It is nearly 25 years since the Trusts of Land and Appointment of Trustees Act 1996, or “TOLATA” as it has become popularly known, was introduced following Law Commission recommendations (No Com No.181 “Transfers of Land and Trusts of Land” and No.188 “Overreaching: Beneficiaries in Occupation”).
Formerly disputes over co-ownership, especially disputes over whether to order a sale of a beneficially held property and on what terms, were principally under section 30 of the Law of Property Act 1925 (power to order a sale in cases of trusts for sale-“section 30”) whereas disputes involving strict settlements were litigated under the Settled Land Act 1925. Disputes between trustees and beneficiaries were determined under a variety of other provisions affecting trustees’ powers to order sale or deal with disputes between beneficiaries, such as section 25 and 36 of the Trustee Act 1925.
These disputes include such important issues such as whether an order for sale should be made, whether the trustee a beneficiary or beneficiaries should be entitled to purchase and at what price as well as the important issue of occupation rights, which is particularly important where the family home is involved.
Although undoubtedly an improvement on the former principal provision (section 30) there are at least four areas which continue to cause confusion:
1. What disputes does TOLATA apply to?
2. When does equitable accounting have to be applied?
3. Which court should a TOLATA claim be issued in?
4. Should it be issued under Part 7 or Part 8 of the CPR.
The latter two issues appear straightforward enough but are often more difficult to form a judgment on when dealing with these disputes in practice.
1. What disputes does TOLATA apply to ?
TOLATA is the mechanism whereby a number of powers and duties of trustees were codified into one statute as well as setting out the modern framework under which the court decides when and how to resolve disputes between beneficiaries (who are often the trustees) who disagree.
It formalised the rights of beneficiaries to occupy property and codified law which had been decided in cases under section 30. That section gave the power to the court to resolve disputes but the case law under section 30 emphasised the primary obligation of trustees to sell with the power to postpone the sale. The new law created “trusts of land” where the primary obligation of the trustees was to maintain, for example, a home for the beneficiaries as opposed to an obligation to sell the property.
The 1996 TOLATA applies to personal representatives as well as trustees (see section 22 (1)). Under that section a “beneficiary” is defined as:
“… Any person who under the trust has an interest in property subject to the trust (including a person who has such an interest as a trustee or a personal representative)”.
But goes on to provide that:
“… in this Act references to a beneficiary who is beneficially entitled does not include a beneficiary who has an interest in property subject to the trust only by reason of being a trustee or personal representative”.
Among the many disputes that are determined under the 1996 TOLATA are quasi matrimonial disputes where trustees cannot agree on occupation rights. These are determined under Sections 12 and 13 which allow the court to decide any dispute on the right of the beneficiary to occupy or exclude that right of occupation. There is a frequently exercised power under section 14 to make orders for the sale or decide other disputed issues in relation to such trust property. The matters relevant to determining applications are set out in section 15.
2. What are the rules on occupation rent?
Since the TOLATA this is to be determined in accordance with the Act. Basically, the remaining spouse or partner who continues to enjoy beneficial occupation of the trust property is to pay an occupation rent to the outgoing person but it has always been a difficult issue to advise on. Case law before the TOLATA was relatively well established but if anything it has become more complicated as a result of the Act.
What happens if a person leaves the property voluntarily? It is one thing to be ousted by the owner remaining in possession but it is another thing to leave voluntarily. According to Baroness Hale’s speech in Stack v Dowden (at paragraph 94) the principles for ascertaining the occupation rent which used to be determined under principles of equity should now be determined under sections 12-14 of TOLATA. This statement does not make them easier to apply in practice.
Baroness Hale also explained why Mr Stack was not entitled to anything, even though he did not occupy the former matrimonial home, because in her analysis he had not paid the outgoings following his departure. His entitlement was reflected in his ultimate distribution under the trust. In any event, there is jurisdiction in the court under section 14 of the TOLATA to determine this question and it is under that section that Baroness Hale said all disputes were to be resolved.
3. Whether to issue under Part 7 or Part 8?
Part 7 is the more commonly used procedure, but Part 8 is available where there is “unlikely to be a substantial dispute of fact” (CPR 8.1 (2) (a)) or a practice direction requires it to be used.
The two procedures are different. Under Part 8 the claimant must file the evidence with the claim form. The claim form requires only an outline and does not require particulars of claim but does require an acknowledgement of service to be sent to the defendant. In that the defendant should set out fully the basis for defending the claim.
An example of a case which would be suitable for issue under Part 8 would be where cohabitants decide to split and simply want the court’s decision on an issue which they cannot resolve, but where they are happy to abide by the outcome, for example, does the trust instrument mean “X” or “Y”?
There are advantages to utilising Part 8. It is quicker (but it may not be cheaper-see below), the issue fee is lower (the issue fee for a Part 7 “money claim” being as high as £10,000 whereas the issue fee for a High Court non-money claim under Part 8 is just £508) and less court time may be required. However, because of the front-loading of evidence, it can be more expensive. Additionally, a Part 8 claim which should have been issued under Part 7 will need to be transferred to the more expansive Part 7 procedure, which may lead to additional delay and expense to be borne by your client. This is because the court can and often does order for the case to proceed “…as if the claimant had not used the Part 8 procedure” (CPR 8.1(3)). However, this will not result in the claim being struck-out.
Part 8 ensures the claimant has his “tackle in order” and helps to crystallise the issues that are likely to arise in the litigation early.
4. Which court?
Although the High Court and county courts have jurisdiction over TOLATA matters, the claim should only be started in the High Court if the financial value of the claim justifies it or the complexity of the facts, legal issues, remedies and procedures involved or importance to the wider public, justify it. Alternatively, the claimant may issue in the High Court because it is appropriate, for whatever reason, for the claim to be heard by a High Court judge. There is provision for transfer between courts under CPR 30 – a little known-about provision.
The claim may be brought in any county court hearing centre unless a rule or practice direction states otherwise (see the High Court and County Court Jurisdiction Order
SI 1991/724 article 2 (p), as amended by SI 1996 3141).
Sometimes these disputes are referred to the Property Chamber, Land Registration, First-tier Tribunal, which has jurisdiction over disputes arising out of registered title. This can include beneficial ownership issues which exist behind that title. Advantages of the Tribunal over court litigation include the provision of specialist judges and the fact that there are no fees for a reference. The reference to the Tribunal often begins with the registration of a notice or restriction against the registered estate which, typically, is held solely by one of the parties. But its judges cannot give injunctions or make an order for sale. Many references of this type will therefore result in the Tribunal directing one of the parties to issue court proceedings.
William Hanbury is a barrister specialising in property and chancery litigation at Exchange Chambers