By Law Teacher
THE LAW ESSAY PROFESSIONAL
5.2.1 Trustees in Land – Introduction
Welcome to the fifth topic in this module guide – Trustees in Land! In essence, a trustee chiefly holds property for beneficiaries of a trust and is obligated to carry out their duties as confined within the law. Additionally, trustees have powers that can be exercised which may be included in the trust deeds or contained within statute.
A trustee in land (also sometimes referred to as a ‘trustee of land’, the expressions are interchangeable) can be appointed by beneficiaries under the Trustees of Land and Appointment of Trustees Act 1996. Beneficiaries also have the power to remove trustees. When a trust nominates individuals as trustees, in land, the maximum number of trustees is limited to four. The court can also appoint trustees under the Trustee Act 1925.
Trustees in land have numerous powers but these cannot be exercised indiscriminately. In the event that a trustee breaches their duties as a trustee in land, the consequences when the land is unregistered would be different from the repercussions when the land is registered.
Below are some goals and objectives for you to refer to after learning this section.
Goals for this section:
- To understand how trustees in land can be appointed.
- To identify the powers of trustees in land and how these powers can be exercised.
Objectives for this section:
- To be able to understand the consequences that flow from a breach of trust of land, and how this varies whether that land is registered or unregistered.
- To be able to appreciate the general principles and rules pertaining to trustees in bankruptcy.
5.2.2 Trustees in Land Lecture
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 
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  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:
- 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)).
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:
- 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));
- 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  EWCA Civ 471).
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 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).
- 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.
- 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.
- 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, the beneficiary is entitled to the proceeds of sale.
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).
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 ).
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)).
5.2.3 Trustees in Land Lecture – 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.