The Impact of the Trusts of Land and Appointment of Trustees Act 1996 - Case Study Example

The Impact of the Trusts of Land and Appointment of Trustees Act 1996 On the Exercise of the Court’s Decision for the Sale of Land to a TrustIntroduction Prior to the implementation of the Trusts of Land and Appointment of Trustees Act 1996 (TLATA) land subject to a trust was treated as an “exchange value rather than a use value.”1 The emphasis was therefore on the value of the property rather than on the property itself with the result that a beneficiary’s interest was deemed to be in the property’s value under what became known as the doctrine of conversion.2 This concept made it relatively easy to facilitate the sale of the trust property. With the passage of the TLATA, the doctrine of conversion has been abrogated.3 For all intents and purposes the beneficiary’s interest in the property subject to a trust is now regarded as one which is directly linked to the use of the property.4 As such the courts are required by the TLATA to take the use value of the property into consideration when approached to make an order for sale. This paper examines the impact of the TLATA on the courts when required to consider making an order for the sale of property held subject to a trust. The Doctrine of Conversion and the Trusts of Land and Appointment of Trustees Act 1996 The doctrine of conversion arose out of a concept that once a man delegated his realty to trustees his intention was to benefit from its conversion to some sort of liquid value.5 However, the courts began to take a position which increasingly recognized that the beneficiary under a trust of realty went beyond the monetary value of the property.6 This was particularly so in cases where a beneficiary actually occupied the property in question or had a right or intention to occupy the land. For instance in Williams & Glyns Bank v Boland [1981] AC 487 the Court of Appeal determined that although only the husband’s name appeared on the title deeds to the matrimonial home, the wife who had provided part of the initial deposit for the purchase price acquired an interest that went beyond the proceeds of sale. 7 The wife was found to have a right to occupy the premises.8 The TLATA, in keeping with the emerging concept of a beneficial interest in realty abolished the doctrine of conversion. Section 3(1) of the Act provides as follows: “Where land is held by trustees subject to a trust for sale, the land is not to be regarded as personal property; and where personal property is subject to a trust for sale in order that the trustees may acquire land, the personal property is not to be regarded as land.”9 Section three therefore provides the legislative justification for courts to take into account the modern domestic view of property. It is consistent with the approach taken by the courts over the years. This approach invariably recognized that the intentions of the co-habitees upon the acquisition of the property were relevant when assessing the value of the property.10 For instance if a home was purchased for the sole purpose of occupancy by the purchasers, any proposed sale or mortgage should take account of this purpose when assessing the beneficial interests of the co-habitees and their position with regard to the sale of the property. Section 15 of the Trusts of Land and Appointment of Trustees Act 1996 The TLATA further exemplified the courts’ propensity to depart from the doctrine of conversion by mandating that the court take an approach demonstrative of the new concept of use value when considering an application for the sale of trust property. This requirement is reflected in the wording of Section 15 of the Trusts of Land and Appointment of Trustees Act 1996. Section 15 provides that the court when determining whether or not to allow an application for the sale of trust property is required to 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 is held. (c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject tot he trust as his home.” (d) the interests of any secured creditor of the beneficiary.”11 The wording of Section 15 with its emphasis on the purposes for which the property is held obviates the need for the court to consider sections 11 and 12 of the Trusts of Land and Appointment of Trustees Act 1996. Section 11 requires that the trustee consult with all competent beneficiaries who have “an interest in possession” of the land.12 More over the consultation is to be conducted: “...in the exercise of any function relating to land subject to the trust.”13 Section 12 confers upon the beneficiary who has an interest in possession with respect to the trust property the right to occupancy.14 The right to occupy the property will be recognized if it is established that: “(a) the purposes of the trust include making the land available for his occupation (or for the occupation of beneficiaries of a class of which he is a member or of beneficiaries in general), or (b) the land is held by the trustees so as to be so available.”15 It is quite obvious from the wording of Section 12 (1)(a) and (b) that the concept of family home is a matter for concern when a trustee wants to sell a home against the wishes of the other trustees or the beneficiaries. When Section 12(a) is read together with Section 15 (c) the implications are clear. The court is required to consider whether or not the property was purchased for the purpose of providing a family home. This would explain the emphasis on minors in occupation under Section 15(c) as well as the emphasis on “beneficiaries of a class of which he is a member” under Section 12(a). An application for the sale of land held upon trust is permitted by Section 14 of the TLATA. The application can be made by any trustee of the property or any beneficiary.16 Section 15 which is explained above provides the matters that the court must take into account when determining an application under Section 14. However, Sections 11 and 12 appear to be relevant since they lay out the trustees’ duties and the beneficiaries’ entitlements with respect to the land. In considering an application under Section 14 the court would necessarily have to take account of the trustees’ duties as well as the beneficiaries’ rights. These rights an duties cannot be segregated from the purpose of the trust, a matter which the courts are required to give weight to when considering an application to sell land held subject to a trust. The manner in which the courts treat an application under Section 14 of the TLATA 1996 and how it is guided by Section 15 has been tested. As evidenced by the decision in Holman v Howes [2007] B.P.I.R. 1085 the court will not allow the property to be sold or refuse to allow the property to sold if it will unfairly disadvantage one party. LJ Lloyd explained: “There are many cases in which a representation or promise has been made that a person would have a right to be entitled to live in a property as long as he or she wished, but in which the court has considered that it was not necessary or appropriate to give effect to that equity simply by granting, in effect, a life interest.”17 On the facts of this particular case the claimant had been persuaded by the defendant to provide a great part of her life savings into the purchase of a home, although the defendant’s name alone appeared on the title deeds. By injecting most of her life savings into the property, the claimant had deprived herself of a viable means of acquiring alternative accommodations for herself and her minor child. The evidence revealed that the defendant in trying to persuade the claimant to invest in the purchase funds, had promised that she could remain on the property as long as she liked.18 The facts of the case further revealed that the defendant only resided on the premises for a very short time while the claimant remained in occupation from the time of purchase in 1980. Since that time her minor daughter had attained the age of majority and left the home. However, the court in considering the implications of Section 15 of the TLATA 1996 looked to the original intentions of the parties and the circumstances in which the claimant parted with her life savings. The court also considered that fact that the defendant had acquired alternative accommodations and ruled against making an order for sale unless the claimant agreed to it.19 In Avis v Turner[ 2008] 2 W.L.R. 1 the court of Appeal however took a slightly different approach. In this case the parties had divorced in 1985 and the wife remained in the matrimonial home since that time. Four years later the husband had become insolvent and his trustees in bankruptcy made an application under Section 14 of the TLATA for the sale of the matrimonial home as a means of satisfying the debt. Chadwick LJ ruled: “The interests of the bankrupt’s creditors outweigh all other considerations unless the circumstances of the case are exceptional.”20 Chadwick LJ was relying on Section 335(A) of the Insolvency Act 1986 which presumes that the interests of the “bankrupt’s creditors outweigh all other considerations.”21 While it is difficult to reconcile the ruling in this case with the ruling in Holman v Howes [2007] B.P.I.R. 1085, Section 15(d) of the TLATA 1996 makes it possible for such a ruling. Section 15(d) of the TLATA specifically mandates that the court can take account of “the interests of any secured creditor of the beneficiary.” 22 While this particular guideline is only one of the relevant matters that the court may take into account when considering an application for the sale of trust property and can conflict with the other interests delineated under Section 15, the Act fails to give one factor precedence over another. The result is, the court is at liberty to determine which interests should take priority over any other interests. The result is, judicial findings will be inconsistent, unpredictable and difficult to reconcile as manifested by the rulings in Holman v Holmes and Avis v Turner. It can be argued that Avis v Turner represents a departure from the current trends in judicial temperament with respect to the construction and application of Section 15 of TLATA. Citing Nourse LJ in In re Citro (a bankrupt) [1991] Ch 142, a case determined prior to the 1996 TLATA Act, LJ Chadwick stated that: “One of the consequences of the 1925 property legislation is that the legal estate in any property which is beneficially owned jointly or in common is necessarily held on trust for sale and is thus sub to the jurisdiction of the court under section 30 of the 1925 Act.”23 Surprisingly Chadwick LJ went on to say that the TLATA did not change this position. This he said could be inferred by a construction of Section 14 of the 1996 Act which permits an application for sale by any person with a beneficial interest in the property.24 Perhaps, Chadwick LJ makes a valid point. The TLATA is certainly broad enough to give rise to inconsistent rulings, however, if one reads Section 14 together with Section 3 which abrogates the doctrine of conversion it can not reasonably be inferred that Parliament intended that property held upon trusts be held with a view to liquidation. That sort of reasoning is inconsistent with the spirit and intent of Section 3 of the TLATA and the entire Act when read as a whole. Leaving aside the ruling in Avis v Turner it would appear that the courts have taken a fairly consistent approach to the interpretation of Section 15 in the context of the entire TLATA 1996. This approach is one in which the respective interests of the beneficiaries under the trust are indistinguishable from the right to prevent or indorse a sale of the property subject to a trust. The House of Lords in the case of Stack v Dowden [2007] UKHL 17 stated that: “I think that indirect contributions, such as making improvements which added significant value to the property, or a complete pooling of resources in both time and money so that it did not matter who paid for what during their relationship, ought to be taken into account as well as financial contributions made directly towards the purchase of the property. I would endorse Chadwick LJs view in Oxley v Hiscock [2005] Fam 211, para 69 that regard should be had to the whole course of dealing between them in relation to the property.”25 Each of the factors referred to by the House of Lords in the above excerpt from the case of Stack v Dowden [2007] UKHL 17 can be inferred from a construction of Section 15 of TLATA. If in the whole course of dealing from the commencement of the purchase of the property, the parties can be deemed to have purchased the property with the shared intention of providing a family home and their contributions whether direct or not are equal, then the property will not typically be ordered for sale unless both parties agree to it. Moreover, when making an order for sale each of these matters will be relevant for the purpose of determining how the rights of the each party to prevent or obtain an order for sale. However how those beneficial interests should be divided between the parties is not a matter for concern at the substantive hearing. In Wilcox v. Tait [2006] EWCA Civ 1867 represents the proper approach to be taken with respect to division of the shares from the proceeds of sale under a successful application for sale under Section 14 of the Trusts of Land and Appointment of Trustees Act 1996. In this case the parties to the law suit together with their children had resided in a dwelling house since 1990 and the property had been conveyed into the names of the parties jointly expressed as joint tenants.26 The parties subsequently agreed that the property should be sold at a price calculated to achieve a quick sale. On the application for sale, the judge at first instance the judge in making the order made a declaration with respect to the applicant’s interest and allowed some credit for the respondent’s financial contributions to the property. 27 The Court of Appeal ruled however, that the judge at first instance erred in that he ought to have constrained himself to the agreement between the parties and nothing more. Upon an application for the order for sale, the court was not entitled to conduct an exercise in accounting. It’s attention should merely be focused on the ascertaining of the beneficial interest.28 Conclusion Although Sections 14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996 can be broadly interpreted as subscribing to the age old concept of the doctrine of conversion, the totality of the Act defies this conclusion. Sections 3, 11 and 12 when read together with Sections 14 and 15 clearly reflect that Parliament intended that the interest in land held subject to a trust be regarded for its use value rather than its monetary value. Section 3 abolishes the doctrine of conversion altogether and clearly speaks to the shift in focus away from monetary value toward use value. This line of thinking has been perpetuated by a egalitarian society where both parties to a marriage or similar living arrangements make equal contributions to the home and its upkeep. Moreover, Section 11 by imposing a duty of consultation on the trustee dispenses with the notion that land held subject to a trust is ultimately meant to be sold. If that were the case it would be entirely unnecessary for the trustee to consult with the beneficiaries with respect to a putative sale. Likewise Section 12 specifically gives voice to the right of the beneficiary to occupancy of the property held subject to a trust. The presumption is, that such rights will mean very little if the beneficiary could be forced off the property by a sale that he or she does not agree to. Moreover, the matters which the courts are required to take into account under Section 15 of the Trusts of Land and Appointment of Trustees Act 1996 substantiate the claim that land help upon trust are no longer held for the express purpose of realising its monetary value. The courts for the most part have taken this approach and have attempted to devise a scheme for the determination of an application under Section 14 of the 1996 Act that will do justice between the parties. In order to do justice between the parties, the courts have engaged in an exercise calculated to trace the conduct and intentions of the parties from the acquisition of the property and throughout. Bibliography Avis v Turner[ 2008] 2 W.L.R. 1 (CA) Clements, L.M. “The Changing Face of Trusts: The Trusts of Land and Appointment of Trustees Act 1996.” (1998) The Modern Law Review, 61(1), 55-67 Holman v Howes [2007] B.P.I.R. 1085 (CA) Insolvency Act 1986 Leigh, James and Dalzell, Robert. A Treatise on the Equitable Doctrine of the Conversion of Property. (London: J. Butterworth and Son, 1st Edition) 1825 Stack v Dowden [2007] UKHL 17 (HL) Thompson, M.P. “Relief for First Mortgages”” (1986) The Modern Law Review. 49(2), 245-251 Trusts of Land and Appointment of Trustees Act 1996 Wilcox v. Tait [2006] EWCA Civ 1867 (CA) Williams & Glyns Bank v Boland [1981] AC 487 (HL) Read More