Qualified Lawyers Transfer Scheme (QLTS) Property Law and Equity and Trusts Syllabus

State the four conditions of the rule in Tulk v Moxhay for a restrictive (negative) freehold covenant to run with the land in equity to bind a successor.

(1) The covenant must be negative/restrictive in substance; (2) it must accommodate (touch and concern) the dominant land, which must be identifiable; (3) the burden must have been intended to run (presumed under s.79 LPA 1925); and (4) the successor must have notice (registration as a Class D(ii) land charge / a notice on the register).

Why does the BURDEN of a positive freehold covenant not run with the land at common law, and what devices circumvent this?

Burden of positive covenants does not run at common law (Austerberry v Oldham; Rhone v Stephens). Workarounds: the doctrine of mutual benefit and burden (Halsall v Brizell), chains of indemnity covenants, granting a long lease, a right of re-entry, an estate rentcharge, or commonhold.

Distinguish the methods by which the BENEFIT of a covenant may pass at law and in equity.

At law (Smith v River Douglas): annexation, assignment, or a building scheme — covenant must touch and concern the land and benefit must be intended to pass (s.78 LPA 1925). In equity: express annexation, statutory annexation (s.78 LPA 1925, Federated Homes), express assignment, or a scheme of development (Elliston v Reece).

Define a mortgage and distinguish a legal charge from an equitable mortgage.

A mortgage is the transfer/charge of an interest in property as security for a debt, with the right to redeem (the equity of redemption). A legal charge (charge by way of legal mortgage, s.87 LPA 1925) is the only modern method for legal mortgages of land. An equitable mortgage arises over an equitable interest, by an enforceable contract to create a legal mortgage, or by deposit of title (now requiring s.2 LP(MP)A 1989 compliance).

What is the "equity of redemption" and the rule against clogs and fetters on it?

The equity of redemption is the mortgagor's residual ownership/right to redeem the property on repayment. Equity protects it: there must be "no clogs or fetters" — terms cannot prevent redemption (Fairclough v Swan Brewery), must not be unconscionable/oppressive (Cityland v Dabrah), and collateral advantages/options to purchase may be struck down (Kreglinger v New Patagonia).

List the mortgagee's remedies on the mortgagor's default.

(1) Sue on the personal covenant to repay; (2) take possession (a legal right, but regulated for dwellings under s.36 AJA 1970); (3) sale (power under s.101 LPA 1925, exercisable per s.103); (4) appoint a receiver (s.101/s.109); and (5) foreclosure (now rare, requires court order, extinguishes the equity of redemption).

When does a mortgagee's power of sale ARISE and become EXERCISABLE under the LPA 1925?

Arises (s.101) when: the mortgage is by deed and the legal redemption date has passed. Exercisable (s.103) when one of: (a) notice to repay served and 3 months' default; (b) interest in arrears 2 months; or (c) breach of another mortgage provision. The mortgagee owes a duty to obtain a proper/true market price (Cuckmere Brick v Mutual Finance).

State the key distinction between a lease and a licence and the three hallmarks of a lease from Street v Mountford.

A lease confers an estate/proprietary interest (binding third parties and capable of exclusive possession); a licence is a mere personal permission. Street v Mountford requires: (1) exclusive possession; (2) for a fixed/periodic term (certainty of duration); and (3) at a rent (rent not strictly essential post-Ashburn). Substance over the label used by the parties.

What is required for certainty of term in a lease, and how are periodic tenancies treated?

A lease must have a certain maximum duration ascertainable at the outset (Lace v Chantler; Prudential Assurance v London Residuary Body). A periodic tenancy satisfies certainty because each period is itself certain and either party can end it by notice. An uncertain term may be saved by being treated as periodic.

State the formality requirements for creating a legal lease.

Legal leases over 3 years must be made by deed (s.52 LPA 1925) and, if over 7 years, completed by registration (s.27 LRA 2002). Leases of 3 years or less taking effect in possession at a market rent without a fine can be created orally/in writing (s.54(2) LPA 1925 — the "short lease exception").

State the "three certainties" required to create a valid express trust (Knight v Knight).

(1) Certainty of intention — an intention to create a trust (imperative, not precatory, words); (2) certainty of subject matter — the trust property and the beneficial shares must be identifiable; and (3) certainty of objects — the beneficiaries must be sufficiently identifiable.

State the test for certainty of OBJECTS for (a) a fixed trust and (b) a discretionary trust.

Fixed trust: the "complete list" test — it must be possible to draw up a complete list of all beneficiaries (IRC v Broadway Cottages). Discretionary trust: the "is or is not"/individual ascertainability test — can it be said with certainty whether any given individual is or is not a member of the class (McPhail v Doulton).

Distinguish conceptual uncertainty from evidential uncertainty in the context of certainty of objects.

Conceptual uncertainty: the words defining the class are too vague/imprecise (e.g. "good friends") — this is fatal to the trust. Evidential uncertainty: difficulty in proving as a matter of fact whether a person falls within a conceptually clear class — this does not invalidate the trust.

What are the principles in Re London Wine and Hunter v Moss concerning certainty of subject matter for tangible versus intangible property?

For tangible/chattels (Re London Wine; Re Goldcorp), the specific goods forming the trust must be segregated/identified, otherwise no certainty of subject matter. For intangible, identical, fungible property such as shares of the same class (Hunter v Moss), segregation is not required because the items are indistinguishable.

State the two maxims concerning the constitution of trusts: "equity will not assist a volunteer" and "equity will not perfect an imperfect gift".

A trust is completely constituted when the trust property is vested in the trustees (or the settlor declares himself trustee). Until then, a volunteer (one who has given no consideration) cannot compel the transfer — equity will not perfect an imperfect gift (Milroy v Lord). An incompletely constituted trust of which the beneficiary is a volunteer is unenforceable.

State the formality requirements for declaring a trust of land and for disposing of a subsisting equitable interest.

A declaration of trust respecting land must be manifested and proved by signed writing (s.53(1)(b) LPA 1925 — evidential, not constitutive). A disposition of a subsisting equitable interest must be IN signed writing (s.53(1)(c) LPA 1925), or it is void (Grey v IRC). Trusts of personalty need no writing.

List the exceptions to the rule that equity will not perfect an imperfect gift.

(1) The rule in Strong v Bird (intended gift perfected by the donee becoming executor); (2) donatio mortis causa (deathbed gifts); (3) proprietary estoppel; and (4) the "every effort" / Re Rose principle (transferor has done everything required of them to transfer title); plus Pennington v Waine (unconscionability).

Distinguish express, resulting and constructive trusts.

Express trust: intentionally and deliberately created by the settlor. Resulting trust: arises by operation of law where beneficial interest "results back" (presumed on voluntary transfer/purchase in another's name, or automatic where an express trust fails). Constructive trust: imposed by law irrespective of intention to prevent unconscionable conduct/unjust enrichment.

Distinguish AUTOMATIC and PRESUMED resulting trusts (Re Vandervell (No 2)).

Automatic resulting trust: arises where an express trust fails or does not exhaust the beneficial interest, so it returns to the settlor automatically. Presumed resulting trust: arises from a presumed intention where A makes a voluntary transfer to B or contributes to the purchase price of property held in B's name; rebuttable by evidence or the presumption of advancement.

How is a common intention constructive trust of the family home established (Lloyds Bank v Rosset; Stack v Dowden; Jones v Kernott)?

Requires (1) a common intention to share beneficially — express (discussions/agreement) or inferred from conduct (esp. direct financial contributions); and (2) detrimental reliance by the claimant. Quantification: where there is a sole legal owner, the claimant must establish an interest; where joint legal owners, equity follows the law (presumed equal) unless rebutted, then quantified by the whole course of dealing/imputed intention (Jones v Kernott).

State the beneficiary principle and its rationale (Morice v Bishop of Durham).

A (non-charitable) trust must have ascertainable human beneficiaries who can enforce it — "there must be somebody in whose favour the court can decree performance". Without a beneficiary to enforce it (or charitable status), the trust is void as a private purpose trust.

List the recognised exceptions ("trusts of imperfect obligation") to the beneficiary principle.

The anomalous Re Endacott category of valid non-charitable purpose trusts: (1) maintenance of specific animals; (2) erection/maintenance of monuments and graves; and (3) (doubtfully) the saying of private masses. These are valid but unenforceable, of imperfect obligation, and must satisfy the perpetuity rule.

How can a gift to an unincorporated association be construed to avoid the beneficiary principle and perpetuity problems?

Constructions: (1) gift to current members as joint tenants/tenants in common; (2) gift to members subject to their contractual rights and liabilities under the association's rules — the contract-holding theory (Re Recher; Neville Estates v Madden); or (3) gift on trust for present and future members (risks perpetuity). The contract-holding analysis is now generally preferred.

What is the perpetuity period for non-charitable purpose trusts and the disposition of property?

For trusts subject to the rule against perpetuities, the Perpetuities and Accumulations Act 2009 prescribes a fixed period of 125 years (for instruments after 6 April 2010). For the older common law rule applying to purpose trusts of imperfect obligation, the period is "lives in being plus 21 years" (often expressed as a 21-year period).

List the principal duties of a trustee.

(1) Duty to act in accordance with the trust instrument; (2) fiduciary duties — no conflict of interest, no unauthorised profit, no self-dealing/fair-dealing; (3) duty of care (s.1 Trustee Act 2000 — reasonable skill and care); (4) duty to invest (s.3 standard investment criteria, take advice, diversify); (5) duty to act impartially between beneficiaries; (6) duty to act personally/jointly and not improperly delegate; and (7) duty to provide accounts and information.

State the statutory duty of care under s.1 Trustee Act 2000 and when it applies.

A trustee must exercise such care and skill as is reasonable in the circumstances, having regard to any special knowledge/experience the trustee has or holds out as having, and (if acting in a professional capacity) to that reasonably expected of a person acting in that profession. It applies to specified functions e.g. investment, acquiring land, appointing agents/nominees, insurance (Sch 1).

What are the "standard investment criteria" trustees must consider under s.4 Trustee Act 2000, and the s.5 duty?

Section 4: (a) the suitability of the type of investment and of the particular investment; and (b) the need for diversification appropriate to the circumstances of the trust. Section 5: trustees must (unless inappropriate) obtain and consider proper advice on how the power should be exercised, having regard to the standard investment criteria. Section 3 gives a general power of investment.

State the rule in Keech v Sandford and the no-conflict/no-profit fiduciary rules.

A fiduciary must not place themselves in a position where duty and interest conflict and must not make an unauthorised profit from the position (Boardman v Phipps; Bray v Ford). Keech v Sandford: a trustee who renews a lease for himself holds it on constructive trust for the beneficiaries — the rule is strict and applies regardless of good faith or that the beneficiary could not have obtained the benefit.

State the measure of a trustee's liability for breach of trust (equitable compensation).

A trustee in breach must restore the trust fund to the position it would have been in but for the breach (reconstitution), or pay equitable compensation. Causation is required but the rules are less strict than common law — Target Holdings v Redferns and AIB v Redler: compensation assessed at the date of judgment with the benefit of hindsight; remoteness/foreseeability rules do not apply in the same way.

List the principal defences available to a trustee who has committed a breach of trust.

(1) Exemption clause in the trust instrument (Armitage v Nurse — valid even for gross negligence, but not fraud/dishonesty); (2) consent/concurrence of a fully-informed beneficiary; (3) s.61 Trustee Act 1925 relief where the trustee acted honestly, reasonably, and ought fairly to be excused; (4) statutory limitation (6 years, s.21 Limitation Act 1980, with no limit for fraud or recovering trust property); and (5) laches/acquiescence.

Distinguish a personal claim from a proprietary claim against a trustee or recipient for breach of trust.

A personal claim is against the defendant in personam for a money sum (e.g. equitable compensation, account of profits) — it depends on the defendant's solvency. A proprietary claim asserts continuing equitable ownership of a specific asset or its traceable substitute — it survives the defendant's insolvency, captures increases in value, and does not depend on solvency.

Distinguish "following" from "tracing" and identify the rules for tracing through a mixed bank account.

Following = pursuing the SAME asset into a new owner's hands. Tracing = identifying a NEW substitute asset representing the original. Equitable tracing through a mixed account uses: Re Hallett's Estate (trustee presumed to spend his own money first), Re Oatway (claimant can claim the surviving asset / trustee cannot rely on Hallett to his advantage), and the "lowest intermediate balance" rule (Roscoe v Winder).

What is the rule in Clayton's Case and its modern status for distributing losses among trust beneficiaries sharing a mixed account?

Clayton's Case: "first in, first out" — the first money paid in is treated as the first paid out. Modern courts treat it as a rule of convenience that may be displaced where it would be impractical or unjust, preferring a pari passu (proportionate/rateable) distribution among innocent claimants (Barlow Clowes v Vaughan).

State the requirements for personal liability of a third party for "knowing receipt" of trust property.

Three elements (BCCI v Akindele): (1) a disposal of trust assets in breach of trust/fiduciary duty; (2) beneficial receipt by the defendant of assets traceable as representing those of the claimant; and (3) knowledge on the recipient's part such that it is unconscionable for them to retain the benefit. It is a fault-based receipt-based liability.

State the requirements for accessory liability / "dishonest assistance" by a third party in a breach of trust.

Elements (Royal Brunei Airlines v Tan; Barlow Clowes v Eurotrust): (1) a trust/fiduciary relationship; (2) a breach of that trust/fiduciary duty (the breach itself need not be dishonest); (3) the defendant assisted in that breach; and (4) the defendant did so dishonestly. Dishonesty is assessed by an objective standard applied to the defendant's actual knowledge of the facts (Ivey v Genting).

Compare "knowing receipt" and "dishonest assistance" as forms of third-party liability.

Knowing receipt: receipt-based — the defendant must beneficially receive traceable trust property; liability is for the value received; the test is unconscionability based on knowledge (not necessarily dishonesty). Dishonest assistance: fault-based — no receipt required; the defendant assists a breach and is liable for the loss caused; the test is dishonesty. Both impose personal (not proprietary) liability.

What is the difference between a charge and a (proportionate) equitable ownership claim when tracing into a mixed asset bought with trust and trustee's money?

The beneficiary may elect either: (1) to assert a proportionate beneficial share in the asset (a share of any increase in value — advantageous if the asset has risen in value); or (2) to assert an equitable lien/charge over the asset to secure the amount of trust money used (advantageous if the asset has fallen in value, securing the sum owed) — Foskett v McKeown.

State the powers of maintenance (s.31) and advancement (s.32) under the Trustee Act 1925 (as amended).

Section 31: trustees may apply income for the maintenance, education or benefit of a minor beneficiary, accumulating surplus income. Section 32: trustees may pay or apply capital for the "advancement or benefit" of a beneficiary with an interest in capital; since the Inheritance and Trustees' Powers Act 2014, up to the WHOLE of the beneficiary's presumptive share (previously one-half), brought into account on final distribution.

State the principle in Saunders v Vautier.

Where all the beneficiaries are sui juris (of full age and capacity) and between them absolutely entitled to the entire beneficial interest, they may, acting together, direct the trustees to transfer the trust property to them and bring the trust to an end, regardless of the settlor's contrary intention.