§ 11.6 a.m.
§ The Lord Advocate (Lord Mackay of Drumadoon)
My Lords, I beg to move that this Bill be now read a second time.
This is a useful measure of law reform which derives from recommendations of the Law Commission in two reports. It gives effect, with minor changes, to the recommendations in the report on Transfer of Land: Trusts of Laud (Law Corn. No. 181), and also gives effect to the second recommendation, which concerns bare trusts, in the report on Overreaching: Beneficiaries in Occupation (Law Com. No. 188). Rather than detain your Lordships for a long time with a detailed explanation of the somewhat technical provisions of the Bill, I propose, with your Lordships' leave, to explain the Bill's provisions in fairly broad terms. Fuller explanation of the current law and the proposed changes may be found in the two Law Commission reports to which I have referred, and full Notes on Clauses will also be available to any noble Lord who wishes to examine the technical provisions in greater detail. Since the Bill was introduced there has been a substantial opportunity for commentators, practitioners and professional bodies to consider the Bill in detail, and many helpful comments and suggestions for improving the Bill have been received, to which the Government will endeavour to give as positive a response as possible.
The Bill extends to England and Wales only. It amends and replaces much of the law governing joint ownership of land, which was last changed significantly by the property legislation of 1925, in particular the Law of Property Act 1925, which did away with most of the complications of the old, essentially feudal law. Indeed this Bill represents an arguably overdue development of the process of simplification which, although most obviously represented by the 1925 legislation, began in the late 19th century.
s The 1925 legislation simplified conveyancing by ensuring that a purchaser should not as a rule have to undertake lengthy investigation of the beneficial interests in the property, but can take free of them if the relevant statutory machinery is used. It restricted joint ownership of land to two forms: the strict settlement, where land is limited in trust by way of succession, and which is rarely used today; and the trust for sale, where the legal interest is held by a trustee or trustees on trust for sale for those who have the beneficial interest. If the appropriate statutory machinery is used (generally conveyance by two trustees for sale or a trust 1718 corporation), the beneficial interests are "overreached" and transferred from the land to the proceeds of sale, and thereby cleared off the title so that the purchaser takes free of them. Certain interests cannot be overreached; namely, legal interests and those which are protected either by registration where the land is registered or because the purchaser has actual notice of them where the land is not registered.
There are three main problems with the existing law in this area. First, although it represented a considerable simplification of the law in its day, it is unnecessarily complicated, and the settled land provisions particularly so. Those provisions in particular have been recently described as redolent of a world which was already dying in 1925 and has long since disappeared. Secondly, because of the priority which the 1925 legislation gives to settled land, it is possible for testators or grantors to trigger the complex settled land provisions unintentionally, thereby causing problems and expense for both beneficiaries and purchasers. Thirdly, the trust for sale mechanism is not appropriate to the conditions of modern home ownership, which represents the majority of jointly-owned real property, since it is based on an assumption that property which is not subjected to a strict settlement is intended as an investment rather than as a home, to be bought and sold as market conditions demand, with the beneficiaries being interested in the proceeds of sale rather than the property for its own sake.
The Bill replaces trusts for sale and strict settlements with a new single system of co-ownership of land known as the "trust of land". Trusts for sale are abolished and existing trusts for sale become trusts of land as from commencement. The creation of new settlements after commencement is prohibited, although it will be possible for a similar effect to be achieved by express provision in a trust of land, as I shall explain later. Existing settlements, however, are left untouched and subject to the existing regime for as long as there remains land or heirlooms subject to the trusts of the settlement. In addition, there is an exception allowing resettlement of settlements in existence at commencement, and settlements created in the exercise of powers of appointment contained in settlements in existence at commencement. These provisions will avoid problems with settlements which may have been in existence for a long time.
Under the trust of land, title is vested in the trustees, who are given power both to sell and to retain the land, rather than being placed under a duty to sell. As a consequence, the doctrine of conversion, under which a joint beneficial interest in land is deemed to be an interest in the proceeds of sale rather than in the land itself, is abolished. The resulting position reflects the fact that most co-ownership of property is for the purpose of providing a home rather than an investment, and that most joint home owners already believe themselves to have an interest in land rather than in money. Existing protection for purchasers of land subject to a trust by way of the overreaching machinery is to be maintained and will cover all cases of co-ownership except existing settlements, so that conveyancing will be simplified. In accordance with the 1719 Law Commission's recommendation in the overreaching report, this will include bare trusts which presently fall outside the statutory scheme.
The Bill makes detailed provision for the administration of the trust of land, giving the trustees broad and flexible powers balanced against extra rights for the beneficiaries. Trustees of land will have, in relation to the land which is subject to the trust, all the powers of an absolute owner. This does not override any restrictions on trustees' powers under any other enactment. It is also subject to the requirement to act in accordance with the trust instrument, which may expressly limit the trustees' powers, and with the general equitable duties attaching to the position of trustee, in particular the duty to have regard to the interests of the beneficiaries in exercising such powers.
A particular power specifically conferred on trustees of land enables them, acting unanimously, to delegate any functions relating to the land to any beneficiary who is of full age and capacity and who has a present vested interest. This will, among other things, permit the effect of a strict settlement to be broadly reproduced, but without the possibility of creating a settlement unintentionally, which is one of the main problems of the existing law.
These powers are further balanced against additional rights for the beneficiaries, such as a right for beneficiaries of full age and capacity to be consulted about the management of the property unless the trust deed provides otherwise; and a right for beneficiaries in certain circumstances to occupy land subject to the trust.
The existing provision for enabling application to the court to resolve disputes over ownership or disposal of the property is also simplified, with flexible guidelines reflecting the different purposes for which the property may have been bought. This will carry through the effect of the existing provision under Section 30 of the 1925 Act as it has been applied and developed by the courts, with the amendments necessary to ensure that the court's powers are sufficiently broad and flexible to reflect the nature and purpose of the trust.
The Bill also makes detailed provision for such matters as the application of the new regime to trusts of the proceeds of sale of land, and to the position of personal representatives.
The detailed provisions of Part I of the Bill apply only to trusts of land. Part II makes provisions which will apply to trusts of personalty as well as trusts of land, concerning the appointment of new trustees, for example, where a trustee has become unfit or incapable or wishes to be discharged. These provisions, which apply only where all the beneficiaries are both ascertained and of full age and capacity, give them the right, which would be required to be exercised unanimously, to direct the appointment of a new trustee or trustees. In addition, trustees intending to make such an appointment are required to notify the beneficiaries and give them the option of giving a direction to appoint another person or persons. It is in recognition of the fact that these provisions extend beyond trusts of land that 1720 the Short Title of the Bill has been changed from the Bill annexed to the Law Commission's report, the title of which was the Trusts of Land Bill.
Finally, Part III of the Bill makes general provision for such matters as interpretation, commencement and for consequential amendments and repeals of other legislation.
I began by suggesting that I would not go into the provisions of the Bill in great detail. Having heard what I have had to say, your Lordships will no doubt be very grateful that I chose not to do so. The Bill is of a highly technical nature, but it is reassuring that apparently it has support. I believe this to be a useful measure of law reform which will simplify an area of the law which has become somewhat arcane but which in practice affects a great many people, particularly homeowners. I commend the Bill to the House.
Moved, That the Bill be now read a second time.—(Lord Mackay of Drumadoon.)
§ Lord Mishcon
My Lords, it takes a Lord Advocate with the clarity of mind and speech of the noble and learned Lord to introduce the Second Reading of this highly technical and to a large extent esoteric Bill with comparative simplicity, and even succeed in making it sound interesting. In speaking for the Official Opposition I have the pleasant task of congratulating him on that introduction, and of thanking the Law Commission for its two reports and for all the work and erudition that went into them, while noting, as I am sure the House will, that these reports were made as long ago as 1989. I can tell the House that the Law Society, as well as leading academics, having been extensively consulted as the noble and learned Lord mentioned, approves generally of the principles governing this Bill, and that this is one of those occasions when the Opposition can announce that the government measure is not opposed and indeed has their support.
Any necessary modernisation or tidying up of the law is a good thing. That is what the Bill achieves, based as it is, with some fairly minor amendments, on the two Law Commission reports which have been summarised by the noble and learned Lord.
Trust law has never been simple, but it did not have to be as complex as it has been, or as self-defeating, by having different legal consequences resulting from trusts for sale and strict settlements in respect of land. The basic proposition in the Bill, as it was in the recommendations contained in the Law Commission's two reports, is to have a new, single system of co-ownership of land known as "the trust of land". That will apply to all trusts of land, including bare trusts, but excepting strict settlements under the Settled Land Act 1925 already in existence when the Bill becomes law and is effective, and certain new settlements derived from such settlements.
I express my appreciation to the noble and learned Lord the Lord Advocate and to the noble and learned Lord the Lord Chancellor, which they in turn may wish to pass on to or share with Parliamentary Counsel, for their decision not to follow the form of the draft Bills which, with its usual helpfulness, the Law Commission 1721 attached by way of appendix to its two reports. As the noble and learned Lord the Lord Advocate knows, the present Bill has been extensively redrafted as against the method adopted in the commission's draft of textual amendment of existing legislation. That is, and especially in this instance would be, a cumbersome and confusing method by which to legislate, and would not be appreciated by legal practitioners, not to mention the unfortunate proverbial occupant of the Clapham omnibus in the event of his choosing this Bill as light reading on his journey. Instead of adopting such a procedure, the reforming measures provided in the Bill are formulated as new, freestanding provisions.
I should also like to emphasise, as did the noble and learned Lord, the importance of the manner in which under the Bill trustees have been given broader and more flexible powers and beneficiaries, for their part, rights which they do not now have. Included in those rights is a very new one, where beneficiaries not only under trusts of land but of personalty become entitled in certain circumstances where it is necessary to appoint somebody new as a trustee to direct the trustees to appoint someone of their own choice. Under Clause 19 of the Bill trustee are required to serve notice of intention to appoint a new trustee on their beneficiaries if all are of full age and capacity and to give the beneficiaries the opportunity to exercise by direction their right to choose a trustee themselves.
Clause 21 of the Bill gives the beneficiaries a similar right to choose a trustee where an existing trustee is mentally incapable and there are no other trustees willing and capable of making an appointment. The Law Society has suggested that those provisions could give rise to some difficulties in practice and that trustees may in future want to ensure that trusts and wills expressly confer power of appointment in order to avoid their operation.
While dealing with the right to nominate trustees perhaps I may mention that the Bill does not appear to deal with any overlap with the Pensions Act 1995, which includes some similar provisions; for example, members of pension schemes having the right to nominate trustees. I understand that draft regulations under that Act are the subject of consideration and consultation. Where pension trustees hold land as assets of the pension fund both pieces of legislation might apply unless specific provisions are made to avoid overlap. Would the noble and learned Lord the Lord Advocate care to look at that?
Furthermore, the existing provisions in Section 26(3) of the Law of Property Act for statutory trusts for sale under which trustees must consult beneficiaries of full age and capacity wherever practical when exercising their functions are also extended in Clause 11 to all trusts of land unless expressly excluded. As the noble and learned Lord the Lord Advocate may know, it has been suggested by some practitioners that that could well prove onerous in some circumstances and is causing some concern.
Again on this subject, it is appropriate that the Bill should not give discretionary beneficiaries rights which should sensibly be kept for beneficiaries who are 1722 definitely entitled to share in the trust. Apart from the principle that a discretionary beneficiary has no right until he is appointed to receive a benefit, I am sure that the noble and learned Lord would agree that it would be wholly impracticable for everyone in a large class of discretionary beneficiaries to be consulted on trust matters.
Perhaps the use in various clauses of the Bill of the word "ascertained" in relation to beneficiaries is intended to exclude merely potential beneficiaries under a discretionary trust. However, in view of past uncertainties over language in existing legislation on the same point (for example, whether discretionary beneficiaries have an "interest"), might it not be much safer to put the position beyond doubt rather than use shorthand expressions on such an important point? I appreciate that that is more of a Committee point, but I thought that it might be useful to mention it at this stage so that it can be duly considered.
One particular reform contained in the Bill, which was emphasised by the noble and learned Lord in his opening speech, will interest the House and the public at large, the majority of whom would think that they had no personal interest or connection with the law appertaining to trusts. What they may not have realised, until some lawyer explains it to them when it becomes appropriate to do so (sometimes, unfortunately, on a matrimonial break-up) is that when with the other spouse they jointly purchased their matrimonial home they created in law a trust for sale. Technically that means that there is a duty to sell even if the law implies a power to postpone the sale.
As the Law Commission report points out, house ownership is a common feature today among all sections of our community. The figures are interesting. The proportion of owner-occupied dwellings goes from 7 per cent. in 1914 to 43 per cent. in 1938 and 66 per cent. by 1992. In the old days joint ownership on the title deeds by husband and wife was a rarity. In these days it is very common, and the intention of most spouses when purchasing the matrimonial home in joint names is not to hold it as an investment for sale or as an investment asset pending sale but to use it and keep it as a home. Lawyers have been trying to deal with the position by developing a principle, to which the noble and learned Lord briefly referred, known as "collateral purpose". That means recognising that the intention and purpose was to provide a family home so that where there is a dispute the court can refuse to order a sale. In many respects, that has made confusion more confounded in regard to what is the true legal position and, as has been pointed out, there are conflicting precedents in the judgments of the Court of Appeal.
The new concept of a single trust for land and the provisions of this Bill supply a welcome solution to a very real current problem as, under the new style trust, the trustees (in this case the husband and wife) will hold the legal estates on trust with a power to sell and a power to retain the land rather than having the primary duty of sale as in the position under the existing law.
I do not wish, especially on a Friday morning, to weary the House with a detailed survey of the many provisions of the Bill. I believe that that paraphrases the 1723 opening remarks of the speech of the noble and learned Lord. As I have said, that has already been done so ably by the noble and learned Lord the Lord Advocate. I have merely attempted to select some of the principles which underlie the desirable reforms which the Bill contains, to point out why some of those reforms are necessary and to put to the noble and learned Lord a few matters which have arisen in the minds of legal practitioners which can doubtless be dealt with at later stages in the Bill's history. I follow the noble and learned Lord the Lord Advocate in commending the Bill to the House and in supporting the Motion for its Second Reading.
§ 11.32 a.m.
§ Lord Meston
My Lords, perhaps I may join the noble Lord in thanking the noble and learned Lord the Lord Advocate for his explanation of the Bill. I should also say how grateful I was for the early receipt of the Notes on Clauses, which give a clear description of what is a formidable subject. I am sure that I am not alone in always having been rather afraid of the bewildering law relating to trusts of land with its strange language such as "overreaching", "springing interests" and the like. The strict settlement and the trust for sale were taught to students as if they were immutable and sacrosanct, cast in the magnificent language of the 1925 legislation. They were always concepts which were very difficult to grasp—to me, at any rate—even once one had got hold of the basic point that they were mutually exclusive.
But the practising common lawyer cannot avoid the law of trusts, much as he or she may want to. The trust for sale or variants of it have become frequently used by the matrimonial courts as one solution to property and financial disputes after divorce. Conversely, when advising on potential claims against an estate under the inheritance provisions of the Inheritance (Provision for Family and Dependants) Act 1975, one is quite often faced with wills which inappropriately use a trust for sale in favour of a widow. There, the authorities suggest that the machinery of the Settled Land Act 1925 is more appropriate. Indeed, that Act is used to deal with certain claims under the 1975 legislation.
As I understand it, the Bill will not preclude that sort of flexibility in future, although the labels may change. The reforms in the Bill are, as we have been told, the product of reports from the Law Commission. They are generally welcomed, so far as I can tell, both academically and among practitioners to the north of the Law Courts. Frankly, it is hard to detect the emotional turmoil in Lincoln's Inn on almost any subject. But, as far as I have been able to discover, there is no seething discontent at the changes now proposed.
I understand that the complexity of the present law has led drafting, even by competent lawyers, to produce unexpected results. The Bill seems to produce a scheme which is simpler, albeit sometimes less certain, and may place a greater burden upon the draftsman. Of course, this is not simply an arid area of the law. The law of trusts has been creatively used to produce equitable solutions to social problems and informal arrangements between unmarried couples and between family members of different generations. For example, with the 1724 release of council house tenancies for sale, one quite often comes across quite elderly couples who have been tenants for a long time and so are entitled to a substantial discount under the right-to-buy scheme, who use the mortgage capability of their children to exercise that right. That all works perfectly well if everyone remains harmonious, but it can cause acute conflict if the generations fall out.
The use by the Court of Appeal of the Settled Land Act 1925 in the recent case of Costello in 1994 is a striking example of that use of the existing law to meet such a situation. A case called Dent in which the High Court found against a settled land Act tenancy for life was reported only this week. It is to be hoped that the Bill might reduce the need for such costly litigation.
Perhaps I may particularly welcome the formulation of a court's powers in Clause 14 of the Bill and the formulation of the relevant matters for consideration by the court in Clause 15, especially the express reference to the welfare of any minor child. It seems to me that that will assist in preserving the home for children so far as may be practicable.
I should like now to raise a point that I was asked to mention by the noble Earl, Lord Kinnoull, who regrets that he is unable to be present today. It concerns charitable trusts which sometimes, by historical accident as much for any other reason, can hold land either as settled land or under trust for sale. Under the Bill as drafted, a considerable difference will be created because those trusts which are settled land will not have the benefit of the powers in Clause 6 and will remain subject to the restrictions of the 1925 legislation but those which were set up as trusts for sale will be free of such restrictions.
There may be good reason for retaining such distinction in private trusts, but it is hard to see why they should affect charities, given the safeguards under the existing charities legislation. Indeed, I understand that the Charity Commission favours allowing existing charitable settlements to become trusts of land under the proposed new law but that the Home Office has suggested potential problems under Article 1 of the First Protocol to the European Convention on Human Rights. At this stage, I do not propose to swim yet further out of my depth, but I would inquire whether the Government have advanced their thinking on that topic and whether they might be prepared to bring forward their own amendments in Committee—failing which, I suspect that the noble Earl may be inclined to do so.
Finally, I should like to ask the noble and learned Lord the Lord Advocate about the present intentions as regards the commencement of the legislation. Can be tell us when that might be and whether it is intended that good notice will be given to the various professional bodies? With those remarks, I welcome the Bill.
§ 11.39 a.m.
§ Lord Browne-Wilkinson
My Lords, those who have spoken before me have managed splendidly to avoid the technicalities of what is a technical Bill. Unfortunately it is my area of technicality but, even so, I shall do my best not to get lost in it.
1725 Perhaps I may begin by welcoming the Bill personally. For the reasons that those who have spoken before me have given, we are at last going to get a little bit of common sense into the law affecting the matrimonial home, instead of leaving it to people like me to work out what ought to be the simplest thing in the world by reference to Acts designed to deal with the settled estates of the Duke of Omnium. That must be an enormous leap forward.
Secondly, perhaps I may echo the welcome for a complete redraft of the law in the sector, which is much overdue. Anything that gets rid of some of the matters that I have had to consider for the past 30 years cannot be anything but good. Finally, on that aspect, I shall miss my expertise in one way, but I have no doubt that for everyone, if the Bill goes through, it will make dealing with land and homes easier, better and, if I may say so, cheaper.
I hope to detain your Lordships for only a short while on the concerns which have been drawn to my attention by the Association of Pension Lawyers. It is an astonishing feature of our trust law that when people talk about trusts and trusts of land, they are inclined to think of matrimonial homes or the trust of half Essex. What they do not think about is pension funds. I do not know how many hundred billion pounds are currently invested in occupational pension schemes, but in terms of value it dwarfs any other trusts which are now subsisting. I do not blame anyone in regard to the drafting or presentation of the Bill, but it looks as though the interaction between those provisions and the running of pension funds has somehow been overlooked to date.
I am sure that the Government will be as aware as I am that it is of great importance that the provisions of the Bill are brought into line so that the regulation of pension schemes, which has recently been undertaken by Parliament in the Pensions Act 1995, does not come into conflict in any way with the provisions of the Bill. The definition of a trust of land in the Bill includes any land held in trust. Pension schemes have large holdings of land. It goes wider than that; many other large trust funds have holdings of land as investments. I am not quite sure of the extent to which the Bill has so far addressed the problem of people, pensioners or pending pensioners, being entitled to occupy number 22, Smithfield. That is an admirable provision when applied to the matrimonial home, but not entirely apposite when brought to bear on pension schemes and any other large trust fund which is invested in land.
Therefore, I hope that when we reach the Committee stage, or possibly before, the House will address how this admirable scheme is to be adjusted so as to ensure that the regulation under the Pensions Act is not frustrated, at the same time as preserving all the benefits that the Bill otherwise has.
I have a small number of technical points on which I shall not dwell because this is not the appropriate time. If I may, I shall provide to the noble and learned Lord the Lord Advocate a note of matters which have been brought to my attention and which I endorse.
1726 I finish with one technical point of general importance. Various rights are conferred on beneficiaries, if they are ascertained and of full age. That theme recurs throughout the Bill. For myself—and I am not alone—I am not quite sure what the statutory formula means. Do beneficiaries have rights if all beneficiaries are ascertained and if all are of full age or do those who are ascertained and of full age have rights, even though there are many other unascertained parties? That is a technical point, but a real one because under the Bill great powers are being given to a class of beneficiaries. I hope that there can be no doubt at all, as a matter of drafting, which class is intended. Are the rights only conferred when all the beneficiaries are of full age and ascertained, or are they conferred on those beneficiaries who are ascertained, notwithstanding that there is a huge class of other beneficiaries to follow thereafter? I hope that, when we reach the Committee stage, careful attention will be given to the position of pension funds and, to my mind, the legitimate difficulties that they see arising in certain provisions in what otherwise is an admirable Bill.
§ 11.45 a.m.
§ Lord Boyd-Carpenter
My Lords, as one whose practice of the law was rudely interrupted by the late Adolf Hitler 56 years ago, perhaps I may express my deep personal gratitude to those noble Lords who have taken part in the debate and clarified my understanding of the Bill to a considerable extent. I wish particularly to thank my noble and learned friend the Lord Advocate and the noble Lord, Lord Mishcon, for the clarification which they gave. At least I hope they know that one Member of the House understands the Bill a great deal better than he did before and is truly grateful for it.
§ 11.46 a.m.
§ Lord Mackay of Drumadoon
My Lords, I am grateful for the support which the Bill has received from all sides of the House. I am particularly grateful to the noble Lord, Lord Mishcon, for the eloquent way in which he conveyed his warm support for the Bill. He obviously has an extensive knowledge and understanding of this field of law. It is reassuring to me and the Government that the Bill commands his support. I shall pass on to Parliamentary Counsel the appreciation which the noble Lord, Lord Mishcon, expressed—an appreciation which we all share.
I am happy to indicate at this stage, dealing with the specific points which the noble Lord, Lord Mishcon, raised, that they will all be looked at fully and sympathetically as soon as possible. The concerns which he raised are understood and I am optimistic that the Government will be able to address them in the course of the next few weeks, before the Bill returns to your Lordships' House.
The noble Lord, Lord Meston, reinforced with some recent examples how trust law has been developed in new fields in recent years. The examples illustrate the desirability of simplifying the law as much as possible, and again it is reassuring to have his support.
1727 Dealing with the specific point which he raised on behalf of my noble friend Lord Kinnoull, it has already been discussed with officials of the Lord Chancellor's Department and I am in a position to say that the officials see no reason why an appropriate amendment cannot be ready in time to be brought forward by the Government for the Committee to consider. As my noble friend indicated, the Charities Commission has supported the point and I am advised that there is no problem under the European Convention in bringing forward an amendment to deal with the concern.
The final point which the noble Lord, Lord Meston, raised is the issue of commencement. It is accepted that the Bill could only come into effect some time after Royal Assent and ample notice will be given to all practitioners who might be affected, assuming that the Bill follows the normal passage. It is anticipated that it will be some date next year before commencement takes place. I hope by Committee stage to be in a position to give a more specific indication of when that might be.
Turning to the points which the noble and learned Lord, Lord Browne-Wilkinson, raised, it is extremely reassuring to have support from that quarter as well. He explained the concerns of the Association of Pension Lawyers about the possible overlap. The two matters have been discussed with the officials of the Lord Chancellor's Department: the anxieties are of importance and they will be addressed. I hope that amendments can be brought forward to deal with those suggestions which the Government accept, so that they can be properly considered at Committee stage.
As to the final point raised by the noble and learned Lord, I am advised that the intended meaning of the provisions of the Bill is that the beneficiaries must all be ascertained and be of full age and capacity. I hope that that provides an answer to the specific point raised.
Finally, I thank the noble Lord, Lord Boyd-Carpenter, for joining in and providing his support, on the basis of his long experience, for a Bill which, it is accepted, commands support on all sides. I commend the Bill to the House and invite noble Lords to give it a Second Reading.
On Question, Bill read a second time, and committed to a Committee of the Whole House.