Trusts of Land — SQE1 FLK2 Land Law

Two sisters inherit a house from their mother, who left it to them equally. They hold the legal title as trustees, and the trust instrument says nothing about selling. One sister wants it sold at once and the money divided. She has been told that land held on trust must be sold. The most her sister can do, she says, is ask for the sale to be put off. Is she right?

No. Not any more. Before 1997 she would have been. This is Trusts of Land, and the whole topic sits on one Act that reversed the default. The trustees have a power to sell and an equal power to keep. Nobody has a duty to sell anything. Keep those two sisters in mind. They come back.

Here is the route. What a trust of land is, and what TOLATA changed. Then the trustees' powers under section 6, and their duty to consult under section 11. Then occupation, under sections 12 and 13. Then the big one: applications to court under section 14, and the factors the court must weigh under section 15. And last, how all this sits alongside family law.

Start with the structure. A trust of land arises wherever land is held by trustees for beneficiaries who have the equitable interests. That is the standard arrangement whenever people co-own property. The legal title sits with the trustees, usually the co-owners themselves. The equitable interests sit with the beneficiaries, who are usually the same people. Two hats, worn by the same heads.

And it applies to every trust of land, whether it was created expressly, or arises as a resulting or constructive trust. So the sister who paid half the purchase price of a cottage in her brother's sole name is a beneficiary under a trust of land, with nothing in writing anywhere.

Now the Act. The Trusts of Land and Appointment of Trustees Act 1996, TOLATA, came into force on 1 January 1997. Before it, co-owned land was held on a trust for sale. The trustees were under a duty to sell, with a power to postpone, and the beneficiaries were treated as interested in the proceeds rather than in the land itself. Sale was the norm and retention was the exception.

TOLATA swept that away. There is no duty to sell. Trustees have a power to sell and a power to retain, and neither is the default. That was a deliberate policy change, and it is worth understanding why. The family home stopped being seen primarily as an asset to be realised. Trustees can now keep it, for the beneficiaries and especially for children, rather than being compelled to turn it into money.

So what can trustees actually do? Section 6 is the answer, and it is generous. Trustees of land have all the powers of an absolute owner. Sell, buy other land, make improvements, grant leases, raise money by mortgage or charge, settle disputes between beneficiaries. It is an overriding power, so it prevails over restrictions in the trust instrument unless that instrument expressly provides otherwise.

Those powers are still held as a trustee, though, so they are subject to fiduciary duties and to the beneficiaries' rights. And trustees must exercise them in the best interests of all the beneficiaries. They cannot favour one over another. Where two beneficiaries want opposite things, the trustees have to balance, not pick a side.

Which brings in section 11, the duty to consult. Trustees must consult the beneficiaries who are of full age and beneficially entitled to an interest in possession, so far as is practicable, having regard to their interests and knowledge. Note the two filters. Full age, so the fifteen-year-old is not consulted. And an interest in possession, so someone whose interest only falls in on another's death is not consulted either.

And here is the trap. Consultation is not a veto. Trustees must ask, and must give the replies real weight, but the decision remains theirs. A beneficiary who is consulted and disagrees has not thereby blocked anything. If they want to stop a sale, they have to go to court.

Occupation next. Section 12 gives a beneficiary who is entitled to occupy a right to occupy the land. That is so if and to the extent that the right is not excluded by the terms of the trust. But read the qualifications. The right depends on the purposes of the trust and on the land being available and suitable. A shop unit bought purely as an income-producing investment is not there to be lived in.

And section 13 lets the trustees regulate it. Where two or more beneficiaries are entitled to occupy, the trustees may exclude or restrict the occupation of one or more of them. Not unreasonably, though, and never all of those entitled. They may impose conditions, including paying an occupation rent or contributing to expenses.

Keep section 13 and section 14 apart, because the exam does. Section 13 is the trustees regulating who lives there. A contested decision to sell is not a section 13 question at all. That goes to the court under section 14.

One more point on rent. A beneficiary in sole occupation who is also a trustee is not automatically required to pay occupation rent to the others. It is a matter of discretion on the circumstances. Where one co-owner stays on after a separation, the court may award an occupation rent equivalent to half the market rent. But it does not follow simply from sole occupation.

Now section 14, which is where most exam questions live. Who may apply? Any trustee of the trust of land, or any beneficiary under it. A beneficiary means anyone with a beneficial interest, whether as a tenant in common, a life tenant, a remainderman, or under a constructive or resulting trust. That is a wide door.

And there is no threshold test. None. A beneficiary does not have to show exceptional circumstances, or that the application is necessary, or that mediation was tried first. Disagreement is enough to get you through the door. What happens once you are inside is an entirely different question, because the court then has a discretion, and it may make any order it thinks fit.

Which brings us to section 15, and the five factors the court must consider. The intentions of the person who created the trust. The purposes for which the land is held. The welfare of any minor who occupies, or might reasonably be expected to occupy, the land as their home. The interests of any secured creditor. And the circumstances and wishes of each beneficiary.

Learn those five as a list, because a common question simply asks which of a party's reasons the court is required to take into account. And note the character of the list. These are matters the court must have regard to. They are not a rigid checklist to be ticked off, and no one of them ranks above the others. The court weighs all the circumstances.

The welfare of a minor deserves its own beat, because it is misunderstood constantly. It is a mandatory consideration. The court must take it into account, and in practice it weighs heavily. Courts are reluctant to order the sale of a family home while children are living there and in school. But mandatory does not mean decisive. It is a factor in the balance, not a bar to sale.

The secured creditor cuts the other way. If there are arrears and the lender wants its money, the court cannot simply refuse a sale to protect the occupants. The lender's right to enforce its security is a serious factor. What the court can often do is defer, ordering a sale but postponing it to a date that is still consistent with the creditor's interests.

And there is a pattern in how the balance falls. In First National Bank v Achampong, from 2003, a bank held a charge effective against a husband's beneficial share, he defaulted, and the bank applied for sale. The wife and by-then adult children were still in the house, but the marriage was over. The Court of Appeal ordered sale.

The reasoning is the part to carry. The original purpose of the trust was to provide a family home. Once the marriage had broken down and the children had grown up, that purpose had largely come to an end. And the creditor would otherwise be kept out of its money indefinitely. So ask yourself in every one of these problems: is the purpose the land was held for still alive?

So what can the court actually order? Sale is the commonest, and it can come with conditions. A deferral to a specified date, a reserve price, or a first chance for the occupying co-owner to buy the other out. It can defer sale outright, where children are settled, or the market is poor, or someone needs time to find somewhere else.

It can facilitate a buy-out, so one co-owner purchases the other's share at market value from a joint valuer, within a set timeframe, avoiding an open-market sale altogether. It can declare the nature and extent of each person's interest, which is what you want when the real dispute is about shares. It can order partition. Or it can simply regulate who occupies, and on what terms.

Last, how this sits beside family law, because the routes get mixed up. Section 14 is open to any beneficiary, married, unmarried or related. Married couples may also have remedies under the Matrimonial Causes Act 1973. Victims of domestic abuse need the Family Law Act 1996, which is where non-molestation and occupation orders come from. A TOLATA occupation order is not the same thing at all.

And Schedule 1 to the Children Act 1989 lets a parent apply for financial provision for a child, including a settlement of property order. A property, or a share in one, is settled for the child until they are eighteen or leave full-time education. Use section 14 where your client is a beneficiary enforcing a property right. Use Schedule 1 where a parent needs housing for a child and may have no beneficial interest.

A word on how SQE1 tests this. You will not be asked to recall a case name or a section number. You get a scenario, five answers, and one instruction: pick the best. This topic is almost entirely statute, so learn what each section does and which way it points.

If you keep only three pegs. Section 6, trustees have all the powers of an absolute owner, and no duty to sell. Section 15, the five factors the court weighs and none of which trumps. And First National Bank v Achampong, where the family purpose had ended and the creditor's interest carried the day.

Four traps. One: there is no duty to sell. If an option says trustees hold subject to a duty to sell with a power to postpone, it is describing the law before 1997. With no duty to sell, there is nothing for a power to postpone to operate on.

Two: consultation is not consent. Section 11 makes trustees ask beneficiaries of full age with an interest in possession, so far as practicable. It does not give any of them a veto, and it does not extend to minors or to interests that have not yet fallen in.

Three: the welfare of a minor is mandatory, not decisive. The court must weigh it and it weighs heavily, but a child in the house is not a bar to sale. Any option that makes one section 15 factor outrank the rest is wrong on its face.

Four: match the remedy to the route. Regulating occupation between beneficiaries is section 13, or section 14 in court. Escaping a violent partner is the Family Law Act 1996. Housing a child where your client has no beneficial interest is Schedule 1.

Quick check. A separated couple own a house as beneficial tenants in common in equal shares. The man has moved out and applied for an order for sale. He is living in a bedsit and needs his share of the money. The woman remains in the house with their two children, aged 8 and 12, who are settled at local schools. She says the court is bound to refuse a sale while the children are still at home.

Is the court bound to refuse a sale? Three candidates. One: no, because their welfare is a matter the court must weigh, not a bar to sale. Two: yes, because the welfare of a minor in occupation outweighs all other matters. Three: no, because a minor's welfare counts only if the minor is a beneficiary. Pause here if you want a moment.

The answer is one. Section 15 requires the court to have regard to the welfare of any minor who occupies the land as their home. These children qualify, and their welfare will weigh heavily. But it is one item on the list, not a trump card. The court must also weigh the purposes of the trust and the wishes of each beneficiary, including a man in a bedsit who needs his half share.

Why the others fail. Option two gives one factor priority, and section 15 gives none. Option three misreads the subsection, which is about any minor who occupies the land as a home, whether or not the child has a beneficial interest in it.

Five things to take away. One: TOLATA replaced the trust for sale. There is a power to sell and a power to retain, and no duty to do either. Which is why our two sisters cannot be forced to sell their mother's house. Two: section 6 gives trustees all the powers of an absolute owner, subject to their fiduciary duties.

Three: section 11 is consultation, not consent, and section 12 gives a right to occupy that section 13 lets the trustees regulate. Four: any trustee or beneficiary may apply under section 14, with no threshold test, and the court may make any order it thinks fit. Five: section 15 lists five factors, the welfare of a minor among them, and the court weighs them all without any one prevailing. Next time, Easements.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.