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House of Lords

Friday, 1st March 1996.

The House met at eleven of the clock: The CHAIRMAN OF COMMITTEES on the Woolsack.

Prayers--Read by the Lord Bishop of Lichfield.

Trusts of Land and Appointment of Trustees Bill [H.L.]

11.6 a.m.

The Lord Advocate (Lord Mackay of Drumadoon): My Lords, I beg to move that this Bill be now read a second time.

This is a useful measure of law reform which derives from recommendations of the Law Commission in two reports. It gives effect, with minor changes, to the recommendations in the report on Transfer of Land: Trusts of Land (Law Com. No. 181), and also gives effect to the second recommendation, which concerns bare trusts, in the report on Overreaching: Beneficiaries in Occupation (Law Com. No. 188). Rather than detain your Lordships for a long time with a detailed explanation of the somewhat technical provisions of the Bill, I propose, with your Lordships' leave, to explain the Bill's provisions in fairly broad terms. Fuller explanation of the current law and the proposed changes may be found in the two Law Commission reports to which I have referred, and full Notes on Clauses will also be available to any noble Lord who wishes to examine the technical provisions in greater detail. Since the Bill was introduced, there has been a substantial opportunity for commentators, practitioners and professional bodies to consider the Bill in detail, and many helpful comments and suggestions for improving the Bill have been received, to which the Government will endeavour to give as positive a response as possible.

The Bill extends to England and Wales only. It amends and replaces much of the law governing joint ownership of land, which was last changed significantly by the property legislation of 1925, in particular the Law of Property Act 1925, which did away with most of the complications of the old, essentially feudal law. Indeed this Bill represents an arguably overdue development of the process of simplification which, although most obviously represented by the 1925 legislation, began in the late 19th century.

The 1925 legislation simplified conveyancing by ensuring that a purchaser should not as a rule have to undertake lengthy investigation of the beneficial interests in the property, but can take free of them if the relevant statutory machinery is used. It restricted joint ownership of land to two forms: the strict settlement, where land is limited in trust by way of succession, and which is rarely used today; and the trust for sale, where the legal interest is held by a trustee or trustees on trust for sale for those who have the beneficial interest. If the appropriate statutory machinery is used (generally conveyance by two trustees for sale or a trust

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corporation), the beneficial interests are "overreached" and transferred from the land to the proceeds of sale, and thereby cleared off the title so that the purchaser takes free of them. Certain interests cannot be overreached; namely, legal interests and those which are protected either by registration where the land is registered or because the purchaser has actual notice of them where the land is not registered.

There are three main problems with the existing law in this area. First, although it represented a considerable simplification of the law in its day, it is unnecessarily complicated, and the settled land provisions particularly so. Those provisions in particular have been recently described as redolent of a world which was already dying in 1925 and has long since disappeared. Secondly, because of the priority which the 1925 legislation gives to settled land, it is possible for testators or grantors to trigger the complex settled land provisions unintentionally, thereby causing problems and expense for both beneficiaries and purchasers. Thirdly, the trust for sale mechanism is not appropriate to the conditions of modern home ownership, which represents the majority of jointly-owned real property, since it is based on an assumption that property which is not subjected to a strict settlement is intended as an investment rather than as a home, to be bought and sold as market conditions demand, with the beneficiaries being interested in the proceeds of sale rather than the property for its own sake.

The Bill replaces trusts for sale and strict settlements with a new single system of co-ownership of land known as the "trust of land". Trusts for sale are abolished and existing trusts for sale become trusts of land as from commencement. The creation of new settlements after commencement is prohibited, although it will be possible for a similar effect to be achieved by express provision in a trust of land, as I shall explain later. Existing settlements, however, are left untouched and subject to the existing regime for as long as there remains land or heirlooms subject to the trusts of the settlement. In addition, there is an exception allowing resettlement of settlements in existence at commencement, and settlements created in the exercise of powers of appointment contained in settlements in existence at commencement. These provisions will avoid problems with settlements which may have been in existence for a long time.

Under the trust of land, title is vested in the trustees, who are given power both to sell and to retain the land, rather than being placed under a duty to sell. As a consequence, the doctrine of conversion, under which a joint beneficial interest in land is deemed to be an interest in the proceeds of sale rather than in the land itself, is abolished. The resulting position reflects the fact that most co-ownership of property is for the purpose of providing a home rather than an investment, and that most joint home owners already believe themselves to have an interest in land rather than in money. Existing protection for purchasers of land subject to a trust by way of the overreaching machinery is to be maintained and will cover all cases of co-ownership except existing settlements, so that conveyancing will be simplified. In accordance with the

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Law Commission's recommendation in the overreaching report, this will include bare trusts which presently fall outside the statutory scheme.

The Bill makes detailed provision for the administration of the trust of land, giving the trustees broad and flexible powers balanced against extra rights for the beneficiaries. Trustees of land will have, in relation to the land which is subject to the trust, all the powers of an absolute owner. This does not override any restrictions on trustees' powers under any other enactment. It is also subject to the requirement to act in accordance with the trust instrument, which may expressly limit the trustees' powers, and with the general equitable duties attaching to the position of trustee, in particular the duty to have regard to the interests of the beneficiaries in exercising such powers.

A particular power specifically conferred on trustees of land enables them, acting unanimously, to delegate any functions relating to the land to any beneficiary who is of full age and capacity and who has a present vested interest. This will, among other things, permit the effect of a strict settlement to be broadly reproduced, but without the possibility of creating a settlement unintentionally, which is one of the main problems of the existing law.

These powers are further balanced against additional rights for the beneficiaries, such as a right for beneficiaries of full age and capacity to be consulted about the management of the property unless the trust deed provides otherwise; and a right for beneficiaries in certain circumstances to occupy land subject to the trust.

The existing provision for enabling application to the court to resolve disputes over ownership or disposal of the property is also simplified, with flexible guidelines reflecting the different purposes for which the property may have been bought. This will carry through the effect of the existing provision under Section 30 of the 1925 Act as it has been applied and developed by the courts, with the amendments necessary to ensure that the court's powers are sufficiently broad and flexible to reflect the nature and purpose of the trust.

The Bill also makes detailed provision for such matters as the application of the new regime to trusts of the proceeds of sale of land, and to the position of personal representatives.

The detailed provisions of Part I of the Bill apply only to trusts of land. Part II makes provisions which will apply to trusts of personalty as well as trusts of land, concerning the appointment of new trustees, for example, where a trustee has become unfit or incapable or wishes to be discharged. These provisions, which apply only where all the beneficiaries are both ascertained and of full age and capacity, give them the right, which would be required to be exercised unanimously, to direct the appointment of a new trustee or trustees. In addition, trustees intending to make such an appointment are required to notify the beneficiaries and give them the option of giving a direction to appoint another person or persons. It is in recognition of the fact that these provisions extend beyond trusts of land that

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the Short Title of the Bill has been changed from the Bill annexed to the Law Commission's report, the title of which was the Trusts of Land Bill.

Finally, Part III of the Bill makes general provision for such matters as interpretation, commencement and for consequential amendments and repeals of other legislation.

I began by suggesting that I would not go into the provisions of the Bill in great detail. Having heard what I have had to say, your Lordships will no doubt be very grateful that I chose not to do so. The Bill is of a highly technical nature, but it is reassuring that apparently it has support. I believe this to be a useful measure of law reform which will simplify an area of the law which has become somewhat arcane but which in practice affects a great many people, particularly homeowners. I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Lord Mackay of Drumadoon.)


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