The Law Commission

PART 6

PROPERTY, FAMILY AND TRUST LAW

STUART BRIDGE COMMISSIONER

TEAM MEMBERS^[1]
Lawyers
Matthew Jolley (Team Manager)
Judith Cairns
Julia Jarzabkowski
Jo Miles
Cheryl Morris
Research Assistants
Michael Ashdown
Emily Duckworth
Wendy Mathers
Daniel Robinson
Stella Rozanski
Joel Wolchover


Cohabitation

6.1      In August the Law Commission began an important new project on cohabitation. The study focuses on the financial hardship suffered by cohabitants or their children on the termination of their relationship by separation or death. Its scope is restricted to opposite-sex and same-sex couples in clearly defined relationships.^[2]
6.2      Particular attention is being given to:

(1) Whether cohabitants should have access to remedies against one another when they separate such as periodical payments, lump sums and property transfers and, if so, the circumstances in which those remedies should be available.

(2) A review of the operation of existing remedies providing capital awards for the benefit of children under Schedule 1 to the Children Act 1989.

(3) Intestate succession and family provision on death under the Inheritance (Provision for Family and Dependants) Act 1975.

(4) Whether contracts between cohabitants, setting out how they will share their property in the event of the relationship ending, should be legally enforceable, and, if so, in what circumstances.

6.3      The project team has held preliminary discussions with many of the groups particularly interested in this area and expects to publish a formal consultation paper on 31 May 2006. The Commission intends to report to Government with its final recommendations in August 2007.

Easements and covenants

6.4      The law of easements,^[3] analogous rights and covenants is of practical importance to a large number of landowners. Recent Land Registry figures^[4] suggest that at least 65% of freehold titles are subject to one or more easements and 79% are subject to one or more restrictive covenants. It is estimated that 99% of leasehold registrations will be subject to both kinds of right.
6.5      Easements and covenants can be fundamental to the enjoyment of one's property. For example, many landowners depend on easements in order to obtain access to their property, for support or for drainage rights. The relevant law has never been subject to a comprehensive review, and many aspects are now outdated and a cause of difficulty.
6.6      The Commission is therefore examining easements and analogous private law rights with a view to their reform and rationalisation. This work will involve a reconsideration of earlier Law Commission work on land obligations.^[5] The aim is to produce a coherent scheme of land obligations and easements which is compatible with both the commonhold system and the system of registration introduced by the Land Registration Act 2002.
6.7      The Commission is nearing the end of an initial review of this difficult and extensive area of the law, and hopes to publish a preliminary consultation paper before the end of 2006.

Termination of tenancies for tenant default

6.8      This project examines the means whereby a landlord can terminate a tenancy^[6] because the tenant has not complied with their obligations. This is an issue of practical importance for many landlords and tenants of residential and commercial properties. The current law is difficult to use and littered with pitfalls for both the lay person and the unwary practitioner.
6.9      The Law Commission outlined provisional proposals for reform in a consultation paper published in January 2004.^[7] These proposals were based on earlier Law Commission work in this area and take account of the introduction of the Civil Procedure Rules, the Human Rights Act 1998 and recent developments in case law.
6.10      The consultation paper attracted interest and comment from practitioners, academics and groups representing both landlords and tenants. The helpful comments and suggestions made by consultees have been taken into account in formulating final policy recommendations. The Commission expects to publish a final report outlining these recommendations accompanied by a draft bill in the second half of 2006.

Trustee exemption clauses

6.11      A trustee exemption clause is a clause in a trust instrument which excludes or restricts a trustee's liability for breach of trust, either by expressly excluding liability or by modifying the trustee's powers and duties. Case law has established that such clauses are able to relieve the trustee from liability for anything except dishonest conduct. As a result, there is no effective sanction to deter trustees from acting negligently to the detriment of the beneficiaries .^[8]
6.12      The Commission published a consultation paper^[9] on trustee exemption clauses in January 2003, which set out a range of options for reform. The paper invited the views of consultees on these options and on the economic implications of any regulation of trustee exemption clauses. 118 consultation responses were received, including a detailed paper from a Working Group of the Financial Markets Law Committee on the impact of the provisional proposals on trusts in financial markets.
6.13      The Commission issued a press notice on 14 December 2005 indicating that discussions were taking place with professional regulatory bodies and trust organisations about a non-statutory approach to the regulation of trustee exemption clauses. We will present a final report to Government setting out recommendations in the second half of 2007.

Capital and income in trusts: classification and apportionment

6.14      The current law on the classification of trust receipts and outgoings as income or capital is complex and can give rise to surprising results.^[10] The complicated rules which oblige trustees to apportion between income and capital in order to keep a fair balance between different beneficiaries are also widely acknowledged to be unsatisfactory. They are technical, rigid and outdated, often causing more difficulties in practice than they solve. As a result their application is often expressly excluded in modern trust instruments.^[11]
6.15      The distinction between trust income and capital receipts is also an important issue for charities. Many charitable trusts have permanent capital endowments which cannot be used to further the charity's objects; only the income generated can be used and there is generally no power to convert capital into income. This may inhibit performance of the charity's objects and encourage investment practices which concentrate on the form of receipts rather than on maximising overall return.
6.16      The Commission published a consultation paper on this subject in July 2004.^[12] It provisionally proposed new, simpler rules for the classification of corporate receipts by trustee-shareholders, a new power to allocate investment returns and trust expenses as income or capital (in place of the existing rules of apportionment) and the clarification of the mechanism by which trustees of permanently endowed charities may invest on a "total return".
6.17      Work on this project has been suspended pending completion of the Commission's work on trustee exemption clauses and will recommence on publication of the trustee exemption clauses final report.

The rights of creditors against trustees and trust funds

6.18      Details of the Commission's third trust law project can be found in last year's Annual Report. The Commission will commence this project on the completion of its other trusts work.

Feudal land law

6.19      A description of the Feudal Land Law project was given in last year's Annual Report. Work on this project will begin when resources allow.

Note 1    Including those who were at the Commission for part of the period.    [Back]

Note 2    See LC293 for an outline of the types of relationship that are and are not being considered. See also LC293 for a list of issues that are specifically excluded from the review.    [Back]

Note 3    An easement is a right enjoyed by one landowner over the land of another. A positive easement involves a landowner going on to or making use of something in or on a neighbour’s land. A negative easement is essentially a right to receive something (such as light or support) from the land of another without obstruction or interference.    [Back]

Note 4    The actual number of freehold titles subject to one or more easements is likely to be much higher than 65% because this figure relates only to expressly granted easements and does not take into account easements not recorded on the register such as those arising by prescription or implication.    [Back]

Note 5    Including Transfer of Land: The Law of Positive and Restrictive Covenants (1984), Law Com No 127.    [Back]

Note 6    The provisional proposals apply to all tenancies except those short residential tenancies that were considered in the Report on Renting Homes (2003) Law Com No 284.    [Back]

Note 7    Termination of Tenancies for Tenant Default (2004) Law Com No 174.    [Back]

Note 8    A state of affairs that has been widely criticised, for example, by Lord Goodhart in the House of Lords during the Second Reading of the Trustee Bill in 2000, and by the independent Trust Law Committee in their consultation paper on the subject.    [Back]

Note 9    Trustee Exemption Clauses (2003), Law Com No 171.    [Back]

Note 10    For example, where shares in a new company are issued to the shareholders of an existing company on what is known as an “indirect” demerger, those shares will be treated for trust purposes as capital. Where the demerger is “direct” the shares received will be treated as income in the trustee’s hands.    [Back]

Note 11    In cases where the rules still apply (generally older trusts and home-made will trusts) the rules are either ignored or require the trustee to undertake complex calculations which are unlikely to have been envisaged by the settlor when setting up the trust.    [Back]

Note 12    Capital and Income in Trusts: Classification and Apportionment (2004), Consultation Paper 175.    [Back]