Tuesday, March 24, 2009

Equitable Interest in Land

Equitable interests in land - Justin Santiago

An equitable interest in land is pleaded when the aggrieved party has no legal interest in the land and is not the registered proprietor with absolute title. Such equitable interests can be claimed based on different situations and under various mechanisms such as express trust, resulting trust or constructive trust. An implied trust of land does not require it to be manifested and proved by some writing signed by the person able to declare the trust or thus circumventing LPA S53(1)(b) as allowed under LPA S53(2). Alternatively it could be possible to claim a contractual licence or an interest under a right of occupation.

Express Trust

A declaration of trust in respect of land or any interest therein must be manifested and proved by some writing signed by the person able to declare the trust or by his will satisfying the requirement of LPA S53(1)(b). Where there is an express declaration of a trust the parties are to hold as beneficial joint tenants : Goodman v Gallant and the parties would have an equal share in the property. However an express trust can also be inferred from a common intention that the house would be a matrimonial home : Paul v Constance.

Resulting Trust

If there was unequal contributions towards the purchase price of the house and if there is an absence of evidence of a different common intention an interest as a tenant in common with shares in proportion to the contribution under a resulting trust arises : Bull v Bull.

An interest under a resulting trust requires a direct contribution to the purchase price of the land made at the time of its acquisition by the person claiming the beneficial interest : Midland Bank v Cooke, Hammond v Mitchell. In Midland Bank v Cooke the courts held that in the absence of express agreements all conduct would be surveyed to throw light on what shares were intended. In Hammond v Mitchell the conduct surveyed included any promises of the interest to be had, any sharing of money, whether there was any detriment.

Constructive Trust

A beneficial interest may be claimed under a constructive trust which is the formula through which the conscience of equity finds expression : Beatty v Guggenheim Exploration Co. In Westdeutsche Landes-bank Girozentrale v Islington London Borough Council Lord Browne-Wilkinson identifed a constructive trust as a trust ‘which the law imposed on the trustee by reason of his unconscionable conduct’. In Paragon Finance v D B Thakerar & Co Millett LJ stated that a ‘constructive trust arises by operation of law whenever the circumstances are such that it would be unconscionable for the owner of property (usually but not necessarily the legal estate) to assert his beneficial interest in the property’.

However limitations have been imposed on the constructive trust. Three conditions were laid out in in Grant v Edwards :-

a. Evidence of a common intention that the claimant should have a beneficial interest
b. The claimant has acted to his/her detriment on the basis of the common intention
c. Equitable fraud on the part of the legal interest holders

Further evidence of common intention are found in Lloyds Bank v Rosset :-

1. Evidence of agreement in the form of express discussions between the parties and
2. Evidence of conduct which includes direct contributions to the purchase price and payment of mortgage installments

It was intended by Lord Bridge that the value of the claimant’s share was to be determined by reference to the two categories of evidence. But the courts have adopted a more liberal approach, namely, once an interest has been established under at least one of the categories of evidence, the court has a general discretion to do what it considers just and fair in the circumstances.
The quantum of the beneficial interest is measured by reference to these contributions.

The courts are more likely to take a broad brush approach in determining the shares of the parties : Drake v Whipp. This was affirmed in Oxley and Hiscock where the courts considered that when two persons contributed to the purchase of land conveyed into the name of one of them and where there was no agreement about the quantification of their respective shares, the court was entitled to take into account the whole course of conduct between the parties in determining what would be a fair share. In the case of Le Foe v Le Foe, the courts showed a greater willingness to regard indirect contributions as triggering a share. This shows a return to earlier decisions by the courts in cases like Hussey v Palmer and Gissing v Gissing (pre Rosset) which showed flexibility in giving an interest to the party which made indirect contributions allowing the legal owner to make mortgage payments.

If an interest can be claimed under any of the three mechanisms above the interest would exist behind a trust of land (formerly trust for sale) governed by the Trusts of Land and Appointment of Trustees Act 1996. Under a trust of land a purchaser would have to pay to at least two trustees. If the money is paid to two trustees, the occupiers’ interests will be overreached even if they were in actual occupation : City of London Building Society v Flegg.

The nature of a beneficiary’s interest under a trust of land is such that they are neither registrable nor overriding under the LRA 2002. Such interests behind a trust of land are not capable of protection on the Register. A Restriction may be entered, forcing overreaching; but the Restriction does not protect the equitable interest and no Notice may be entered.

License

If the aggrieved party has no beneficial interest in the property the claimant only has a licensee which is a temporary occupation permit. If the claimant is a bare licensee he can be evicted with reasonable notice. However there is a possibility that he can claim a licence supported by a contract, by constructive trust, by estoppel or by a license coupled with an interest.

If by contract the aggrieved party should be able to prove all the elements of contract law – offer, acceptance, consideration, intention to create legal relations are met. A contractual license would give the claimant a right to stay on the land as a tenant for life and has been argued to amount to an interest in land : Errington v Errington Wood however this was declared per incuriam in Ashburn Anstalt v Arnold where it was stated that a contractual license could never amount to an interest in land following the traditional view of King v David Allen and Sons Billposting Ltd and Clore v Theatrical Properties Ltd where it was decided that a contractual licence cannot be a proprietary right and therefore cannot bind a third party even if he has notice. A contractual licence affects only parties who have entered into the agreement and should not be capable of binding third parties. The most that the agrieved party could claim was a breach of contract and therefore entitled to compensation for the loss of the expectation : Baker v Baker.

The other scenarios sees equity stepping in by way of a constructive trust to protect a licensee from third parties in cases where the purchaser was not bona fide : Binions v Evans. In this case a life tenancy was imposed by a constructive trust that would bind third parties. In this way the licences are becoming more difficult to distinguish from leases in terms of the rights which they confer upon the holder and has been applied equally to both unregistered land : Binions v Evans and registered land : Lyus v Prowsa Developments. The most striking case of a court treating a licence as effectively a property right is probably Bruton v London And Quadrant Housing Trust1977, where the House of Lords held that a lease could be granted out of a licence.

The third option is for the aggrieved party to claim a license arising out of estoppel and this would amount to an interest which would bind third parties and which can be protected by way of notice. Estoppel can be invoked if it can be coupled with a right that A may have which could be a rent free tenancy if there is continuous occupation : Greasley v Cook. He would have to prove that there was a representation made to him, there was reliance/change of position and there was detriment / unconscionable disadvantage. The question would be whether it would be conscionable to allow the sellers to insist on their strict legal rights : Taylor Fashions Ltd v Liverpool Victoria Trustees.

The purpose of the doctrine is to give rise to a number of remedies both proprietary and non proprietary and there is great flexibility in granting remedies to achieve such results as it thinks fair and reasonable in the circumstances. This could be a license to remain on the land : Inwards v Baker or even an interest in the land : Pascoe v Turner. However the particular interest to be awarded must still be decided by the judge according to all the circumstances of the case. It is difficult to find any consistent principle running through the cases. The modern approach to proprietary estoppel and how to give effect to the equity was considered in depth in the two following cases : Campbell v Griffin – repayment of any detriment incurred and Jennings v Rice – there must be proportionality between the expectation and the detriment.

As with the constructive trust, the inspiration behind proprietary estoppel can be seen in equity’s concern to prevent unconscionable conduct the difference is the central element for proprietary estoppel is detrimental reliance. However there are several differences between the two:-

1. The constructive trust has a long established use to impose a trust in situations unrelated to the principle of detrimental reliance

2. Secondly a constructive trust means by definition that a person has an equitable share in the property held by another. In a sense, the term “constructive trust” is used to describe both the legal mechanism by which a trust property is created but also the trust interest thus created. On the other hand, proprietary estoppel is a mechanism which if established may give rise to proprietary interests other than a trust.

A final option is for the aggrieved party to claim a license coupled with an interest and the licence exists to facilitate the enjoyment of the interest.

If it can be established that Olga has an interest either under enforceability of a contractual license by a constructive trust or an estoppel it would bind the buyer if it had been protected on the register or if it was supported by actual occupation as an interest that overrides under Schedule 3 Para II of the LRA 2002 (formerly S70(1)(g) which will protect Olga’s interest upon sale. If such cases any buyer or mortgagor would take the property subject to the aggreived party's interest unless it was not obvious that the aggrieved party was an occupier with reasonable inspection of the property.

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