Co-owner land disputes – ToLATA or not ToLATA?
As house prices continue to increase at a rate that outstrips salaries it is increasingly common for people to buy properties together as co-owners. In many instances this is not a problem but often difficulties do arise when co-owners fall out and then cannot agree what to do with the property.
The answer is often to be found in section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (thankfully usually shortened to “ToLATA”). This provides that any person who is a trustee of land or has an interest in properties subject to a trust of land may make an application to the court and on such application the court may make any such order:
- relating to the exercise by the trustees of any of their functions (including an order relieving them of an obligation to obtain the consent of, or to consult, any person in connection with the exercise of any of their functions),
- declaring the nature or extent of a person’s interest in property subject to the trust,as the court thinks fit.
Many co-owners will not appreciate that they hold their property under a trust, and few will appreciate what this entails unless they have had the fortune to discuss it with their solicitor at the point of purchase, and had the benefit of competent advice.
A recent decision shows how the court can exercise its powers under ToLATA.
Case study – Mrs Bagun
Mrs Bagun and her two sons (Mr Hafiz and Mr Hai) shared a house in Islington, which they owned in three equal shares under a trust. When family relations broke down, Hai moved out. Mrs Bagun then applied to the court for an order under section 14 compelling him to sell his one third beneficial interest in the property to Mr Hafiz. Basically, she wanted one son to be able to ‘buy out’ the other.
The judge who first heard the dispute decided that she had no jurisdiction under ToLATA to order one beneficiary under a trust to sell their beneficial interest to another beneficiary. She therefore tried to get to the same result by a different route. She ordered that the three trustees sell the property but that, before it appeared on the open market, there would be a period of several weeks during which Mr Hafiz alone would be entitled to purchase the entire property for a price to be determined by valuation evidence.
The Court of Appeal decided that the judge had been within her jurisdiction to make the order she had. The court agreed that section 14 does not allow the court to order a beneficiary to sell their interest to another beneficiary. The court observed that section 14 only allows the court to make orders relating to the exercise by the trustees of their functions, and that the direct disposal by a beneficiary of their interest in land is not a function of the trustees. The court however upheld the order giving Mr Hafiz a preferential right to buy the entire property before it was placed on the open market. The Court of Appeal stated that, although the practical end result was the same, it could not make the type of more direct order sought by Mrs Bagun.
What the case again highlights is the importance of getting things right at the point of purchase. Litigation is invariably expensive, time consuming and stressful. It would have been perfectly possible for Mrs Bagun and her sons to have entered into an agreement at the time of purchase stipulating what would happen in the event of a family breakdown.
14 October 2015