Posted on 21st August 2019
Both family and civil practitioners will be familiar with claims under Tolata between ex-cohabitees who seek a declaration of the beneficial shares owned in a property. The approach to dealing with such applications was set out extensively in Stack v Dowden, and in many cases a great deal will turn upon the intention of the parties and what can be inferred of their conduct. The first and perhaps most important hurdle however is whether there has been an express declaration of trust by the parties as to their beneficial interest in the property. If so this has been held to be wholly binding, save for cases of rectification or fraud.
The TR1 Form
It is for this reason that purchasers of a property must approach the conveyancing documents with care; particularly when completing the TR1 form. The TR1 is a formal land registry document which transfers the legal ownership of a property from one party to another and is executed as a deed. The document forms part of the conveyancing process and in practice may be signed by the vendor and the purchaser or the vendor only.
Question 10 of the form concerns where the property is being transferred to more than one party and it contains a tickbox to denote whether they intend to hold the property as joint tenants, tenants in common in equal shares or to hold the property on trust. While merely a tickbox, this is still capable of forming a valid declaration of trust and therefore determining the beneficial shares in the property.
There is however an important caveat to such a declaration. In order for a declaration of trust to be valid and binding it must comply with S.53(1)(b) of the Law of Property Act 1925:
“a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will;”
Previous Court Decisions
The effect of S.53(1)(b) on TR1 forms is not reflected by consistent court decisions.
In Roy v Roy it was held that a declaration within a transfer of sale didn’t engage S.53(1) at all, as all that was occurring was a transfer on sale by an absolute owner, and the trust instead resulted from S.36(2) LPA. However this would appear to no longer be good law with Stack v Dowden suggesting that such a declaration would be binding, and both Pankhania v Chandegra and Goodman v Gallant confirming that this amounted to an express declaration of trust.
In the majority of cases a properly signed and executed TR1 will therefore end any argument on the extent of beneficial interests. However; the form need not be signed by the purchasers if they are not making any declaration or undertaking, and as such cases will arise where the tickbox has been completed but the only signature on the document is the vendor’s. On this scenario the authorities do not speak with one voice.
The Competing Decisions
In both of the High Court decisions of Taylor v Taylor and Insol v Cowlam, there was a dispute over the beneficial interests that the parties held in the property. In both cases a TR1 form had been completed stating that the interests were to be held by the purchasers as joint tenants, but had only been signed by the transferors and not the purchasers. In both cases, it was submitted that the TR1 could not amount to an express declaration of trust.
In Insol, a decision by a Chancery Division Master, it was held that such a document did not meet the requirements of S.53(b) as there was no evidence of any execution of the TR1 by either purchaser, and as such this did not represent an express declaration of trust. The court therefore went on to determine if a constructive trust had been formed.
In Taylor, a decision by a Chancery Division Judge, the opposite result was reached, with the judge finding that while the purchasers had not signed the TR1, the signature of the transferors on the TR1 was sufficient to meet the requirements of S.53. Judge Paul Matthews stated that “while the purchasers would have been able to declare such trusts once the legal titled had been conveyed to them, at the time when the transferors signed the form they were the legal and beneficial owners of the land and well able to declare such trusts. On the face of it, if A conveys to B on trust for C, only A’s signature on a declaration of trust is required.”
It was argued before him that this could not apply where there was a sale of the property, because the effect of the contract was to pass the beneficial interest in the property to the purchaser prior to completion, subject to the vendor’s lien. The judge rejected this analysis however, noting that this would create a scenario where upon signing the contract A would be holding the land on trust for B, but B would not be intended to hold beneficially.
The judge instead held that the correct interpretation was that a constructive trust arises on a contract to purchase land as a form of equitable protection for the purchaser. He stated that it was a product of the contract that anticipates the position on completion on the footing that the purchaser is ready and willing to complete. He accepted that the vendor retains considerable residual rights over the property during this time, but he considered that the term “lien” was an inapt term given that should the purchaser fail to pay, the vendor was free to sell elsewhere without accounting to the purchaser should he sell for a higher price.
In a nutshell, the Judge held that the contractual provisions did not alter the fact that until the property has been transferred, the beneficial interest remains with the vendor and as such at the time the declaration is signed he was someone “who is able to declare such trust or by his will”. The TR1 was therefore a valid declaration of trust and was determinative of the beneficial interests.
The Current situation
How then to differentiate these two apparently contradictory outcomes? One difference is that in Taylor the judge was satisfied that the solicitors conducting the purchase had been acting under the instructions of both parties. Conversely, in Insol the Defendant stated that the difference between joint tenants and tenants in common was never explained to her by their solicitor, and that she had few dealings with the solicitors compared to her ex-partner.
However, to distinguish them on this basis would be to conflate the formal requirements of an express declaration of trust with the process of establishing a constructive trust. Cases like Pankania have made it clear that an express declaration of trust is binding, and that the true intention of the parties is only valid in respect of a claim for rectification. In the absence of such a claim, all that should matter is whether S.53 has been complied with. To do otherwise would be to bring the legal position back to a declaration being merely “a matter of intention” as in Roy v Roy and remove the certainty that an express declaration of trust is intended to provide.
It is notable that one reason for the differing decisions is that the argument that the seller’s signature alone can meet the requirements of S.53(1)(b) was not raised in Insol. Meanwhile the reasoning in Taylor can be criticised as being somewhat artificial in that the “declaration” in question has not been signed or made by those who are to be bound by it.
In any event, for the moment it is unclear which of the decisions would be binding on the county courts and until these contrary finding are resolved by appeal this will remain the case. In the meantime it would be wise for those in similar circumstances who seek to depart from such a tickbox declaration to include a claim for rectification in their pleadings, rather than simply relying on a lack of signature.
  UKHL 17
  5 WLUK 273
  EWCA Civ 1438
  Fam 106
  EWHC 1080 (Ch)
  EWHC 1822 (Ch)
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