (TOLATA 1996, s.14(1)); and
  1. 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)).

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. 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:

  1. The purpose of the trust must among its objects includes ‘making the land available’ for occupation purposes (s.12(1)(a));
  1. If the premises are ‘unavailable or unsuitable’ for occupation by the beneficiary, they may not occupy it (s.12(2));
  1. The trustee(s) may exercise a right to exclude or restrict some 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 [2001] EWCA Civ 471).

In regards to c), there are constraints and further dimensions on how and when the trustee may exercise this power:

  1. 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 of the beneficiaries (TOLATA 1996, s.13(4)).
  1. 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)).
  1. 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).
  1. 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

  1. 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.
  1. 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, must be subject to a right of consent on the part of the beneficiary or some other person.
  1. 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)).
  1. Right to an appropriate interest in the proceeds of capital: Where there is a disposition of the legal estate in the trust land, the beneficiary is entitled to the proceeds of sale.

SECTION THREE: BREACHES OF TRUST

Registered Land

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).

Unregistered Land

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.

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)).

Judicial resolution of disputes over trust land

TOLATA 1996 provides various methods of resolution to disputes that arise in relation to trusts of land.

The court has the power to make any order which it thinks fit when considering how the trustees have exercised their powers, 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)).

Where the court is looking to determine questions on the trustee’s allocation of the beneficiaries and their right to occupy, the court musthave regard 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)).

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 [1961]).

Case in focus: Re Buchanan-Wollaston’s Conveyance

SECTION FOUR: TRUSTEES-IN-BANKRUPTCY

Where a trustee-in-bankruptcy seeks to order a sale of the land, the considerations in TOLATA 1996, s.15(1) become inferior. 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 court will first have regard to the interests of the creditors, and then to other factors (as per Insolvency Act 1986, s.335A (2))

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)).

Case in focus: Bank of Ireland Home Mortgages Ltd v Bell [2001] 2 All ER (Comm) 920, CA


To export a reference to this article please select a referencing style below:

Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.
Reference Copied to Clipboard.