Lecture on overreaching PDF

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LAND LAW LECTURE – 4/11/15 OVERREACHING – one of the key concepts of the 1925 legislation. Trust of land – 1925 act effectively imposed a universal trust for sale. This created certain conceptual problems, it was amended to introduce the trust of land scheme. Trust of land scheme implemented of land and trustees act – TLATA 1996 s1 (1) – operates for all trust from January 21 st 1997. Trust of land defined as any trust whether property which consists of land. The consequence of this, you no longer need a conveyancing mechanism, like a trust for sale. The consequence of the act is to introduce as simple trusts where you simply say you convey property to the trustees on trust. The interest of the beneficiary is an interest in land directly. Beneficiary has a right in land. However, the central appointment of the trust is the concept of overreaching ability. Creation of a trust – settlor, the trustees and the beneficiaries – these a re

the parties. This diagram demonstrates the creation of a trust. - The top line represents the legal estate; the top line represents the register. below the line represents the equitable interest of the land, this is hidden by a literal curtain, that the registrar is not allowed to enter the beneficial interests. - With registered land, the line is metaphorical, it is not actual. - The first step is to pass the legal estate to the trustees, the trustees then become the registered proprietors of the land. It is fundamental that you must not describe them as trustees. - In order to make a trust, you must vest the legal estate in the trustees. Until this transfer is taken place a trustees registered to be proprietors of the land, there is no trust. - Constitution in the trust means vesting the legal estate in the trustees. Until this is done the trust will be imperfect = no trust. - The register is talking about how you sell the land, it is not identifying the trustees. In order to do this, the settlor indicates the land will be held on trust.

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The declaration needs to be in writing s53 LPA – registrations of trust. Two aspects, being the transfer of property and the trust vested in the trustees. The sale of the land – the trustees are not owners, they are trustees, their powers are restricted, the consequence it will be identifying is by a restriction. OVERREACHING – sale of the property – when trust land is sold, the beneficial interests are detached from the land and attached instead to the proceeds of sale. This is a great innovation of the 1925 legislation. S1 rearranged the legal estate. Overreaching is in s2 of the LPA 1925 – it gets rid of the equitable interests.

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the curtain is implemented by s78 of the land registration act 2002 – that registrar and purchaser has notice of any trust. The object is if you’re looking at the point of view of buying it, you only need to look at the register, you only look at who the proprietors are, they are not name, it simply says X and Y. and you must comply with the restrictions. The legal estate passed to the purchaser and the purchase money passing to the trustees. If you pass property to the buyer they would take subject of the property. The consequence is that the purchaser is free of the trust and doesn’t have to bother about it. If you’re not going to buy subject to the interests, just get rid of it because the purchaser doesn’t need to know about them. S27 (2) LPA – receipt for purchase money by fewer than two trustees. This is basically what the restriction says, you got to have two trustees selling the land, therefore you only need to make sure you have 2 registers proprietors, the restriction is satisfied and

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taken out of play and the 2 trustees are able to sell the land to the buyer. City of London BS v Flegg [1988] AC 54 HL; [1986] Ch 605 CA – a house in Kent was bought by couple called Maxwell browns. They paid about £18k towards purchase of house, it was not enough, they arranged to share with the wife’s parents, called the Fleggs. Consequence the F’s put in about £20k for purchase price. Therefore, they have a JT tenancy of the legal title. The crucial thing to note we we have two trustees. MB and F’s and a tenancy in common because purchase money is provided equally. F’s wanted to go on legal title, they didn’t trust son in law, they kept off legal title, that would save them from liability of the mortgage. MB’s re-mortgaged house from the city of London BS, borrowing more from F’s. Unable to pay back mortgage, Bank to repossess the house. Flegg HL based overreaching on conversion This was the principle that trustees for sale had a duty to sell the land as soon as it was subject to an immediate binding trust for sale, and so the interests of beneficiaries were interests in the proceeds of sale from the moment that the trust was created. Conversion is abolished by TLATA 1996 s 3. References to trusts for sale were converted in 1996 into trusts of land, but no other change is made. It follows that LPA 1925 s 2/TLATA 1996 provide no basis for overreaching. Overreaching in future is power-based – i.e. overreaching is an automatic incident of the existence of a power of sale. Flegg’s not affected by repayment. Classic land law question, it is the property issue, are the Flegg rights valid against the mortgagee, you need to establish the fleggs have property interest AND priority. Establishing the interest because it was a trust for sale and that the beneficial interest was an interest in sale but effectively this has faded due to the trust of land act. Do the fleggs have priority over the mortgage? – what argument could they put forward, it is based on s71 (1) para g of LRA 1925 – for that now read LRA 2002 Sch 3 para 2 - this is the rights of every person in actual occupation of the land constitute an overriding interest, F’s argument was simple that they were in occupation of the land therefore they override the register. This argument was accepted in CA, it was decided by LJ Dillon – to say no one accept him thinks this was right because HL rejected CA’s view. Indicated in this case the F’s interest was transferred to the mortgage money, they were detached from the land, their action was a breach of trust action. Mortgage had detached the beneficial interest of land from fleggs and therefore the fleggs had no right in land itself and only had breach of trust action on the trustees. Sch 3 – the fleggs did not have rights because of this, they did not have overriding interests. You can see the fleggs decision not to got on the mortgage title was misconceived, if they went on the title, they would have been in

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control. By pushing themselves behind the curtain, they were overreached and made themselves vulnerable. Flegg is notable by Lord Oliver’s judgment – he say that the registered system is designed to dove Tate with the unregistered system, dove tailing is designed so they work together, he asserts that registration is just a machinery but the substantive rights of the owners should be the same, whether its registers or unregisters. To some extent LRA ahs departed from this view, all the HL decided that registered land was the same as unregistered land. What it tells us about overreaching – large number of defences to overreaching are irrelevant, these are the fact that the purchase knows about the trusts – s27 (1) LPA – occupation is irrelevant and the wishes of the beneficiaries is irrelevant, the trustees have power and the beneficiaries have to wait. Trustees can go ahead and sell.

INTERESTS OVERREACHABLE – difficult question. Basis is s2 (LPA 1925 – proves to be flawed in its drafting. It provides for overreaching under an ad hoc trust. This is unusual situation in which the trustees have been appointed by the courts. S2 says that overreaching can only occur independently of s2. So we are looking for a basis for overreaching that isn’t in the statue. The conventional understanding was that trust was under conversion over a sale. Trust on sale was on trust and to hold for the beneficiaries, duty to sell and hold the proceeds on trust for the beneficiaries. On this theory, the beneficiaries never had rights in the house, they only had money rights. The problem is that the TLA has abolished the trust of sale, and it abolishes overreaching. - The solution is given by law commissioner – who drafted the land registration act, who is C Harpum – trust of land act relies on power based overreaching. Overreaching operated on this. That is if you give power to someone to sell land, you are automatically implies the power to free the land from other interests. - This is not universally accepted. - The conventional view is that Harpum’s view is correct. - S2 is completely duct solving the problems and there was always overreaching when you sell property. INTERESTS NOT OVERREACHABLE – what you can overreach I the beneficial interests under the trusts, you are not overreaching mortgages, right of way and easement. These are the burdens. = estoppel rights – Birmingham Midshires v Sabherwal (2000) 80 P & CR 256 CA – Robert Walker gives inaccurate description. What happens if trust existed before 1997 – basic answer is that the trusts of land act applies retrospectively to all existing trusts. There is one exception, used only for by estates, called the strict settlement, this cant be created since 1997, but existing ones can continue to exist. They are rare.

PURCHASE MONEY RULES – payment of purchase money to trustees. In order to have overreaching, you must have 2 trustees. LPA 1925 s27 (2) – this is an amendment in 1926 - In order to overreach, you require a valid receipt for purchase money. This receipt must be signed by the trustees, whoever has the legal title and there must be at least 2 trustees. - Examples: T1+T2 = Trustees; B1+B2=beneficiaries; T1+T2 sell the property. P takes free of B1+B2; B1+B2 have rights in pm held by trustees. - Trustee – T sells. Priority Purchase/beneficiaries depends on notice/occupation of registered land. - Williams & Glyn's Bank v Boland [1981] AC 487 HL - LPA imposes a maximum of 4. In case of trust, it must be between 2 and 4. - There is one exception, which is a single trust corporation can give a receipt, this is like a trustee wing of a bank, this is a large corporate trustee allowed to act alone. - What happens if you done comply? This seems to be the biggest hole on the 1925 legislation. - What happens if you have no money under the transaction – State Bank of India v Sood [1997] Ch. 276 CA – mortgage signed by Soods is simply a guarantee of an overdraft, where the account was uncredited when the contract was signed. Bank was not paying Soods by signing form for bank to provide money in the future. - Sood kids tried to argue they had beneficial interests to stop bank to take the house. Argued there was no receipt for the purchase money. - Held that mortgage was overreaching. - What s27 means is if there is purchase money, the receipt must be given by 2 trustees. - Shami v Shaw [2013] EWCA Civ 227, Dixon [2013] Conv 165

RESTRICTIONS – a restriction draws to the attention of a purchaser the rules about payment of purchase money. - LRA 2002 s 40ff how do you know you need to have purchase received by 2 people – answer is to use restriction in the purchase to comply with money rules. - This restriction is mandatory in most cases of joint proprietorship (LRA 2002 s 44); they are trustees under the co-ownership trust. - The one exception is the beneficial JT. - JT restriction – it has no impact where you have more than one proprietor, this restriction only bites when you have a sole proprietor. When you’re down to last trustee, restriction bites and says no disposition will be registered, it is designed to stop you from breaking the money rule. - While there are joint proprietors the restriction has no function; it is when the last of joint proprietors dies that the restriction bites. Sale

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cannot occur until a second trustee is appointed. The joint proprietor restriction is not used when the proprietors are beneficial joint tenants, since then the survivor can sell. What we can see therefore, lets say we start with 3 trustee, one dies, put put restriction on trust, it only bites when you’re down to the last. One dies, you’re down to survivorship. When you go down to the last person, the person cannot sell, he must have the receipt. The restriction then bites. You must appoint a second trustee. Distinction between restriction with consent of registered proprietor and ones with consent without. Introduced in 1996, now LRA 2002 ss43, 45- applies on transfer, first registration, declaration etc. With consent – applications signed by applicant and registered proprietor Without consent – application of any person interested, no restriction has been entered by trustees, application with proof of the trust. It can be warned off (the proprietor can object to it) notifiable application LRA 2002, s45....