Legal and Equitable Estates and Interests

Question 1

Equitable lease

Answer 1

• Equitable lease: a lease that has been created without the proper formalities to make it a legal lease

Question 2

Equitable interest in a freehold

Answer 2

• (There must be a legal freehold to have an interest in the land) indicates that more than one person owns the freehold (i.e. one at law and one at equity)
  
  • Once you have more than two people owning the same interest, it has to be a trust

Question 3

Trust of land

Answer 3

• A trust where the subject matter of the trust is an estate in land
  
  • Leasehold or freehold

Question 4

Interest - definition

Answer 4

• Generally: any right in land
  
  • A freehold can be a kind of interest, generally speaking
• Specifically: a right other than an estate; a right other than ownership
  
  • Specifically speaking, an interest is an interest in land
• To create or transfer an interest in land, the contract must be in writing, with all the terms and conditions signed by both the parties (s2 LPMPA 1989)
  
  • This section dictates what constitutes an enforceable contract for the creation or transfer of an interest in land

Question 5

Equitable estates and interests in land

Answer 5

• There are equitable versions of legal estates and interests. They arise (usually unintentionally) in certain circumstances
  
  • Where there has been a lack of formality in creation (i.e. the right has not been registered), or
  • Where there has been a failure to comply with formalities for granting a legal right, or
  • Where it would be inequitable to deny the right on the basis of proprietary estoppel or resulting/constructive trust
• Estates and interests that exist only in equity, such as
  
  • Life interests, restrictive covenant, right of pre-emption

Question 6

List of legal and equitable rights in land

Answer 6

LEGAL

EQUITABLE

Freehold

Equitable freehold (this is always the subject of a trust)

Leasehold

Equitable lease

Charge (mortgage)

Equitable charge (mortgage)

Easement

Equitable easement

Freehold covenant

Option to purchase

Right of pre-emption

“mere” equity

Question 7

Equitable interests in a trust

Answer 7

• A trust of land can only exist over the estate
  
  • Ownership interests – i.e. an interest in a freehold or leasehold estate
• A trust of land only exists over the freehold and leasehold [1996 Trust of Land Appointment of Trustees Act]

Question 8

Equitable freeholds and trusts of land

Answer 8

• Equitable freeholds are always held in a trust of land (s36 LPA 1925)
  
  • An equitable freehold presupposes that it is a case of co-ownership, which means it has to be a trust
  • E.g. if A has an equitable freehold, someone else must hold the legal title (because the legal freehold is the root of all other estates and interests), and so it is a trust of land

Question 9

Equitable leasholds and co-ownership

Answer 9

• Equitable leaseholds may be held in a trust if they are co-owned
  
  • An equitable lease can be owned by one person because where the same estate is held by two or more people, you have a trust of land
  • There can be an equitable lease without a legal lease

Question 10

Are all equitable interests held in a trust?

Answer 10

• Not all equitable interests are held in trust
  
  • If A has an equitable charge of B’s freehold, there is no trust because A and B have different interests
  • Even if B holds the equitable charge over A’s land on trust for C, the charge is not in a trust of land (it is just an ordinary trust)

Question 11

Can equitable interests in a trust affect a third party?

Answer 11

• Modern property law is designed to protect equitable interests from affecting third parties
• Equitable interests in trust cannot usually affect a third party because:
  
  • The policy system is designed to free property from beneficial interests under a trust so they do not affect purchasers
    
    • It would be onerous for buyers to seek out every individual who may have an interest in the land. It is now sufficient to find 2 or more names on the legal title and pay them. This is the guiding principle behind the 1925 property legislation
    • If there is a single person listed as a legal owner, inquiries must be made
  • This system was designed to make property much more easily transferred
  • Purchasers should be able to buy land easily and with confidence
  • Purchasers should not be affected by in personam rights and trustee duties
  • Beneficiaries are entitled to value (proceeds of sale), not land

Question 12

Equitable interests and unregistered land

Answer 12

• In registered land, the question is not so much whether the interest is legal or equitable, but whether it has been protected in the prescribed way (i.e. registration is done according to the Land Registration Act 2002)
• As a general rule, equitable interests need slightly more protection
• To determine the method of protection under the Land Registration Act, you must first ascertain whether the interest is legal or equitable

Question 13

Fragmentation of title

Answer 13

• The separation of different interests in land held by different people
  
  • There is no trust, even if the interest is equitable, because the law does not recognise two owners but one owner (it combines the two)

Question 14

Fragmentation of title in an equitable estate

Answer 14

• In an equitable estate, a trust is not created because there is no co-ownership of the estate
  
  • A legal freehold creates a separate lease
  • Creating an easement from a freehold does not create a trust because there is no co-ownership of the estate

Question 15

Fragmentation of title in a legal estate

Answer 15

• In a legal estate, there is a relationship of tenure between the landlord and the tenant, but there is no co-ownership

Question 16

Does an equitable lease create a trust?

Answer 16

• An equitable lease does not create a trust
  
  • A owns the legal freehold and enters into a contract with B to grant a lease. To make the transfer at law, you have to use a deed (which you don’t do at equitable). There is an enforceable contract because K meets the requirements under statute to be enforceable which equity recognises [Walsh v Lonsdale]
  • The owner of the legal freehold is a landlord only in equity, which is why the reversion is recognised only in equity

Question 17

Will a legal sub-lease create a trust

Answer 17

• A legal sub-lease does not create a trust
  
  • Different interests but no co-ownership
  • Note that there is no limit on the number of sub-tenancies that can be created. Sub-tenancies must always be shorter by at least one day than the tenancy out of which they are carved

Question 18

Can you hold a legal lease on trust?

Answer 18

• You can hold a legal lease on trust
  
  • Note that the beneficiary is of no significance to the landlord. His relationship is only with the tenant. B is a trustee in equity. At law he is a tenant. Note also that there is no equitable lease; C has an equitable interest in B’s legal lease.

Question 19

Can you hold an equitable lease on trust

Answer 19

• With an equitable lease held on trust, there is tenure between the landlord and his equitable tenant, and a trust between the tenant and his beneficiary. The freehold holder is a landlord only in equity, not at law.
  
  • The (equitable) tenant has two distinct roles: as a tenant vis à vis the landlord and as a trustee vis à vis the beneficiary. The reversion is the landlord’s interest during the period of the lease. Since the landlord is an equitable landlord, the reversion is recognised only in equity.
• An equitable interest does not create a trust

Question 20

Co-ownership

Answer 20

• A freehold or lease held by two or more people
  
  • Always a trust
• When the same estate is held by two or more people, there is always a trust