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You are here: BAILII >> Databases >> The Law Commission >> Law Commission's 39th Annual Report 2004/05 (Report) [2005] EWLC 294(6) (14 June 2005) URL: http://www.bailii.org/ew/other/EWLC/2005/294(6).html Cite as: [2005] EWLC 294(6)

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PART 6

PROPERTY AND TRUST LAW

TEAM MEMBERS^[1]

Government Legal Service

Matthew Jolley (Team Manager)

Judith Cairns, Julia Jarzabkowski,

Jonathan Teasdale

Research Assistants

Emily Duckworth, Stella Rozanski,

Joel Wolchover



Mr Stuart Bridge

Commissioner

Compulsory purchase project

6.1      In December 2004 the Law Commission completed its review of compulsory purchase law by publishing a final report on Procedure.^[2] This followed on from the Commission's 2003 final report on Compensation.^[3] The event was marked by a launch at the House of Lords attended by around 75 experts in the field.

6.2      The Procedure report recommends the simplification and modernisation of the rules governing the compulsory purchase of land, and aims to balance the rights of landowners and the public need for redevelopment and regeneration. The new rules outlined in the report address all processes for the compulsory acquisition of land, from how compulsory purchase is authorised and implemented, to the means by which an acquiring authority takes possession and secures title to the property.

6.3      It has been clear from the reaction of practitioners and stakeholders, in consultation and in the press, that compulsory purchase law is in desperate need of reform. The Commission hopes that the Government will now find an early opportunity to promote amending legislation in this field, and that such legislation will be substantially informed by the Commission's detailed analysis and recommendations.

Termination of tenancies for tenant default

6.4      This project examines the means whereby a landlord can terminate a tenancy where the tenant has not complied with his or her obligations. This is an issue of practical importance for many landlords and tenants of both residential and commercial properties. The current law is difficult to use and littered with pitfalls for both the lay person and the unwary practitioner.

6.5      We outlined provisional proposals for reform in a consultation paper^[4] published in January 2004. These proposals were based on earlier Law Commission work in this area and take account of the implementation of the Human Rights Act 1998, the Civil Procedure Rules and more recent developments in case law. The provisional proposals relate only to termination of tenancies for tenant default, and apply to fixed term commercial leases and residential leases in excess of 21 years.

6.6      The consultation paper attracted interest and comment from practitioners, academics and groups representing both landlords and tenants. We hope to publish a final report and draft bill by the end of 2005.

Easements and analogous rights

6.7      The law of easements,^[5] analogous rights and covenants is of practical importance to a large number of landowners. For example, many landowners depend on easements in order to obtain access to their property, for support or for drainage rights. The relevant law has never been subject to a comprehensive review, and many aspects are now outdated and a cause of difficulty.

6.8      The Commission is therefore examining easements and analogous private law rights with a view to their reform and rationalisation. This work will involve a reconsideration of our earlier work on land obligations.^[6] The aim is to produce a coherent scheme of land obligations and easements which is compatible with both the commonhold system and the system of registration introduced by the Land Registration Act 2002.

6.9      We are nearing the end of an initial review of this difficult and extensive area of the law, and expect to publish a consultation paper before the end of 2005.

Trustee exemption clauses

6.10      A trustee exemption clause is a clause in a trust instrument which excludes or restricts a trustee's liability for breach of trust, either by expressly excluding liability or by modifying the trustee's powers and duties. Case law has established that such clauses are able to relieve the trustee from liability for anything except dishonest conduct. As a result, beneficiaries may find themselves with no remedy against a trustee who has caused loss to the trust fund by its actions or omissions.^[7]

6.11      The Commission published a consultation paper^[8] on trustee exemption clauses in January 2003, which included several provisional proposals which would require legislation. The paper also invited the views of consultees on other possible options for reform and on the economic implications of any regulation of trustee exemption clauses. We received 118 consultation responses, including a detailed paper from a Working Group of the Financial Markets Law Committee on the impact of the provisional proposals on trusts in financial markets.

6.12      We have now returned to the Trustee Exemption Clauses project after concentrating on other trust work^[9] and expect to produce a report and draft Bill towards the end of 2005.

Capital and income in trusts: classification and apportionment

6.13      The current law on the classification of trust receipts and outgoings as income or capital is complex and can give rise to surprising results.^[10] The complicated rules which oblige trustees to apportion between income and capital in order to keep a fair balance between different beneficiaries are also widely acknowledged to be unsatisfactory. They are technical, rigid and outdated, often causing more difficulties in practice than they solve. As a result their application is often expressly excluded in modern trust instruments.^[11]

6.14      The distinction between trust income and capital receipts is also an important issue for charities. Many charitable trusts have permanent capital endowments which cannot be used to further the charity's objects; only the income generated can be used and there is generally no power to convert capital into income. This may inhibit performance of the charity's objects and encourage investment practices which concentrate on the form of receipts rather than on maximising overall return.

6.15      The Commission published a consultation paper on this subject in July 2004.^[12] It provisionally proposed new, simpler rules for the classification of corporate receipts by trustee-shareholders, a new power to allocate investment returns and trust expenses as income or capital (in place of the existing rules of apportionment) and the clarification of the mechanism by which trustees of permanently endowed charities may invest on a "total return". We expect to publish a report and draft Bill in Summer 2006, dependent on the project on trustee exemption clauses.

The rights of creditors against trustees and trust funds

6.16      Whenever trustees enter into a contract they do so personally, incurring personal contractual obligations and (subject to express contractual provision) personal liability to the other contracting party. A trustee has a right to be indemnified from the trust fund for obligations properly incurred. However, where the obligation was not properly incurred no such right exists and the trustee will have to make good any liability out of their own pocket (even if the trust fund is sufficient to meet it).^[13]

6.17      Many trustees and creditors are unaware of these rules, believing that, in effect, the trust itself is entering into the contract and that as a result the trust fund will always be available to meet trust obligations. Even if the contracting party is aware of the true position it will often be difficult or impossible for it to assess with certainty whether the trustee will be able to indemnify itself out of the trust fund.

6.18      In considering how, if at all, this situation could be improved the Commission will have to balance the position of creditors with the competing interests of beneficiaries who benefit from the current protection given to the trust fund. This project will commence when both current trust projects have been completed, which we expect to be no later than 2006.

Cohabitation

6.19      The Ninth Programme of Law Reform includes an important new project on Cohabitation, which will focus on the financial hardship suffered by cohabitants or their children on the termination of their relationship by separation or death. It will restrict its review to opposite sex or same sex couples in clearly defined relationships. While there need not necessarily be a sexual element to the relationship, at the very least the relationship should involve cohabitation and bear the hallmarks of intimacy and exclusivity, giving rise to mutual trust and confidence between partners. Relationships between blood relatives (such as elderly parents and their adult children, and siblings), "caring" relationships, and "commercial" relationships (landlord and tenant, or landlord and lodger) will be specifically excluded from consideration.

6.20      Particular attention will be given to:

(1) capital and income provision on relationship breakdown;

(2) capital provision where there is a dependent child or children;

(3) intestate succession and family provision on death; and

(4) the Inheritance (Provision for Family and Dependants) Act 1975.

6.21      The project will also consider the place of cohabitation contracts and the extent to which cohabitants should be free to make and to enforce agreements concerning their potential liabilities to make capital or income provision following separation.

6.22      A number of issues are specifically excluded from the review. Parental responsibility is excluded on the grounds that it has already been recently considered and legislated upon in the Adoption and Children Act 2002. Next of kin rights are excluded on the basis that the Department of Health has recently amended its policy guidance to NHS staff to extend consultation with next of kin to include unmarried partners. The Department for Constitutional Affairs have asked that insolvency, tax and social security should be excluded on the basis that a consideration of these issues would not address the most immediate policy needs.

Feudal land law

6.23      The land law of England and Wales contains several residual but significant elements dating from 1066. During feudal times all land was ultimately held "of the monarch" (that is, by grant from the monarch) in return for services, usually of an agricultural or military nature. After various reforms^[14] land was no longer held on tenure by service but the concept of tenured landholding survives. The majority of land ownership comprises an estate in land that is held of the Crown because the Crown remains the ultimate or "allodial" owner of the land. In certain circumstances even the fee simple, the greatest estate in land, ends with the land reverting to the Crown in a feudal process called escheat.

6.24      Reform is necessary for a number of technical and practical reasons. First, it makes little sense to have a partial retention of feudal land law for 21st century land holdings. Land law has, in most major respects, moved on from ancient concepts and practices and it is inconsistent that remnants remain in operation. Secondly, the remnants that do remain cause uncertainty to members of the public, to practitioners and to the courts due to their complex and archaic nature and their incompatibility with modern case and statute law. Finally, there is an unnecessary and confusing overlap in the main area in which feudal land law finds modern expression: the treatment of ownerless land.^[15]

6.25      The Commission initially sought to reform this area of the law as part of its project on Land Registration.^[16] During the course of the project, however, far-ranging reform of feudal land law was postponed and "stop-gap" measures substituted. It was felt that more time and further research was needed to understand fully both the law and the best means of reforming it and to gain the agreement of interested parties.^[17] Nevertheless, the report called in very strong terms for wholesale reform to follow as "the present law is indefensible".^[18] Feudal land law is included in the Ninth Programme of Law Reform, and work is expected to commence following completion of the project on Termination of Tenancies for Tenant Default.

Note 1    Including those who were at the Commission for part of the period.    [Back]

Note 2    Towards a Compulsory Purchase Code: (2) Procedure (2004), Law Com No 291.    [Back]

Note 3    Towards a Compulsory Purchase Code: (1) Compensation (2003), Law Com No 286.    [Back]

Note 4    Termination of Tenancies for Tenant Default (2004), Law Com No 174.    [Back]

Note 5    An easement is a right enjoyed by one landowner over the land of another. A positive easement involves a landowner going on to or making use of something in or on a neighbour’s land. A negative easement is essentially a right to receive something (such as light or support) from the land of another without obstruction or interference.    [Back]

Note 6    Including Transfer of Land: The Law of Positive and Restrictive Covenants (1984), Law Com No 127.    [Back]

Note 7    A state of affairs that has been widely criticised, for example, by Lord Goodhart in the House of Lords during the Second Reading of the Trustee Bill in 2000, and by the independent Trust Law Committee in their consultation paper on the subject.    [Back]

Note 8    Trustee Exemption Clauses (2003), Law Com No 171.    [Back]

Note 9    The Classification and Apportionment project commenced while waiting for key responses to the Trustee Exemption Clauses consultation paper.    [Back]

Note 10    For example, where shares in a new company are issued to the shareholders of an existing company on what is known as an “indirect” demerger, those shares will be treated for trust purposes as capital. Where the demerger is “direct” the shares received will be treated as income in the trustee’s hands.    [Back]

Note 11    In cases where the rules still apply (generally older trusts and home-made will trusts) the rules are either ignored or require the trustee to undertake complex calculations which are unlikely to have been envisaged by the settlor when setting up the trust.    [Back]

Note 12    Capital and Income in Trusts: Classification and Apportionment (2004), Consultation Paper 175.    [Back]

Note 13    There are various reasons why a trustee may lose the right to be indemnified out of the trust fund. For example, because entry into the contract was in breach of the trustee’s equitable duties. In such circumstances the contracting party will have to rely on the solvency of the trustee.    [Back]

Note 14    Including the Quia Emptores in 1290 and the Tenures Abolition Act of 1660.    [Back]

Note 15    That is, the doctrines of escheat and bono vacantia.    [Back]

Note 16    Land Registration for the Twenty-First Century – A Conveyancing Revolution (Law Com No 271). This joint project with HM Land Registry was implemented in the Land Registration Act 2002.    [Back]

Note 17    Law Com 271, para 11.27.    [Back]

Note 18    Law Com 271, para 11.26.    [Back]