Basics of English land law (contextual)
This blog post is aimed at informing individuals who own property/land jointly with another person or persons about how they can inform third parties of the operation of a trust between them (that details their ownership interests in the property) by registering a declaration of trust at the Land Registry by entering a restriction on the register.
Under English land law principles, when you set up a trust you effectively detach the formal title to the land (known as the ‘legal estate’) from the underlying ownership (known as the ‘beneficial’ or the ‘equitable’ interest).
In the past, when two individuals owned land together, they could either own that land in the capacity of joint tenants or as tenants in common:
- Joint tenants have something called a right of survivorship and do not have specific shares in the land (i.e. their shares are indivisible) and all of the joint tenants are equally entitled to the whole of the property. All the right of survivorship means is that when one of the joint tenants passes away, their interest in the land automatically transfers to the other (surviving) tenant(s).
- Tenants in common own specific shares in the land, which they can transfer to other third parties if they so wish. These specific shares were capable of being equal or unequal.
Following the introduction of sections 1(6) and 34 of the Law of Property Act 1925 (‘LPA 1925’), it was no longer possible for a legal estate to be held as a tenancy in common. Individuals wishing to be joint owners of land must hold the legal estate (i.e. the formal title) as joint tenants (by operation of section 36(2) of the LPA 1925), however the beneficial interest to the land could be held as either joint tenants or tenants in common.
This means that when one of the joint owners passes away, the legal title will pass automatically to the surviving tenant(s) via the doctrine of survivorship.
Land in the UK may either be registered or unregistered. The vast majority of land will be registered, meaning that it is listed on HM Land Registry’s central register and information about the land is open to public inspection. There are still considerable pieces of land that are unregistered, meaning that no information is held at HM Land Registry about that land. Unregistered land owners will have to ensure they have all of their old documents (deeds) evidencing that they own the land.
Why would you want or need to register a declaration of trust at the Land Registry?
It will be down to the trustees to register a declaration of trust at the Land Registry by entering a restriction. The need for a declaration of trust between joint owners only arises where there is a tenancy in common. So, if the joint owners have opted to own the beneficial interest as joint tenants, then there is no need for a declaration of trust between them.
Under normal circumstances, it is not possible to register a declaration of trust at the Land Registry. This is because of the operation of section 33(1) (a)(i) of the Land Registration Act 2002 which provides that it is not possible to register a notice in respect of an interest under a trust of land. This provision is designed to ensure that trust documents generally are not open to public inspection and the specific details or trust arrangements are kept confidential.
However, joint owners will want to bring the existence of the trust and any tenancy in common to the attention of any third parties – so these third parties know that there are individuals who own specific portions of the beneficial interest and also that any purchase monies will need to be paid to at least two trustees. The way that joint owners do this and circumvent section 33(1) (a)(i) of the Land Registration Act 2002 is by entering a restriction on the register. As a side note, if the joint owners had originally purchased the property as tenants in common, then a restriction on the register should already be in place.
Therefore, it would always be sensible for joint owners who hold land in the capacity of tenants in common to enter into a declaration of trust and get this registered at the Land Registry by entering a restriction on the register. The joint owners may wish to do this for a multitude of different reasons, including that entering into a declaration of trust will allow them to spell out in writing the extent of their beneficial interests and will also allow them to set out any express terms that they want to include. Express terms may include, for example, terms dealing with where one of the joint owners wishes to sell their beneficial interest and so on. It is particularly important for joint owners to enter into a declaration of trust where they own the beneficial interest in unequal shares.
Formalities for setting up a declaration of trust
Joint owners will own property on a trust of land, and under English land law there are formalities that need to be complied with in the first place for a declaration of trust to be legally valid before you can contemplate registering it at the Land Registry.
In order for an express declaration of trust to be valid under English land law principles, you must satisfy three certainties:
- Certainty of words;
- Certainty of subject matter; and
- Certainty of objects
It is not necessary for the declaration of trust to be made via operation of a deed, however section 53(1) (b) of the LPA 1925 does provide that the declaration of trust must be evidenced in writing.
However, as a matter of safe practice, people often create declarations of trust by way of a deed to avoid the contract law principle that no valid contract will exist between parties where no consideration has been exchanged.
How to register a declaration of trust at the Land Registry by entering a restriction (process)
In registered land the way you register a declaration of trust at the Land Registry is by entering a restriction on the register. This is done by entering a Form A restriction on the register.
A Form A restriction should be entered on the register whenever two or more individuals are registered as joint owners of a registered estate, except where either:
- The joint owners are beneficial joint tenants (note that if only one beneficial joint tenant is left, then the trust will have terminated); or
- They are personal representatives of a deceased sole proprietor, unless that proprietor was a trustee.
A Form A restriction should also be entered whenever a sole proprietor is, or becomes, a trustee of land.
You must apply for a Form A restriction in the following situation:
- Rule 94(1) (b) of the Land Registration Rules 2003 (SI 2003/1417) provides that a registered proprietor (owner) (or registered proprietors, as the case may be) must apply for a Form A restriction where the estate is held on a trust of land (i.e. there are joint owners) and, as a result of a change of trusts, the proprietor or the survivor of joint proprietors will not be able to give a receipt for capital money. This is required because section 27(2) of the LPA 1925 (as amended by the Trusts of Land and Appointment of Trustees Act 1996, section 25(1) and Schedule 3, Paragraph 4) provides that any proceeds of sale following the sale of land shall not be paid to or applied by the direction of fewer than two persons as trustees.
Therefore, if a Form A restriction is entered on the register, it will be necessary for a new trustees/trustees to be appointed before land held by a single trustee on a trust of land can be dealt with in such a way that capital money arises.
The wording of the restriction will be as follows (in compliance with Form A, Schedule 4 of the Land Registration Rules 2003):
“No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court”.
The Land Registry will enter a Form A restriction automatically in the following situation:
- The Land Registry will enter a Form A restriction on the register automatically whenever they register two or more persons as proprietors of a registered estate in land, unless they are notified that they hold the legal estate on trust for themselves as beneficial joint tenants, or they are registering them as personal representatives. Section 44(1) of the Land Registration Act 2002 and rule 95(2) (a) of the Land Registration Rules 2003 oblige them to do this.
Beneficiaries can apply for a Form A restriction in some circumstances as well. Section 43(1) (c) of the Land Registration Act 2002 and rule 93(a) of the Land Registration Rules 2003 provide that where a registered estate is held on a trust of land, and a sole proprietor or survivor of joint proprietors will not be able to give a valid receipt for capital money, any person interested in the estate can apply for a Form A restriction.
Where limitations have been placed on the powers of the trustees within the declaration of trust, the trustees have to apply for a Form B restriction. This will be required alongside the newly entered (or already existing) Form A restriction. The wording of a Form B restriction will be as follows (in compliance with Form B, Schedule 4 of the Land Registration Rules 2003):
“No disposition [or specify details] by the proprietors of the registered estate is to be registered unless one or more of them makes a statutory declaration or statement of truth, or their conveyancer gives a certificate, that the disposition [or specify details] is in accordance with [specify the disposition of creating the trust] or some variation thereof referred to in the declaration, statement or certificate”.
When joint owners want to notify third parties of the existence of a declaration of trust between them in unregistered land, they can go about protecting their respective interests by endorsing a memorandum of the declaration on the conveyance of the property or lease. Any future buyer of the property will then be notified of the existence of the tenancy in common and the need to pay the purchase money to at least two trustees.
If the joint owners feel as though a memorandum does not give them sufficient protection, then they should apply for voluntary first registration of the property and the entry of a restriction instead.
Potential issues that might need resolving
The joint owners should ensure that they are in agreement as to who owns what shares of the beneficial interest in the land, and whether shares are to be equal or unequal and so on. All of this information should be included within the declaration of trust so that it may perform its function of informing potential buyers of individuals who own shares in the beneficial interest of the property.
When having the declaration of trust created, the joint owners also need to ensure that the formalities are complied with so that the declaration of trust is legally valid.