Analysis
The claim involved a 14-bedroomed property in London (the property) which was purchased in 1991 and held upon trust for five brothers as tenants in common in equal shares. It was intended from the outset that the property should be a home for all the brothers and their families. A declaration of trust was executed in June 2015 in order to formalise the arrangement between the brothers.
By the declaration of trust it was declared that the brothers held the property upon trust for sale with power to postpone the sale, and upon trust as to the proceeds of sale and the net rents and profits until sale for the brothers in equal shares absolutely. By clause 2 it was declared that the property had been purchased as a home for all of the brothers and their respective families for such period as it should be the home for all of them. By clause 4(a) it expressly declared that the property should not be sold while any of the brothers remained alive except if all the brothers that remained alive agreed unanimously in writing to the sale of the property, and that no sole party or their family should have the right to demand that the property be sold. The property was subsequently registered in the name of four of the brothers on trust for all five brothers equally as tenants in common.
In 2016 relations between the brothers deteriorated. The two youngest brothers and their families moved out of the property. In July 2018 the two youngest brothers commenced proceedings for an order for the sale of the property and/or an occupation rent under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) on the basis that the breakdown of the relationship between the members of the family was total and irretrievable and that they had effectively been excluded from the property. It was accepted by the defendants (two of the brothers and the two sons of the fifth brother) that the relationship had broken down.
The trial judge held that the terms of the declaration of trust clearly prohibited a sale in the present circumstances, and that the fact that the claimants had chosen to move out of the property and to purchase their own homes elsewhere was no reason to override the terms of the declaration of trust and the clear intention of the parties. He also dismissed the claim for an occupation rent on the basis that the claimants had not been constructively excluded from the property. The claimants appealed.
Held:
The property was expressly held upon a trust for sale with a power to postpone sale. That fact was a significant feature of the case and must be taken to have been a matter of express choice. This meant that a sale was the fallback solution.
However, the authorities established that sale is only to be regarded as the fallback position if any secondary purpose can no longer be fulfilled. As established in Jones v Challenger [1961], the principle that there should be a sale unless all of the trustees exercise their power to postpone sale cannot prevail where the trust itself, or the circumstances in which it was made, show that there was a secondary or collateral object beside that of sale. If the secondary purpose of the trust is still alive, the court will not sell the property against the wishes of one of the parties, subject to an exception which was formerly the case (now being subject to the wider discretion conferred on the court by s14 of TOLATA) where a trustee in bankruptcy or chargee seeks an order for sale.
Although pre-1996 authorities should be approached with some caution in the light of the changes made by TOLATA, Jones v Challenger was still good law. In a case such as the present, the question whether the court should exercise its discretion under s14 of TOLATA for an order for sale depended on:
- (a) whether in fact the secondary purpose of the trust is capable of being fulfilled; and
- (b) if not, whether the agreement requiring unanimity is to be construed as applying even in those circumstances.
The secondary purpose of the trust was to provide a home for all of the five brothers and their respective families who wished to use it as such. The question at the heart of the case was whether the parties intended that the prohibition in clause 4(a) of the declaration of trust prohibiting a sale without the unanimous agreement of all the surviving brothers should apply in circumstances (other than death) in which the purpose envisaged by clause 2 could no longer be fulfilled.
The situation was analogous to the breakdown of a marriage where one of the parties chooses to leave the matrimonial home. The relationship between the joint owners, the brothers in this case, was damaged beyond the stage where it could ever be conceived that they could live again under the same roof together. The property could no longer serve the intended purpose of being a home for all the family. The only sensible way of construing the declaration of trust was to treat the prohibition against sale without unanimous agreement in clause 4(a) as being dependent upon the articulated purpose of the trust in clause 2 still being capable of being achieved.
The conversion of the property into a form in which all parties could enjoy their rights equally was the prime object of the trust for sale. That object was agreed to be postponed only for such time as the property could be used as a home for all the surviving brothers and their families. That was no longer possible. The preservation of the property as a home for just some of them (save in the event of the death of one or more brothers) was not an object of the trust at all.
The judge had failed to engage sufficiently with the relationship between clauses 2 and 4(a) of the declaration of trust. The interpretation accepted by him (that clause 4(a) prevailed) made clause 2 so subsidiary to clause 4 that it was effectively emasculated. In consequence, the judge failed to address the key issue, which was whether the secondary purpose of the trust was still capable of fulfilment.
Given that the secondary purpose of the trust of serving as a home for all the brothers and their families could no longer be achieved, a sale would not defeat the purpose for which the property was acquired. On the contrary, it would achieve what was intended to happen if and when that situation ever arose. The default position was that the property should be sold. The express prohibition on sale without the unanimous consent of the surviving brothers until the last brother died, was not intended to apply in the situation where the relationship had irretrievably broken down and the property could no longer serve as a home for all the brothers, despite the fact that it was being used for that purpose by some of them and their families. It did not matter who was to blame for the breakdown in the relationship or whether it was contributed to by the behaviour of all those involved in the dispute.
The question for the court was whether it would be unjust and inequitable to give effect to the primary purpose of the trust, given that the secondary purpose was incapable of being fulfilled. Taking all the circumstances into account, including the relevant statutory factors under s15 of TOLATA, it was neither inequitable nor unfair for the court to grant the order for sale: quite the contrary. For a sale, being the default position, such an order should be made. This fully accorded with the intention of the parties to the declaration of trust, as properly construed, and there was no justification for denying the appellants their share of the value of the property for the present. Indeed, given that the relationship had irretrievably broken down, a sale appeared to be the only means of providing a clean break and avoiding yet more litigation in future. However, the respondents should first be afforded an opportunity to buy out the appellants’ shares, and the court’s order should reflect that, once the property had been independently valued, they should have a reasonable period in which to make payment to the appellants of their 20% shares of the value before the property is sold.
Occupation rent necessarily presupposes that the party in occupation has had the use and enjoyment of the property from which the party claiming the rent has been excluded. Most of the rooms hitherto occupied by the departed brothers were locked and they retained the keys. It would not be just and equitable for any of the brothers who remained behind to pay occupation rent, even at a discounted rate, in respect of the rooms to which they had no access. While it would have been possible for the court to order the payment of occupation rent at least in respect of one unlocked room, the court had to stand back and ask whether the payment of an occupation rent would be the fair result in all the circumstances. This was not a case in which equity required the payment of occupation rent to the appellants. They would get their capital share of the value of the property and must be content with that.
JUDGMENT MRS JUSTICE ANDREWS: Introduction [1] This is an appeal against part of the order of HHJ Wulwik dated 25 October 2019 refusing the Appellants’ application for an order for the sale of a substantial freehold property at 22 Northumberland Avenue, Wanstead, London E12 5HD (‘the Property’) under s14 of the Trusts of Land and …Continue reading "Gandesha & anr v Gandesha & ors [2020] WTLR 905"