Chapter 13: TOLATA 1996
Trusts of Land and Appointment of Trustees Act 1996
This act seeks to finally resolve the search for a co-owner's right to occupy by abolishing the doctrine of conversion - section 3 - and by granting a beneficiary under a trust of land a right to occupy the land where the purposes of the trust include making the land available for their occupation provided the land is not unavailable or unsuitable for occupation by them - section 12. Not every beneficiary under a trust of land is granted a right to occupy - they must for instance have a vested interest in possession and the purpose of the trust must include making land available for the occupation of the beneficiary. These conditions may not be met where the trust is for successive interests but they will usually be satisfied where land is co-owned in the domestic context.
Co-owner's Rights of Occupation
Bearing in mind the terms of Section 12 of the Trusts of Land and Appointment of Trustees Act 1996 do you think Sara would have a right to occupy in the following situations?
A Statutory Right to Occupy
Many married couples or co-habitees do own their own homes as co-owners but not all. We now need to look at what rights a spouse or co-habitee has to occupy a home owned by their partner. The common law rights of a wife to occupy her husband's property was examined by the House of Lords in National Provincial Bank v Ainsworth [1965] AC 1175. Click for Lord Hodson's explanation.
The case concerned the right of a wife who had been deserted by her husband to remain in the matrimonial home in the face of claims by her husband's creditors. In the preceding decade, the Court of Appeal had developed a doctrine known as the deserted wife's equity which enabled a wife to protect her occupation of the home against third party claims from the time of her husband's desertion but the House of Lords rejected the doctrine. Whilst the House of Lords felt their hands were tied Parliament did not and they responded by passing the Matrimonial Homes Act 1967 which has been consolidated in the Matrimonial Homes Act 1983 and is now found in the Family Law Act 1996.
Section 30 Family Law Act 1996 confers rights:
a. not to be evicted or excluded from the dwelling house by the other spouse except in pursuance of a court order
b. with leave of the court ... to enter into and occupy the dwelling house
c. to register the rights either on the Land Register (registered land) or at the Land Charges Register (unregistered land) to bind third parties
Sale and insolvency
We need now to look at the implications which arise where domestic property is sold either voluntarily, for instance where spouses / partners or one of them wish to move, mortgage or realise the equity in their home, or involuntarily, for instance where one spouse or partner is made bankrupt.
We will need to look at these questions from a number of different perspectives:
o the position of the spouse/partner as a co-owner or occupier
o the position of the purchaser/mortgagee
o the position of the trustee in bankruptcy representing the creditor(s)
Disputes over the sale of co-owned property
All is fine when all the co-owners agree that they wish to sell their property but what happens when they disagree? That disagreement could be between the trustees themselves - as joint tenants the trustees have to be unanimous in their dealings - it could be between the trustees and the beneficiaries or it could be between the beneficiaries themselves, although the trustees should generally give effect to the wishes of the majority in value. Where there is disagreement ultimately it is for the courts to resolve the dispute. The court's jurisdiction to do so has been amended by the Trusts of Land and Appointment of Trustee Act 1996. Click on the following pop-up pages to see what changes have been made.
PRE - 1996
POST - 1996
Section 16(1)
Provides that a purchaser is not concerned to see that the trustees have pursuant to:
- section6(5) acted in the interest of the beneficiaries; or
- section 7(3) obtained the beneficiaries' consent to partition; or
- section 11(1) consulted with the beneficiaries of full age.
Section 16(3) provides that:
Where the powers of trustees of land are limited by virtue of section 8 -
(a) the trustees shall take reasonable steps to bring the limitation to the notice of any purchaser of the land from them, but
(b) the limitation does not invalidate any conveyance by the trustees to a purchaser who has actual knowledge of the limitation.
Overreaching & beneficiaries
Where overreaching operates, the beneficial co-owners' interests will be confined to the proceeds of sale, and whatever remedies they may have against the trustees for breach of duty (eg. the duty to consult).
Very often these remedies are of little consolation when the beneficiaries wish to retain their home, or the trustees do not have the funds to compensate them.
Click on the sound button to hear the ideas of two leading practitioners as to how beneficiaries (eg Mildred's parents) may protect their interests more effectively by either insisting that they appear on the legal title, or that any sale is subject to their consent, or as a last resort by registering a caution.
[First expert] My advice is that he should ensure that his name is on the title deeds. This would mean that there can be no transaction with the legal estate without his co-operation.
[Second expert] He could have had a restriction put on the register saying that no sale should take place without his consent. It's always possible for the court to override that consent, but that would have been there initially.
If he hadn't done either of those, and had subsequently decided he wanted to protect his interest, the best way to have done it would have been to have sought to lodge a caution that he should be notified on any dealing.
Obtaining consent
Overreaching is designed to protect the purchaser. However often in practice a purchaser will prefer to ensure that the beneficial co-owners agree to the sale. After all the purchaser not only wants to obtain a clear title but also 'hassle free' possession of the property. Sitting outside with their removal van whilst engaging a beneficial co-owner in esoteric discussion about the overreaching of their interest is not a scenario that appeals to many purchasers! Thus a standard enquiry made by buyers requires sellers (ie the trustees) to ensure that all adult occupiers of the property will consent to the sale. However, it is important that such consent is freely given and not liable to be set aside because it has been obtained as a result of misrepresentation, undue influence or other legal wrong. On occasions the courts have been prepared to imply consent for instance where it is clear that the beneficial co-owner must have known of the transaction and has in some way acquiesced or even benefited from it.
The Family Home and the Bank
We have noted that the latter half of this century has experienced an unprecedented increase in owner occupation. The aspiration of many people has been the ownership of their own home which they could only hope to achieve by borrowing the necessary funds from their building society or bank. This picture has highlighted the competing interests of the family and their mortgagee. Particularly the conflict between the family's desire to preserve the roof over their heads and their mortgagee's wish to recover the money they have lent, if necessary by taking possession and selling the owner's house in pursuance of their powers as mortgagees. Repossessions and negative equity, whereby the owner owes more to his lenders then his house is worth, were a recurrent nightmare for a significant number of property owners during the last recession.
The Position of Creditors
Bankruptcy is a traumatic time both for the debtor and their families. Where a spouse or other co-owner is in financial difficulties their creditors or the trustee in bankruptcy (representing the creditors) will look to their property for repayment. Very often the most valuable asset is the family home raising the emotive issue of how the financial interests of creditors should be balanced against the hardship of a forced sale of the family home at a time of financial crisis. Where that home is co-owned or is subject to spousal rights of occupation where does this balance lie?
The answer both from the courts and parliament has swung the balance in favour of the trustee in bankruptcy and the creditors they represent.
Pre 1986 - The Trustee in Bankruptcy & Section 30
The court in exercising their discretion whether to order sale of co-owned property under the now repealed section 30 almost consistently favoured the interests of creditors over those of residential security. Arguments of hardship based upon avoiding upheaval of children at delicate points in their education - see Re Bailey (A Bankrupt) [1977] 1 WLR 278 raised little sympathy. Only in Re Holliday (A Bankrupt) [1981] Ch 405 did a deserted wife manage to persuade the court that her and her children's interests in preserving their £27,000 house should prevail against those of her ex-husband's creditors seeking to recover £6,000. However the courts consistently emphasised that only in 'exceptional circumstances' should the interest of the bankrupt's family prevail over those of their creditors - see Re Citro (A Bankrupt) [1991] Ch 142 at 157B). Those 'exceptional circumstances' were less likely to relate to housing difficulty and educational disruption than the forced realisation of capital when only a small proportion was required to stave off creditors.
Insolvency Act 1986 (as amended)
The Cork Report (Cmnd 8558) recommended easing the difficult balance between family and creditors' interests by delaying the sale of the family home. These were implemented in the Insolvency Act 1986 which confers upon the bankrupt rights of occupation conditional upon the bankrupt living with some person under the age of 18, with whom they have at some time occupied the home - see section 337. The leave of the court is required before the bankrupt can be evicted and the court, in exercising their discretion, must have regard to the interest of the creditors, the bankrupt's financial resources and the needs of the children (but not those of the bankrupt). However, after 1 year the courts discretion is to be exercised according to different criteria namely: 'unless the circumstances of the case are exceptional, that the interest of the bankrupt's creditors outweigh all other considerations'.
Where the bankrupt's property is co-owned eg with their spouse or other family member. An application under section 14 of the Trustees of Land and Appointment of Trustee Act 1996 is not to be determined in the light of the criteria under section 15 but under a newly added section 335A of the Insolvency Act 1986, which reflects the section 337 criteria.
Secured Creditors and the Purpose of the Trust
Where a sale is sought by a secured creditor, for instance a bank or building society under their power of sale the court's discretion is guided by the section 15 criteria. Under section 30 some judges felt that a creditor was in a similar position to a trustee in bankruptcy and followed the test applicable to the trustee in bankruptcy and only declined sale in exceptional circumstances see for instance Hirst LJ in Abbey National Building Society v Moss [1993] 26 HLR 249 and Lloyds Bank Plc v Byrne [1991] HLR 472 whilst others did not feel that their discretion should be so constrained but could look to other factors including the continuing purpose for which the trust was established - see Peter Gibson LJ in the same cases. The section 15 criteria would seem to endorse this latter approach nevertheless it is likely to be a rare case when a creditor, looking to their security, fails to obtain an order for sale.
Co-owner's Rights of Occupation
Bearing in mind the terms of Section 12 of the Trusts of Land and Appointment of Trustees Act 1996 do you think Sara would have a right to occupy in the following situations?
A Statutory Right to Occupy
Many married couples or co-habitees do own their own homes as co-owners but not all. We now need to look at what rights a spouse or co-habitee has to occupy a home owned by their partner. The common law rights of a wife to occupy her husband's property was examined by the House of Lords in National Provincial Bank v Ainsworth [1965] AC 1175. Click for Lord Hodson's explanation.
The case concerned the right of a wife who had been deserted by her husband to remain in the matrimonial home in the face of claims by her husband's creditors. In the preceding decade, the Court of Appeal had developed a doctrine known as the deserted wife's equity which enabled a wife to protect her occupation of the home against third party claims from the time of her husband's desertion but the House of Lords rejected the doctrine. Whilst the House of Lords felt their hands were tied Parliament did not and they responded by passing the Matrimonial Homes Act 1967 which has been consolidated in the Matrimonial Homes Act 1983 and is now found in the Family Law Act 1996.
Section 30 Family Law Act 1996 confers rights:
a. not to be evicted or excluded from the dwelling house by the other spouse except in pursuance of a court order
b. with leave of the court ... to enter into and occupy the dwelling house
c. to register the rights either on the Land Register (registered land) or at the Land Charges Register (unregistered land) to bind third parties
Sale and insolvency
We need now to look at the implications which arise where domestic property is sold either voluntarily, for instance where spouses / partners or one of them wish to move, mortgage or realise the equity in their home, or involuntarily, for instance where one spouse or partner is made bankrupt.
We will need to look at these questions from a number of different perspectives:
o the position of the spouse/partner as a co-owner or occupier
o the position of the purchaser/mortgagee
o the position of the trustee in bankruptcy representing the creditor(s)
Disputes over the sale of co-owned property
All is fine when all the co-owners agree that they wish to sell their property but what happens when they disagree? That disagreement could be between the trustees themselves - as joint tenants the trustees have to be unanimous in their dealings - it could be between the trustees and the beneficiaries or it could be between the beneficiaries themselves, although the trustees should generally give effect to the wishes of the majority in value. Where there is disagreement ultimately it is for the courts to resolve the dispute. The court's jurisdiction to do so has been amended by the Trusts of Land and Appointment of Trustee Act 1996. Click on the following pop-up pages to see what changes have been made.
PRE - 1996
POST - 1996
Section 16(1)
Provides that a purchaser is not concerned to see that the trustees have pursuant to:
- section6(5) acted in the interest of the beneficiaries; or
- section 7(3) obtained the beneficiaries' consent to partition; or
- section 11(1) consulted with the beneficiaries of full age.
Section 16(3) provides that:
Where the powers of trustees of land are limited by virtue of section 8 -
(a) the trustees shall take reasonable steps to bring the limitation to the notice of any purchaser of the land from them, but
(b) the limitation does not invalidate any conveyance by the trustees to a purchaser who has actual knowledge of the limitation.
Overreaching & beneficiaries
Where overreaching operates, the beneficial co-owners' interests will be confined to the proceeds of sale, and whatever remedies they may have against the trustees for breach of duty (eg. the duty to consult).
Very often these remedies are of little consolation when the beneficiaries wish to retain their home, or the trustees do not have the funds to compensate them.
Click on the sound button to hear the ideas of two leading practitioners as to how beneficiaries (eg Mildred's parents) may protect their interests more effectively by either insisting that they appear on the legal title, or that any sale is subject to their consent, or as a last resort by registering a caution.
[First expert] My advice is that he should ensure that his name is on the title deeds. This would mean that there can be no transaction with the legal estate without his co-operation.
[Second expert] He could have had a restriction put on the register saying that no sale should take place without his consent. It's always possible for the court to override that consent, but that would have been there initially.
If he hadn't done either of those, and had subsequently decided he wanted to protect his interest, the best way to have done it would have been to have sought to lodge a caution that he should be notified on any dealing.
Obtaining consent
Overreaching is designed to protect the purchaser. However often in practice a purchaser will prefer to ensure that the beneficial co-owners agree to the sale. After all the purchaser not only wants to obtain a clear title but also 'hassle free' possession of the property. Sitting outside with their removal van whilst engaging a beneficial co-owner in esoteric discussion about the overreaching of their interest is not a scenario that appeals to many purchasers! Thus a standard enquiry made by buyers requires sellers (ie the trustees) to ensure that all adult occupiers of the property will consent to the sale. However, it is important that such consent is freely given and not liable to be set aside because it has been obtained as a result of misrepresentation, undue influence or other legal wrong. On occasions the courts have been prepared to imply consent for instance where it is clear that the beneficial co-owner must have known of the transaction and has in some way acquiesced or even benefited from it.
The Family Home and the Bank
We have noted that the latter half of this century has experienced an unprecedented increase in owner occupation. The aspiration of many people has been the ownership of their own home which they could only hope to achieve by borrowing the necessary funds from their building society or bank. This picture has highlighted the competing interests of the family and their mortgagee. Particularly the conflict between the family's desire to preserve the roof over their heads and their mortgagee's wish to recover the money they have lent, if necessary by taking possession and selling the owner's house in pursuance of their powers as mortgagees. Repossessions and negative equity, whereby the owner owes more to his lenders then his house is worth, were a recurrent nightmare for a significant number of property owners during the last recession.
The Position of Creditors
Bankruptcy is a traumatic time both for the debtor and their families. Where a spouse or other co-owner is in financial difficulties their creditors or the trustee in bankruptcy (representing the creditors) will look to their property for repayment. Very often the most valuable asset is the family home raising the emotive issue of how the financial interests of creditors should be balanced against the hardship of a forced sale of the family home at a time of financial crisis. Where that home is co-owned or is subject to spousal rights of occupation where does this balance lie?
The answer both from the courts and parliament has swung the balance in favour of the trustee in bankruptcy and the creditors they represent.
Pre 1986 - The Trustee in Bankruptcy & Section 30
The court in exercising their discretion whether to order sale of co-owned property under the now repealed section 30 almost consistently favoured the interests of creditors over those of residential security. Arguments of hardship based upon avoiding upheaval of children at delicate points in their education - see Re Bailey (A Bankrupt) [1977] 1 WLR 278 raised little sympathy. Only in Re Holliday (A Bankrupt) [1981] Ch 405 did a deserted wife manage to persuade the court that her and her children's interests in preserving their £27,000 house should prevail against those of her ex-husband's creditors seeking to recover £6,000. However the courts consistently emphasised that only in 'exceptional circumstances' should the interest of the bankrupt's family prevail over those of their creditors - see Re Citro (A Bankrupt) [1991] Ch 142 at 157B). Those 'exceptional circumstances' were less likely to relate to housing difficulty and educational disruption than the forced realisation of capital when only a small proportion was required to stave off creditors.
Insolvency Act 1986 (as amended)
The Cork Report (Cmnd 8558) recommended easing the difficult balance between family and creditors' interests by delaying the sale of the family home. These were implemented in the Insolvency Act 1986 which confers upon the bankrupt rights of occupation conditional upon the bankrupt living with some person under the age of 18, with whom they have at some time occupied the home - see section 337. The leave of the court is required before the bankrupt can be evicted and the court, in exercising their discretion, must have regard to the interest of the creditors, the bankrupt's financial resources and the needs of the children (but not those of the bankrupt). However, after 1 year the courts discretion is to be exercised according to different criteria namely: 'unless the circumstances of the case are exceptional, that the interest of the bankrupt's creditors outweigh all other considerations'.
Where the bankrupt's property is co-owned eg with their spouse or other family member. An application under section 14 of the Trustees of Land and Appointment of Trustee Act 1996 is not to be determined in the light of the criteria under section 15 but under a newly added section 335A of the Insolvency Act 1986, which reflects the section 337 criteria.
Secured Creditors and the Purpose of the Trust
Where a sale is sought by a secured creditor, for instance a bank or building society under their power of sale the court's discretion is guided by the section 15 criteria. Under section 30 some judges felt that a creditor was in a similar position to a trustee in bankruptcy and followed the test applicable to the trustee in bankruptcy and only declined sale in exceptional circumstances see for instance Hirst LJ in Abbey National Building Society v Moss [1993] 26 HLR 249 and Lloyds Bank Plc v Byrne [1991] HLR 472 whilst others did not feel that their discretion should be so constrained but could look to other factors including the continuing purpose for which the trust was established - see Peter Gibson LJ in the same cases. The section 15 criteria would seem to endorse this latter approach nevertheless it is likely to be a rare case when a creditor, looking to their security, fails to obtain an order for sale.
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