Orders for sale

Topics covered on this page are:

  • The court's powers when ordering a sale to give one of the beneficiaries an opportunity to purchase.
  • The position on bankruptcy including where there are children involved.
  • Excluding benefiaries under s13 and so effectively partitioning the property.

 

Giving beneficiary opportunity to purchase

No power to order sale by one beneficiary to another

But beneficiary given first opportunity to purchase

Bagum v Hafitz and Hai

[2015] EWCA Civ 801

Summary

The Court had no power to order one beneficial owner to sell its interest to another. However, there was power to order a sale of the property and to provide that another beneficial owner should have the first opportunity to buy the property on terms.

Facts

C and her two sons, D1 and D2, owned a property as tenants in common in equal shares. Following a breakdown in family relations between D2 and C and D1, D2 moved out. At the trial of a preliminary issue, C sought an order for the purchase by D1 of D2’s one-third beneficial interest in the property. The primary issue was the scope of the court’s power to make the order sought. At first instance the judge held that she had no jurisdiction to make an order directing one beneficiary to sell to another. Therefore, she ordered that the property should be sold and that D1 should have the opportunity to buy it for a price determined upon valuation evidence by the court, failing which the property should be sold on the open market, with liberty for all the beneficial owners to bid. D2 appealed asserting that the judge had no jurisdiction to make the order under the Trusts of Land and Appointment of Trustees Act 1996 ("TOLATA").

Decision

On appeal the Court of Appeal dismissed the appeal. The Court held that the judge was correct in her decision as to her jurisdiction under TOLATA, and that her exercise of the wide discretion conferred by sections 14 and 15 of that Act could not be challenged. Briggs LJ held that the court has no power under section 14 of TOLATA to order or direct that one beneficiary under a trust of land sell or transfer their beneficial interest to another beneficiary. Section 14(2), which confers certain powers, provides only that “The court may make any such order - … relating to the exercise by the trustees of any of their functions… as the court thinks fit.” He said:“It is, in my judgment, no part of the functions of trustees of land to deal with or dispose of beneficial interests under the trust, whether by sale or otherwise, at least not directly.”Turning to the issue of whether the judge had the power to order the trustees to sell to a beneficiary when the other beneficiaries did not agree to the sale, Briggs LJ said:

    “I consider that the clear object and effect of sections 14 and 15 is to confer upon the court a substantially wider discretion, exercised upon the basis of wider considerations, than might be enjoyed by the trustees themselves, acting without either the consent of their beneficiaries or an order of the court.”

The judge's order, that there should be a sale of the trust property, preceded by the conferring upon one of the beneficiaries, of an opportunity to be the purchaser on terms was within the Court’s jurisdiction under section 14(2)(a) of TOLATA.

Although the order was unusual the judge had properly directed herself. She had carefully analysed the intentions of the persons creating the trust, and the purposes for which the trust had been created, namely to secure the continued availability of the property as a home for C and D1.

 

Is one owner allowed to buy out the other without sale being tested on the market?

Relationship between co-ownership and partnership

Executors of the estate of Roger John Kingsley v Kingsley

[2020] EWCA Civ 297

Summary

This case concerns the relationship between partnership and The Partnership Act 1890, and co-ownership and the Trusts of Land and Appointment of Trustees Act 1996. The trial judge had been entitled to order the sale of the farm land (which had not been owned by the partnership) to one of the co-owners at what he determined to be the value of the estate's share based on a market value of the land which he fixed, without the land being exposed to an open market sale.

Facts

Until 2015 Roger and Sally Kingsley (who were brother and sister) farmed land in Hertfordshire in partnership. The principal land on which they farmed (the land in relation to which this appeal arose) was owned by them beneficially in equal shares, but it was not held as a partnership asset but the partnership was allowed to trade from this land. The profits were shared two-thirds to Roger and one-third to Sally. No rent was treated as payable by the partnership to the landowners, whether in the partnership accounts or otherwise.

When Roger died in June 2015 his wife and the second claimant became executors of his will. Sally remained in occupation of the land, continuing a farming business but there was a dispute as to whose business it was—hers or the partnership's.

The executors brought a claim against Sally. The executors sought (i) the winding up of the partnership and (ii) an order for the sale of the farm land under the Trusts of Land and Appointment of Trustees Act 1996 (“the 1996 Act”), including the usual orders for (iii) all necessary accounts and enquiries and (iv) an order for the production of the books and records of the Partnership under s24(9) of the Partnership Act 1890.

Sally agreed the partnership should be wound up, with all necessary accounts and enquiries and that the farmland should be sold but sought an order that she should be entitled to buy it at a price determined by the Court.

First instance

The trial judge held that Sally should have the opportunity of purchasing the farm land at what he determined to be the value of the estate's share based on a market value of the land which he fixed, without the land being exposed to an open market sale. Despite an open admission she ought to pay an occupation rent it was held was not liable to pay the estate an occupation rent in respect of her occupation since her brother’s death.

The executors appealed that decision on the basis that of the 1996 Act and the authority of Bagum v Hafiz  (see above) the Judge should have dealt with as if it were a partnership matter arising under s39 of the Partnership Act 1890, which would have meant that a sale on the open market.

Issue

Whether, the judge should have made an order for a sale in the open market, in order to get a price for the land determined by the market, while giving Sally the right to bid with others.

Decision on appeal

The judge’s order one the sale was upheld.

  • On its true construction, the order was one for the sale by the trustees of trust property. Paragraph 1 of the ordered made it clear that the properties as a whole were to be sold to Sally for the sale of the whole legal and beneficial interest, which was within the court’s powers to order under the 1996 Act. What then followed in the order was a mechanism under which Sally discharged the price by paying only half of it to the executors. That does not make it any less a sale of the legal estate carrying the beneficial interest. As a matter of conveyancing, the order technically, and in substance, is an order for the sale of the properties and not for a sale of the executors’ beneficial interest in the properties. (Briggs LJ in Bagum v Hafiz (at para 20) - see above - applied.
  • The case of Bagum was not authority for the proposition that there is some sort of valuation threshold to be overcome. On the contrary, it is authority for the proposition that valuation, and the risk that the court-assessed value would not necessarily be the same as the price in an open market sale, was clearly found to be a discretionary matter.  Article 1, of Protocol 1 as enacted by the Human Rights Act 1998 was not breached where there was compliance with s15 of the 1996 Act (National Westminster Bank plc v Rushmer [2010] 2 FLR 362). Furthermore, there was no absolutist approach to questions of value which would require testing the market in all cases of sale. As per James v United Kingdom (1986) 8 EHRR 123 A1P1 did not guarantee a right to full compensation in all circumstances. There is nothing in A1P1 which drives the court to require full market testing in cases where the discretion under section 15 was being exercised or required that any exercise of discretion had to indisputably preserve full value.
  • The trial judge had taken account of all relevant maters in his overall assessment, and without inconsistency. The farmland had not been partnership property so although the provisions of s39 of the Partnership Act 1890 might be analogous, it was no more than that and its provisions were very different from those of the 1996 Act.

 

Bankruptcy

Introduction

On an application by a trustee in bankruptcy of a beneficial co-owner of real property, the court can declare the parties' beneficial interests and consider making an order for sale under s14 Trusts of Land and Appointment of Trustees Act 1996. However, by s 335A(1) Insolvency Act 1986, an application for an order for sale has to be made to the court having jurisdiction in relation to the bankruptcy, and the court is required to have regard to the further matters in s 335A(2)-(3).

Statutory provisions

The relevant provisions of the Insolvency Act (as amended) are as follows:

335A Rights under trusts of land

 

(1) Any application by a trustee of a bankrupt's estate under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (powers of court in relation to trusts of land) for an order under that section for the sale of land shall be made to the court having jurisdiction in relation to the bankruptcy.

(2) On such an application the court shall make such order as it thinks just and reasonable having regard to:

  (a) the interests of the bankrupt's creditors; (b) where the application is made in respect of land which includes a dwelling house which is or has been the home of the bankrupt or the [bankrupt's spouse or civil partner or former spouse or former civil partner]:
(i) the conduct of the [spouse, civil partner, former spouse or former civil partner], so far as contributing to the bankruptcy, (ii) the needs and financial resources of the [spouse, civil partner, former spouse or former civil partner], and (iii) the needs of any children; and
(c) all the circumstances of the case other than the needs of the bankrupt.

(3) Where such an application is made after the end of the period of one year beginning with the first vesting under Chapter IV of this Part of the bankrupt's estate in a trustee, the court shall assume, unless the circumstances of the case are exceptional, that the interests of the bankrupt's creditors outweigh all other considerations.
(4) The powers conferred on the court by this section are exercisable on an application whether it is made before or after the commencement of this section.

It will be noted that where the application is made after one year from the date on which the bankrupt's estate first vests in his trustee, subsection (3) imposes a statutory assumption that unless the circumstances are exceptional the interests of the bankrupt's creditors outweigh all other considerations.

 

Exceptional circumstances

Nicolls v Lan and Nicholls

[2006] EWHC 1255 (Ch)

Paul Morgan QC sitting as a Deputy High Court Judge

Summary

In this case the High Court Judge on appeal had to consider the exercise of discretion by the District Judge, and the application of the above provisions.

Facts

The facts were fairly unusual. Mr N had been discharged from bankruptcy in September 1998 but a trustee was appointed in May 2003 and subsequently applied for a declaration as to Mr and Mrs N's respective beneficial interests in a property, and for an order for sale. The Judge commented that the appointment and application were probably prompted by the limitation period on applications for sale subsequently imposed by the Enterprise Act 2002.

First instance

The District Judge declared that the parties were beneficially entitled in equal shares. On the question of whether there were exceptional circumstances in s 335A(3), he held that on the psychiatric evidence of Mrs N's chronic schizophrenia, there were. A significant feature at trial was that Mrs N's Counsel presented an open offer of compromise, in which he proposed an order for sale, suspended on terms but which involved securing the trustee's interest over another property of which Mrs N was interested with her brother. The District Judge held that he had no jurisdiction to make an order in accordance with the proposed offer, because it extended to other property, not the subject of the present application. He therefore went on to carry out the balancing exercise having regard to the matters in s 335A(2), and concluded that there should be an order for sale; that the trustee should have conduct of the sale; and that the vacant possession should be delivered up within 18 months of the date of the order. Mrs N appealed.

Decision

It was held that the District Judge did have jurisdiction to make an order for possession suspended on such terms as he thought appropriate, until the happening of certain specified events, as reflected in the open offer. However, that did not result in the order being set aside because the District Judge had said that even if he had felt that he had jurisdiction to make the order suggested, on the basis of the open offer, in his discretion he would have refused to do so.

As to the challenge to the exercise of the District Judge's discretion to order sale, the case raised yet again, the scope of the appellate court's powers to interfere. Since the appeal amounted to a challenge to the balancing exercise carried out by the District Judge, it was held that an appellate court could only interfere if the judge had erred in law in his interpretation of s 335A, or in some other respect, such as leaving out of account relevant considerations or taking into account irrelevant considerations, or otherwise being plainly wrong in his conclusion.

The Judge reviewed the various competing factors considered by the District Judge: the effect of the psychiatric evidence; the impact on Mrs N being forced to leave the matrimonial home; the problems of being pushed into sharing with her brother etc. He also reviewed the allegation that too much weight had been attributed to the interests of the bankrupt's creditors, relying on Article 8 of Schedule 1 to the Human Rights Act 1998.

The Judge held, on authority (Jackson v Bell [2001] EWCA Civ 387) that the statutory balancing exercise in s 335A was not inconsistent with the qualified nature of Mrs N's rights under Article 8 or Article 1 of the First Protocol.

Overall, it was held that the District Judge did not commit any error which would allow an appellate court to interfere with his discretion as to what was just and reasonable for the purposes of s 335A.

 

Children

Grant v Baker

[2016] EWHC 1782 (Ch)

Summary

At first instance the County Court ordered the sale of the bankrupt’s property to be postponed until his disabled child no longer lived there. The High Court allowed the appeal and ordered a sale after approximately 12 months.

Facts

A husband and wife had a 30-year-old disabled daughter who was unable to live on her own. Trustees in bankruptcy applied for the sale of the property which was jointly owned by the bankrupt and his wife. The County Court ordered that the trustees were entitled to one half of the beneficial interest in the property and that the wife was entitled to the other half. Sale of the property was postponed until the disabled child no longer resided at the property but no date was given. The trustees appealed from part of the order.

Issue

Whether a finding of exceptional circumstances under s. 335A(3) of the Insolvency Act 1986 permitted a Judge to exercise a discretion so as to indefinitely postpone an order for sale.

Decision

The High Court allowed the appeal. The District Judge had erred significantly in the exercise of her discretion, it would be replaced with the longest further postponement that it could be reasonable to impose, which was one of approximately 12 months.

The District Judge had been clearly entitled to find that the circumstances of the present case were exceptional. This displaced the presumption that the interests of the husband’s creditors outweighed all other considerations under s. 335A(3) of the Insolvency Act 1986. However, the District Judge had paid insufficient attention to the requirement in s. 335A(2)(c) to have regard to “all the circumstances of the case other than the needs of the bankrupt”.

One of those considerations was that under section 283A(2) of the Insolvency Act 1986, the bankrupt's family home revests in the bankrupt automatically on the third anniversary of the bankruptcy order unless the trustee in bankruptcy takes certain actions, such as applying for an order for sale. As Henderson J said,

        “If, as in the present case, the trustee does take action within the requisite period, it seems to me that the court should then exercise its powers under section 335A with the object of enabling the bankrupt's interest in the property to be realised and made available for distribution among his creditors. Only in that way can the underlying purpose of the bankruptcy legislation be achieved.”

The District Judge had failed to give appropriate weight to the fundamental point that an indefinite suspension of the order for sale, for a period that could be measured in decades, is incompatible with the underlying purpose of the bankruptcy code. There was no evidence that the daughter’s life expectancy was lower than normal, so the effect of the Order was that the sale could be postponed for many years, or even decades. In all save the most truly exceptional circumstances, that purpose must require realisation within a much shorter time frame, normally to be measured in months rather than years.

The District Judge had been unduly influenced by the perceived lack of security for the disabled daughter of moving into rented accommodation.

 

Division of the property

Section 13 of the 1996 Act

Rodway v Landy [2001] EWCA Civ 471

Under s13 of the Trusts of Land and Appointment of Trustees Act 1996 trustees and the court have power to exclude particular beneficiaries from part or parts of the property and thus to partition it between them for purposes of occupation.

In this case GPs in a practice were in dispute. The court refused to order a sale of the practice premises as requested by one of them but instead divided up the property into different areas of occupation.

 

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