Agricultural land, like any other property, can be owned either by a single ‘legal person’ or by two or more such persons. Where a property is owned by more than one person, a ‘trust of land’ is automatically (and unavoidably) created. This means that the legal owners are trustees, who hold the equity (or beneficial interest) in the property on trust for the beneficiaries.
Often, the legal owners hold the property on trust for themselves (so they are both the Trustees and the beneficiaries), but it is also possible for legal owners to hold the beneficial interest on trust for someone else. Why, you may ask, do you need a trust? Isn’t this some sort of legal device used for the purposes of holding land by responsible Trustees for the benefit of (sometimes less responsible) beneficiaries?
The answer is that, for the vast majority of the time, the fact that the title to your co-owned property is held on trust is not particularly significant. Most co-owners acquire and dispose of land without even knowing that they are in fact a Trustee of the land with their fellow co-owners (at least until they read this article). But it is worth looking at the cluster of rights and obligations that affect co-owners from trust principles.
The trust of land comes into view most significantly when disputes arise. Most disputes over jointly held property arise in relation to the following circumstances:
- Where the owners cannot agree on what should happen to the property (for example, if one owner wants to sell the property and another wants to keep it).
- Where the beneficial shares in the property are disputed.
In the event of dispute, any of the parties involved can apply to court under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). Under TOLATA, the court has the power to step into the shoes of the owners and deal with the property as the court thinks fit, such as order that the property be sold, or determine what share of the sale proceeds each party should receive (e.g. determine the ‘beneficial interests’ of each party).
The court may even partition the land into separate parcels for each owner. Clearly, depending on the type of property involved, this will not always be possible; however, this is a useful tool for agricultural land, where land may be more readily dividable and where there is sufficient scope for two parcels to be created with suitable access and services.
When deciding what order to make, the court will have regard (amongst other things) to the circumstances and wishes of the beneficiaries, giving appropriate weight to the size of shares held. Where the land is owned equally and, let us say, one co-owner wishes to sell, the courts will usually order a sale to avoid that co-owner having their investment tied up indefinitely.
The court must, however, have particular regard to the interests of any children living in the property and the purpose for which the property was acquired. This is not an exhaustive list, and legal advice should be obtained as to the full range of considerations.
A common cause for dispute arises where one co-owner wishes to buy-out their fellow co-owners. Even if the other co-owners are agreeable in principle, problems can arise when seeking to agree on the price to be paid for their share. There is an inherent conflict here, as the purchasing co-owner will want to buy-out the other as inexpensively as possible, whereas the exiting party will want to secure the best price possible for their share.
The owner wishing to sell on the open market usually argues that the only way to establish the property’s true value is to sell it on the open market, whereas, if one party is allowed to buy the property at a particular price, the property’s value is never tested. This may mean that the property is sold to the co-owner too cheaply. It may also mean that the price fixed by the court is too expensive, although the co-owner wishing to buy the property has the option in that case not to proceed with the purchase.
Given the above risks, the court has previously said that allowing one party an exclusive right to buy-out the other is an “unusual” order to make. The recent case of Kingsley v Kingsley addressed this very point. Kingsley involved a family farm that had been in the family’s ownership since the 19th century before it came to be owned by siblings (Roger and Sally) on a trust of land with the purpose of allowing the land to be farmed by members of the family.
Roger and Sally owned the land in equal beneficial shares and farmed it in partnership until Roger’s death in 2015. Upon Roger’s death, his widow applied to court for an order that the farm be sold. Sally wanted the opportunity to buy Roger’s share in the farm before it went on the open market.
The court heard valuation evidence from the parties’ experts, whose valuations were approximately 10% apart. The Judge sided with Sally and held that she should be allowed to buy Roger’s share at a court-assessed price of about £3.25m, some 4% below the value contended for on behalf of the widow. If, however, the sale did not complete within a two-month period, the farm would be put up for sale on the open market, and Sally would be entitled to bid for it alongside others.
Roger’s widow appealed to the Court of Appeal. She wanted the farm to be sold on the open market and argued that an order for sale at a court-assessed price could only be justified if there was a low risk of an undervaluation. The Court of Appeal upheld Sally’s right to buy Roger’s share at the court-assessed price. The risk that the farm might be sold to Sally at an undervalue was a significant consideration, but it was only one factor among others.
These cases remain very fact specific, and litigation is always risky when you are asking the court to exercise its discretion. A future case might, therefore, depart from the ruling in Kingsley, depending on the facts. For example, it was noted in Kingsley that the purpose of the property was to enable the land to be farmed by members of the Kingsley family. As such, the sister’s desire to continue farming the land may have been given greater weight than the widow’s desire to achieve top dollar for her share in the land, given the widow’s interest was purely financial.