A Trust is a relationship where one party (The Trustees) hold land on behalf of another party (The Beneficiaries). So far, we have looked at Registerable Dispositions, Interests Affecting a Registered Estate, and Overriding Interests. A trust is a 4th way in which in interest can be held over a property, and is very different to the other 2 methods.
The act that governs Trusts of land is the Trusts of Land and Trustee Act 1996 also known as TOLATA. Most of the law governing trusts of land either comes from this act, the Trustee Act, or the LPA 1925.
A Trustee has the powers of an absolute owner of the property. They hold the Legal estate of the land, and therefore they own the title. The Beneficiaries own the Equitable estate. The Trustees have a fiduciary duty to the beneficiaries, meaning that they must act in the best interests for the other party.
A trustee can also be a beneficiary. To be a trustee, it means that they own legal title, but if when the trust ends, they will be entitled to some of that property, they will also be a beneficiary.
In order to appoint a new trustee, the existing trustees must agree on who it shall be, must be granted by way of Deed- s40 Trustee Act.
There can only ever be a maximum of 4 Trustees, however there can be an unlimited number of beneficiaries. The trustees must have the capacity to be a trustee and act in the best interests of the beneficiaries, and must be over the age of 18.
Express Creation of a Trust
A trust can be created expressly. The trust comply with s53.1LPA. This means it must be in writing, signed by or on behalf of both parties, and includes all terms. The writing must include specifically which property the trust is on, who the beneficiaries are, and the powers and duties of the trustees. The trustees may be included, but as they can change they may not be included. All trustees will be bound by the terms of the trust.
In order to protect a trust, an entry in the proprietorship register must be made. This is made by way of a restriction. This gives notice to any future buyers that there is a trust interest on the land, and that in order to purchase the land, they must overreach. By placing a restriction on does not protect the trust. A trust interest can always be overreached.
Implied Creation of a Trust
There are 2 ways in which a trust can be created through implied means.
Resulting Trust- This is where there is perhaps only one name on the conveyance, however, more than one party directly contributed to the purchase price of the land. The size in interest will amount to the % of the purchase price. Consequent mortgage payments will not count as a contribution to the purchase price. It must have been done at the time of purchase- Curley v Parks. The only thing that will defeat this is if the legal owner can prove that the money was a gift or a loan.
Constructive Trust- Lloyds bank v Rosset changed the way that resulting trusts could be applied. A constrictive trust is where there is an agreement or understanding that the party without legal title has an interest or share in the land, and that they acted to their detriment because of the reliance on the interest- Grant v Edwards (reliance).
Or if there was a common intention to share the equitable interest and they acted in detriment because of the reliance on the share. In order for the second option to apply, the lol legal owning party must have made a contribution to the purchase price, however it does not have to be at the time of purchase. Therefore, mortgage payments would constitute a contribution.
The court will apply their own discretion as to how much interest they will give to the non-legal owner. They will consider all facts (Oxley v Tiscock- whole Course of dealings) such as how much of the work they did to the land, the situation they were in, potentially the financial contributions ect. They will try to arrive at a fair price.
The case of Drake v Whipp is an example of a case where if there was only a resulting trust, the non-legal owner would have only got 15%, which was unfair considering the extra work they put into the land. When a constructive trust was applied, they received 33%.
Powers of a Trustee
Section 6 TOLATA gives the trustees the power of an absolute owner. This essentially means, in regard to the trust, the trustee has the final say in what they should do with the land. The trustees are bound by the trustee terms they entered into, and also by the rules of equity. Equity has always been about fairness and therefore the trustee must not do anything untoward with the land, which might infringe on the rule of equity.
Section 8 TOLATA allows there to be restrictions to be placed on the trustee’s powers. This can be done on creation of the trust. It can also make the trustees ask for permission from a specific person before making any dealings on the land. This is a way of, limiting the trustee’s powers and protecting the beneficiaries.
Section 11 TOLATA makes the Trustees consult the beneficiaries on any decision as the dealing on the land before they are made. This does not necessarily mean that they have to follow what the beneficiaries want done with the land. Generally, the Trustees should always do what the majority in number or shares of the beneficiaries want to do.
Section 14 allows anyone with an interest of land to be able to make an application to the court. For example, if the trustees are not happy with what the beneficiaries wishes, or the beneficiaries are not happy with the trustees decisions, they can apply to the court. The court will make a judgement on what should be done.
Section 15 TOLATA proves a guide of what the court should consider when deciding:
- Purpose of trust
- Creation of trust
- Children who ae involved and how it will impact them
- Interests of any secured creditor over the land.
Overreaching is set out in sections 2 and 27 of LPA, accompanied by the case of London Borough Council v Flegg. A trust interest must always be overreached, otherwise the purchaser will not be able to take legal title of the land. The restriction will stop legal title being changed hands.
In order for a trust to be Overreached, the purchaser must pay all trustees, which must be more than 2 in number. By making 2 trustees at least receive payment has always been recogised to be a more secure way of payments, especially of large value.