Acquisition of beneficial interests in land
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Situations often arise in which a person, or persons, attempt to claim an equitable interest in property owned by (i.e, registered in the name of) someone else. In this article I refer to such a person as the 'claimant' for brevity; although of course he might not be the claimant in a court action. Such cases often involve matrimonial homes, particular when married couples separate or divorce. The issues of equity then become entangled with matrimonial home rights, making a difficult situation more even more difficult. However, in this article I will deal only with equitable interests. Please bear in mind that the issues discussed below may well be decided differently under family law, rather than trust law.
The kinds of problems that arise include, for example, situations in which a couple buy a house registered in the name of only one partner, and then the other partner makes contributions to (for example) housekeeping, or mortgage repayments, or decoration. If the house has to be sold, how much of proceeds of sale should be allocated to the partner who is not the legal owner? As I mentioned before, specific legislation exists to help the courts achieve a just settlement in divorce cases; however, if the occupants are not married, the court must fall back on the principles of informally-created trusts.
A similar problem might arise, for example, if a father provides money to help his son and daughter-in-law buy a house, on the understanding that he will come to live with them when he is too old to look after himself. If the married couple later renege on the agreement, can the father claim an equitable interest sufficient to
allow him to enforce a right of occupancy? There is no question of matrimonial home rights here -- the right is being claimed against a married couple by someone else. Nor do matrimonial home rights play a part in those cases (and there are many) where a husband who is the sole legal owner of a house mortgages it without the wife's knowledge.
It is, of course, not contentious that one person can have a beneficial interest in property legally owned by another. This is what atrust of land achieves. In an ExpressTrust, the nature and size of the beneficiary's interest will usually be clearly set out. However, in cases in which are interested here, there is usually no express declaration of trust. Even if there is, a trust of land can only be enforced as an express trust if it is created in writing. So the legal owner cannot extend an equitable interest in the property simply by declaring orally that he will hold the property on trust for himself and the other occupiers. More commonly, in contentious situations no consideration at all has been given to how interests in the property should be allocated, and it falls to the courts to sort out the mess.
The first point to bear in mind is that mere occupation of property does not create any rights in the land, equitable or otherwise. Even matrimonial home rights are not, strictly speaking, property rights -- they are personal rights. To be able to assert an equitable right over some land, the claimant must do more than merely live in it. The disagreements, and litigation, follow from the lack of a precise definition of how much more the claimant must do. If the claimant has contributed, for example, to the cost of decorating a house, is this sufficient to raise some sort of trust in his or her favour?
In order to answer this question, and others like it, we must look back to the 1960s -- before matrimonial home rights were recognized in statute -- and the courts' attempts to help married women who were being dispossed of their homes. If a woman were not registered as a legal or equitable co-owner -- and this was nearly always the case -- the courts would have to have recourse to the law of informally-created trusts.
direct financial contribution
The first situation in which the courts would recognize an equitable interest, and probably the least contentious, was one in which an occupier had made a direct financial contribution to the purchase, despite not being registered as one of the legal owners. Where land is concerned, there is a presumption that this raises aresulting trust in favour of the person providing the money (DyerVDyer1788). Of course, not every occasion on which one person advances money to another will create a trust. The money may, for example, be intended as a loan or a gift. There is a counter-presumption that, where the person providing the money has a legal or social duty to care for the person receiving it -- for example the one is the parent of the other -- then that money is intended as a gift. Trust lawyers call this the presumption of advancement. These presumptions can be rebutted by clear evidence to the contrary. In short, where one person provides money for the purchase of a house, he or she will usually be able to show that he has an equitable interest under a resulting trust.
Despite some initial uncertainty, when a resulting trust is raised in a family home, the strict provisions of trust law apply as they do elsewhere. In particular, the 'share' that the contributor holds in the home is in direct proportion to his or her contribution. If that contribution is a small one, then the contributor's share will be small, despite that he or she has later spent a great deal of money on the property. As I mentioned earlier, this is less of a problem for married couples (even married couples getting divorced) because the courts have discretion under family law principles to adjust the shares. It remains a problem where the occupants of property are not married. We will consider later how the courts have been able, to a certain extent, to work around the problem to a just result.
The second, and much more contentious, method which the courts have accepted as raising an equitable interest is where aConstructive Trust arises. A Constructive Trust is a rather loosely-defined equitable device invoked by the courts when a person asserts ownership of something to which he is not, in all conscience, fully entitled. For our present purposes, a Constructive Trust may arise in situations where it would be unconscionable for the legal owner of the property to deny an interest to the claimant. A particularly influential case was GissingVGissing1970, in which Lord Diplock said:
A resulting, implied or Constructive Trust - and it is unnecessary for present purposes to distinguish between these three classes of trust - is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny to the cestui que trust a beneficial interest in the land acquired. and he will be held so to have conducted himself if by his words or conduct he has induced the cestui que trust to act to his own detriment in the reasonable belief that by so acting he was acquiring a beneficial interest in the land.
In plain English, what he appears to be saying is that a Constructive Trust arises in favour of the claimant when the legal owner says or does things which the claimant relies on to his detriment. At least, this is how the Court of Appeal interpreted his words in the 1970s and 1980s, creating a huge expansion in the role of the Constructive Trust in disputes between occupiers, or between occupier and mortgagees. A particularly remarkable case was eves vev es (1975), in which a married woman was awarded a one-quarter share of the matrimonial home, despite having made no financial contribution to it. The wife had, of course, expended considerable time and effort looking after the home and the couple's children, and to have denied her a share might well have left her destitute, so it is easy to see why the court would be keen to find a Constructive Trust. According to Lord Denning, Gissing allowed the court to do just that; of this new 'common intention' Constructive Trusts, he said:
Lord Diplock brought it into the world, and we have nurtured it.
In fact, it can be argued that Lord Diplock's words were less inclusive than the Court of Appeal believed. He makes it clear, for example, that a Constructive Trust will only be raised if the claimant was acting in the expectation of receiving an interest in the land. That expectation can be evidendenced by express agreement between the parties (which need not be in writing), or by clear conduct that allows such an agreement to be inferred; but it must be present. And, of course, the claimant in Gissing ultimately failed, despite having made the kind of contributions to the family home thatLord Denningwas keen to promote as raising a Constructive Trust.
Be that as it may, the doctrine of the 'common intention' Constructive Trust expanded considerably, until the House of lords pulled it back under control in Lloyds Bank V Rosset (1991). Here the dispute was between a woman who lived with her husband in a house of which he was the sole registered proprietor, and her husband's mortgagees. Despite the availability of family law remedies in disputes between spouses, this case concerned a dispute between mortgagor and mortgagee, and therefore fell to be decided on trust law principles. Mrs Rossett's claim failed against the mortgagee, because the House did not accept that her conduct allowed there to be inferred an agreement that she was to have a beneficial share in the property. Her financial contributions had been small, and her domestic contributions no more than anyone would anticipate on moving into a new home. As Lord Bridge said, the obligations of shared occupancy are not the same as the obligations of shared proprietorship. According to Lord Bridge, for a Constructive Trust to be raised, the claimant would have to show one of two things:
- there was an express agreement that he or she was getting a share in the property, albeit vague and dimly remembered, or
- the agreement would have to be evidenced by 'direct financial contributions'.
The problem here is the word 'direct'. If a person makes direct financial contributions, aguably this creates a resulting trust, not a Constructive Trust. On the whole, the courts have not been very clear on the distinction between these two metas of trust; in some cases they have gone as far as to say that they are unimportant (see the first sentence in the passage from Lord Diplock's speech above). However, to a trust lawyer the distinction is crucial. In a resulting trust, the shared obtained by each equitable co-owner depends on the size of his contribution -- no more, no less. In a Constructive Trust, the court has a much greater discretion in the allocation of shares. This is why in drake v whipp (1996) the Court of Appeal was very keen to clarify the distinction. In that case, an unmarried couple had both contributed, in unequal amounts, to the cost of a barn that they intended to convert into a house. Only the man was registered as legal owner. The conversion cost a great deal of money, and the couple separated before it was complete. The question which arose was: did the woman's contribution give rise to a resulting or a Constructive Trust? There was no doubt that a resulting trust could be found, but she asserted -- successfully -- that a Constructive Trust was raised in her favour. The Court of Appeal held that the financial contributions made by the woman were evidence of an intention to create for her an interest in the converted property, and this was sufficient to find a implied intention Constructive Trust. The difference in the awards made under resulting trust and Constructive Trust principles was over 30,000 pounds, so clearly the distinction can be important. Some later decisions have interpreted the word 'direct' in a more flexible way. For example, in le foe v le foe (2001) -- a first instance decision -- the judge ruled that Lord Bridge's speech was not intended to rule out cases where a wife's contribution to the domestic upkeep of the home allows the husband to better cope with mortgage repayments. In fact, he argued, such a possibility was discussed in Gissing itself. In Le Foe the wife had made substantial financial contributions over the years, but not as substantial as the judge believed she was entitled to, in the fact of the husband's disreputable conduct. The Court of Appeal did not upset the judge's ruling, but did remark on its generosity. Whether the broad approach of Le Foe will ultimately triumph over the narrower interpretations of Rosset in the 1990s remains to be seen.
It is also unclear to what extent the claimant's reliance must be to his detriment, or whether the detriment must relate to the land or not. In coombes v smith (1986) a woman who left her husband and had a child with another man was not allowed to claim an equitable interest in the man's house; however, it is not clear whether this was because she had not suffered the 'right kind of detriment', or whether the detriment did not follow from the common intention of the parties. These problems also arise in cases of proprietary estoppel, which we consider next.
The third mechanism by which the courts have been willing to grant an equitable interest in land, and perhaps the most contentious of all, is proprietary estoppel. There are similarities between proprietary estoppel and Constructive Trusts, and we will come back to this point later. For now, here is an example. In Gillet v Holt (2001) the claimant gave up his education at an early age to go to work for the defendant on his farm, at the defendant's request. The claimant made a number of personal sacrifices for the defendant over a forty-year period, in the expectation that he would receive a large share of the farm when the defendant died. In fact, the claimant and the defendant fell out, and the defendant willed his land to someone else. The Court of Appeal held that an estoppel arose in favour of the claimant, because (i) the defendant had made an express representation as to his future conduct, leading the claimant to believe he would receive an interest in the land; (ii) the claimant had relied on that representation; and (iii) that reliance had caused him a detriment. Another important case ifcrabb v arun dc (1976). Here the claimant sold part of his land without reserving to himself a right of access across it. He did this on the express assurance of the local authority that it would grant him a right of access to the highway from his retained land. They did not do so and, in fact, fenced the highway leaving the claimant landlocked. The court held that the claimant had relied to his detriment on the defendant's express representation.
Aa particular difficulty with proprietary estoppel is that it is not entirely clear whether it creates an enforceable interest in land, or merely a right to a remedy. If it is the latter, then it is open to the court to hold that the equity arises, but to limit the remedy. For example, in Sledmore v Dalby (1997) an elderly widow was able to get an order for possession of a house in which her late daughter had lived with her son-in-law for eighteen years. The son-in-law arguably had a good case in proprietary estoppel: he had been promised that he would be able to live in the house for the rest of his live, and had relied on that promise to his detriment. However, the court held that refusing the order of possession, and giving effect to the estoppel rights, would create hardship for the elderly lady out of all proportion to the effect on her son-in-law. Be that as it may, s.116 of the LRA (2002) says:
It is hereby declared for the avoidance of doubt that, in relation to registered land, each of the following-
(a) an equity by estoppel, and
(b) a mere equity,
has effect from the time the equity arises as an interest capable of binding successors in title (subject to the rules about the effect of dispositions on priority)
This certainly seems to suggest that estoppel rights must now be taken as interests in land. It also appears that these rights are to be subject to the same rules as other equitable interests, and will need to be registered to be capable of binding successors. In the past the courts have been willing,Lord Denningin particular (e.g.,Ives v High (1967)), to hold that estoppel rights will be binding without registration.
Clearly there are similarlities between proprietary estoppel and Constructive Trusts, and some judges have gone so far as to say that they are not distinguishable for practical purposes. However, the difference -- if there be one -- is that proprietary estoppel arises out of an express representation, where a Gissing Constructive Trust arises from (perhaps assumed) common intention of the parties.
Finally, it has to be remembered that however equitable rights arise, they are subject to the Overreaching provisions in s.2 of the Lpa (1925). The beneficiaries' interests in the land are lost if a purchaser for valuable consideration pays the purchase money to at least two trustees or a trust corporation. Of course, the beneficiaries' interests are not completely supressed -- they are converted into interests in the proceeds of the sale. The problem for claimants in the position we have been discussing -- people who are not named as legal title-holders, but acquire an interest under a trust -- is that their interests can be overreached; when the are, they no longer have an interst in the land. By definition, therefore, they cannot have an overriding interest. This was the decision reached in city of london building society v flegg (1987), in which a mortgage company was able to enforce possession against two occupiers whose entitlement was based on a resulting trust. While there was not doubt that the trust arose, the mortgage company had made a payment to two trustees (the legal title holders), and the other occupiers were overreached. Since they only had an interest in the value of the house, not that land, they could not have an overriding interest. A similar situation arose in birmingham midshires vsabherwal. There a mother lived with her sons and their wives. The sons were joint legal title holders. When the mortgage company sought possession the mother attempted to rely on proprietary estoppel. She claimed that she had been promised a 'roof over her head for life', that she had relied on that promise, and incurred detriment in spending a significant amount of money on the property. She therefore had an interest (arising from proprietary estoppel, and it was overriding (by virtue of actual occupation). According to WilliamsAndGlynnsBankVBoland1981, the fact that a beneficiary is in actual occupation takes priority over the rule that beneficial interests are 'minor interests' and can be overreached. However, for Boland to apply to the facts of Sabherwal_, it would have to be the case that estoppel rights cannot be overreached under the s.2 provisions, and the Court of Appeal was not prepared to accept that.
In conclusion, it appears that the courts are prepared to grant equitable interests in land on the basis of direct financial contribution to the purchase (a resulting trust), an express or implied common intention of the parties to that effect coupled with detrimental reliance (a Constructive Trust of the Gissing meta), or an express representation coupled with detrimental reliance (proprietary estoppel). All three metas of interest are precarious and, if not properly protected, are subject to overreaching.