Charlotte Davies, Head of Civil, recently succeeded in obtaining declaratory and vesting relief for the administrator of an estate in an unusual Part 8 claim in the County Court.

Unwinding a sham co-ownership: vesting orders, Form A restrictions and the sole personal representative.

Charlotte Davies, Head of Civil, recently succeeded in obtaining declaratory and vesting relief for the administrator of an estate in an unusual Part 8 claim in the County Court. The case is a useful illustration of how the Trustee Act 1925, the Trusts of Land and Appointment of Trustees Act 1996 and Schedule 4 to the Land Registration Act 2002 fit together when a registered title has to be put right against an absent proprietor, and of why a sole personal representative does not need a co-trustee to sell.

The problem

The deceased owned a long leasehold flat. The lease prohibited underletting other than as holiday accommodation. Wanting to let the flat to a tenant, he was advised by a solicitor to transfer the property into the joint names of himself and the tenant, with the tenant signing an undated TR1 transferring the property back to him to be completed when the tenancy ended. The transfer was registered and a Form A restriction entered. The tenant paid nothing.

Unfortunately, the deceased unexpectedly died the following year. HM Land Registry treated the legal estate as passing to the tenant by survivorship. The freeholder later obtained a possession order against the tenant, who then disappeared. Years later, the administrator found that the estate was in possession of a flat registered in the sole name of a stranger who could not be traced, and that the Land Registry would not correct the position on application.

The claim

The claim as originally pleaded led with specific performance of the undated TR1, which could not work. A TR1 is a transfer of the legal estate to a named transferee, and the transferee was dead. There was no contract capable of being performed in favour of the estate, and the court cannot order a transfer to a deceased person.

Charlotte therefore reframed around the beneficial interest with two routes leading to the same outcome. The tenant had contributed nothing to the acquisition, so a presumed resulting trust arose in the deceased’s favour. Independently, the signed undated TR1 was contemporaneous documentary evidence of a common intention that the tenant was never to take beneficially, supporting a common intention constructive trust on ordinary principles. The Form A restriction confirmed that the beneficial interest had been held as tenants in common, so the deceased’s own share had fallen into his estate on death and had never passed to the tenant. On either analysis the tenant held the entire legal estate as bare trustee for the estate.

Getting onto the register

A declaration of trust does not by itself change the register. The absent trustee could not be compelled to execute anything, so the mechanism had to be a vesting order under section 44 of the Trustee Act 1925, which applies where a trustee cannot be found, supported by the wide power in section 14 of the 1996 Act. The evidence of tracing efforts that had supported the earlier application to deem service (which itself resulted in multiple hearings) also assisted in satisfying the section 44 threshold.

Alteration of the register then followed under Schedule 4 to the 2002 Act. The registration of the tenant had not been a mistake in the ordinary sense – the Registrar had acted properly on a valid transfer – so the case was put primarily under paragraph 2(1)(b), bringing the register up to date to reflect the trust, rather than under the correction limb. The protection for a proprietor in possession in paragraph 3 did not arise, the tenant having been dispossessed by court order.

The two trustee point

The most practically important issue emerged from court’s own hearing notice, which invited the claimant to identify two trustees or a trust corporation. The request was understandable – there was a Form A restriction on the title, and the two-trustee rule in section 27(2) of the Law of Property Act 1925 and section 14(2) of the Trustee Act 1925 prevents a sole trustee from giving a purchaser a good receipt for capital money.

However, once the court declared that the estate was absolutely entitled, the trust of land collapsed on the legal estate vesting in the sole beneficiary. There were no beneficial interests left to overreach and a purchaser would take from the beneficial owner, not from a trustee. Further, section 27(2) contains an express proviso preserving the right of a sole personal representative to give valid receipts for proceeds of sale. The administrator could sell alone.

The Form A restriction, which existed only to protect a trust that no longer subsisted, could simply be cancelled as part of the Schedule 4 alteration. Appointing two trustees would have added a further layer of trusteeship and a further transfer to the estate for no benefit to anyone.

Outcome

The court accepted the primary case as argued by Charlotte at the final hearing. In the event that the court had wanted to pursue the two-trustee route, Charlotte’s draft order contained the option and two individuals had been identified with their written consents to act provided to the court.  However, the court agreed to declare that the estate was absolutely entitled, vested the leasehold estate in the administrator, directed alteration of the register to show her as sole proprietor with the Form A restriction cancelled, and ordered that the claimant’s costs be paid from the estate.

Practical lessons

A number of practical lessons arose from the proceedings. First, when a co-owner has vanished, specific performance of a document is rarely the right tool. Look to the beneficial interest, plead the trust, and use a vesting order as the mechanism. Secondly, where the register was correct when made but no longer reflects the true position, paragraph 2(1)(b) of Schedule 4 is usually the safer limb than correction of a mistake. Third, do not assume that a Form A restriction means two trustees are required. Where the person taking the legal estate is the sole beneficial owner, and particularly where that person is a sole personal representative, the two-trustee rule does not apply and the restriction can go.

And a wider lesson that probably does not need spelling out to anyone reading this article. Putting a tenant on the title to avoid an alienation covenant, however ingenious the paperwork accompanying it, creates a real legal estate in a real person. If circumstances change, as they did here, the consequences can take almost fifteen years and expensive court proceedings to unwind.

Charlotte has a busy and diverse civil practice, with specialist areas that include land, property and contractual matters. 

If you wish to discuss anything in this article or you want to instruct Charlotte you can contact her clerk on civilclerks@kbgchambers.co.uk.