TOLATA and SIPPs – practical tips

Following on from Birketts’ recent article on the importance of a trust deed when a Self-Invested Personal Pension (SIPP) co‑owns property, this article looks at the next stage: what happens when, despite those protections, a dispute still arises and a trustee applies to court under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA).

While a trust deed sets out the parties’ rights and obligations and may include mechanisms for resolving disputes, TOLATA provides the statutory framework that applies when joint owners cannot agree on major decisions such as sale or management.

Why TOLATA matters for SIPP‑owned property

Under section 14 TOLATA, the court may:

• order a sale
• decide how the trustees should exercise their functions (e.g. ordering the trustees   to execute a lease in an agreed form)
• appoint someone to carry out a specific act on behalf of a non‑cooperating trustee.

When exercising these powers, the court considers a range of statutory factors. These include:

• the purpose of the trust
• the intentions of the original trustees
• the interests of creditors
• the wishes of the beneficiaries.

The following scenarios may increase the likelihood of the court ordering a sale:

• One trustee refuses to cooperate with the management of the property.
• There is secured lending over the property, and the loan cannot be repaid unless the property is sold.
• The property is in disrepair and requires significant investment that none of the parties can or will provide.
• A willing buyer has been identified who is offering market value.
• The trust was originally created as a trust for sale. Although trusts for sale are now uncommon following the introduction of TOLATA in 1996, some older structures still contain them.

Costs of court proceedings

The court has wide discretion when dealing with costs. That said, the court has regard to any contractual entitlement to costs contained in the trust deed or the pension scheme rules. Trustees must therefore keep in mind the wording of those documents, and the different capacities in which the parties have signed various documents.

Alternatives to court proceedings

The parties may consider other forms of dispute resolution, such as mediation or arbitration. Some trust deeds include an express clause requiring disputes to be referred to arbitration, yet such a clause does not remove the court’s jurisdiction under TOLATA. However, where one party issues court proceedings in breach of an arbitration clause, the other party can apply for a stay under section 9 of the Arbitration Act 1996, to allow the dispute to be resolved via arbitration. Although requesting a stay may increase costs for one or both parties, a party may nevertheless choose to do so for strategic and/or mischievous reasons.

Only a court can order a sale under TOLATA. If, therefore, an arbitrator decides that the property should be sold, and the parties do not cooperate with the sale, you would still need to go to court to enforce the arbitration award and obtain an order for sale.

Top tips for trustees facing a dispute

• Seek early legal advice where a co‑trustee is refusing to engage or decisions about sale or management become deadlocked.

• Consider whether the statutory factors under section 14 TOLATA support an application and gather evidence accordingly.

• Assess any complications connected with the property (e.g. complications arising from occupiers, the local authority, or statutory undertakers for utilities) before deciding on strategy.

• Ensure the trust deed and pension scheme documents are reviewed at the outset, as they often determine cost risks and trustee powers. Keep in mind the different capacities in which parties signed scheme documents.

• Promote early and proactive communication among co‑trustees to avoid disputes becoming entrenched.

• Keep clear records of all communications and decisions in case a court application becomes necessary.

• If seeking an order for sale, consider whether additional directions from the court are needed to avoid wider complications.

• Use the Part 8 procedure rather than the Part 7 procedure, unless there is a substantial dispute of fact.

• Be aware that a party may seek a stay of court proceedings under the Arbitration Act if an arbitration clause exists.
  
  

How Birketts can assist

We have a dedicated property disputes team, within which we have experienced specialist lawyers dealing with trust/TOLATA issues, who can advise where a dispute arises, or where expert input is required to resolve a particular trust issue.

Birketts also has a dedicated SIPP and SSAS real estate team. If you require legal advice or assistance with a property transaction involving a SIPP or SSAS, our expert team is ready to assist.