Where there are multiple interests in a property, the property is automatically held on trust by the trustees (the legal owners) for the benefit of the beneficiaries (who may not necessarily be the same people as the legal owners). Disputes can occur between the beneficiaries entitled to a share in the equity of the property. When such disputes arise, it is often necessary to obtain legal advice on how the beneficiaries can protect their respective interests.
There are two main types of Land Registry applications which may be worth considering in these situations: notices and restrictions.
A notice, such as a unilateral notice, is entered on the registered title of a property and seeks to protect any third-party interest by binding any person who acquires the land in question. The notice can be applied for without the consent of the legal owner and the applicant does not need to prove that their claim is valid. The proprietor will be made aware of the notice against their property and can apply to the Land Registry to cancel the notice. This will then prompt the applicant to prove the validity of their claim. Any dispute about whether the notice should be cancelled that cannot be resolved by agreement will be referred to a specialist land adjudicator known as the Property Chamber of the First-tier Tribunal (the Tribunal).
A trust in land (such as a beneficial interest in property) cannot be protected by way of a notice, as a trust will not be binding on a buyer so long as the buyer pays the purchase price to two or more trustees. A trust in land should therefore be protected by way of restriction. It is however worth considering an application for a notice in other circumstances, such as where the applicant is asserting an interest under ‘proprietary estoppel’ (for more on this, see our previous article).
As with notices, restrictions make it apparent to the world at large that the applicant may have an interest in the property. However, the effect of a restriction can be more powerful, as they typically require certain pre-conditions to be met before a disposition (such as a sale, the grant of a new lease, or taking out a mortgage) can be registered against the title to the property. For instance, a restriction might require purchase monies to be paid to two or more people, or the written consent of the applicant to be obtained before a disposition can be registered.
If an application to register a restriction is objected to by the legal owner of the property and an agreement cannot be reached, the matter will be referred to the Tribunal to resolve the dispute.
In 2019, the Tribunal considered such a dispute in the case of Hallman v Harkins . The case concerned an application to register a restriction to protect a beneficial interest following the breakdown of a relationship. It is interesting because it considered the extent of the Tribunal’s powers when dealing with disputes over equity in a property.
The facts of the case
Mr Hallman owned a property which was registered in his sole name. His former partner, Ms Harkins, claimed that she had a beneficial interest in the property and sought to register a “Form A” restriction against his title.
A ‘Form A’ restriction is one of many standard forms of restriction which can be registered against a property. It prevents sale proceeds being paid to a single person where the property is held on trust. A ‘Form A’ restriction is most commonly recorded against the registered title to a property in circumstances where two or more people purchase a property and choose to hold it as Tenants in Common, rather than as Joint Tenants. The purpose of the restriction is to ensure that, on the death of one of the owners, the property cannot automatically be sold by the survivor on his own (which could circumvent the rights of the beneficiaries of the deceased’s Will). In this case, Ms Harkins claimed that the property was held on trust by Mr Hallman (as the sole owner) partly for her benefit, and that the ‘Form A’ restriction was therefore appropriate.
Mr Hallman objected to Ms Harkins’ application for a ‘Form A’ restriction, and the Land Registry accordingly referred matters to the Tribunal.
The Tribunal decided that Ms Harkins had indeed acquired a beneficial interest in the property, meaning that the ‘Form A’ restriction was appropriate, and went on to quantify her share.
Mr Hallman appealed the decision to the Upper Tribunal. On appeal, the Upper Tribunal agreed that the restriction should be registered, but went on to explain that the First-Tier Tribunal had been wrong to go so far as to quantify Ms Harkins’ share.
The Tribunal does not have the power to quantify equitable shares in property and it was not in any case necessary to quantify the shares in order to decide whether the ‘Form A’ restriction should apply. The Tribunal should have instead directed the parties to commence proceedings in Court to obtain a binding decision on the precise nature of the shares.
This case is important as it demonstrates how quickly applications to register a restriction can morph into costly litigation in the First-Tier (and potentially, the Upper) Tribunal. Given the Tribunal’s powers are more limited than those of the County or High Court, careful consideration must be given to the most advisable strategy to adopt. It may be preferable to litigate the case in Court, where the judge has the power to decide not only who has a beneficial share in the property, but also what the quantum of those shares are. Otherwise, litigants in the Tribunal may find that they come away with an answer to only one-half of the equation, and then need to embark upon a Court case to determine the remaining issues in dispute.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at May 2021.