If you are a trustee of a trust which includes a property, then it will be your responsibility to ensure that the correct steps are taken under trust law at every stage of the process when selling the property.
The trustees will need to engage an estate agent to market the property and solicitors to prepare the contract for sale and act on the conveyance. To ensure the property sells for fair market value and to avoid any breach of trust claim for not obtaining the best price possible, it is prudent to sell the property on the open market. If the trustees agree to a private sale, they should satisfy themselves as to the purchase price by obtaining a valuation from a surveyor to ensure the property is not sold below market value, which may then invite claims from the beneficiaries.
Before the property can be sold, it may require some work to be done on it. Trustees have the power to effect repairs and improvement of the property. However, the sale should not be delayed and must take place within a reasonable time for a fair and reasonable price.
“Title Guarantee” is used to imply covenants of title and is given in the sale contract. The presumption where the sale contract is silent is that the property is sold with “Full Title Guarantee”. The differences between the Title Guarantees are explained below. However, it is important that if the seller wishes to give anything other than Full Title Guarantee, then this should be decided at the outset of the transaction and before the sale contract is sent to the buyer’s solicitors.
Full Title Guarantee is given and expected where the seller owns the legal and the beneficial interest in the property. It is the default position if not mentioned in the contract and implies that:
- The sellers have the right to sell the property.
- The sellers will do all they reasonably can to give the title they purport to give, at their own cost.
- If the property being sold is registered at the Land Registry, then it is the whole of the registered title that is being sold.
- If the property being sold is unregistered land, then it is presumed that the property is freehold. If it is leasehold, then it is presumed that the remainder of the lease term is being sold.
- The property being sold is free from all charges (mortgages), encumbrances and adverse rights, except any charges, encumbrances or adverse rights about which the seller does not know and could not reasonably be expected to know.
- If the property being sold is leasehold, then additional covenants are implied that the lease still exists and that the seller has complied with all of its terms.
Where a seller is a trustee, then only Limited Title Guarantee should be given. Limited Title Guarantee will imply less extensive covenants for title than a Full Title Guarantee. This is particularly important as the trustees will in all likelihood have never visited the property and will have little (if any) knowledge of the title matters.
It is well known that the general principle of English property law is “caveat emptor” (“buyer beware”). However, this does oversimplify matters. In modern conveyancing practice, the buyer of land will raise a number of pre-contract enquiries and the buyer is entitled to rely on the law of misrepresentation for the replies given by the seller.
If there has been a misrepresentation and the buyer has relied on it, then the buyer may be able to rescind the contract and reclaim their ﬁnancial losses or, in lesser cases, sue for damages. By way of example, in the 2003 case of McMeekin v Long, the sellers were held liable for damages of £67,000 for having given incorrect answers about a dispute with the owners of neighbouring land.
The problem for trustees is that they rarely have in-depth knowledge of the property. The beneﬁciary will often complete the replies to enquiries on behalf of the trustees. The trustees, as owners of the property, will then need to sign off the replies, but they should be aware that it is they who will be liable for any misrepresentation (eg for not informing a buyer that there is a dispute).
It is therefore particularly important that the trustees carefully check any responses given by a beneﬁcial owner or other third party and ensure that there is a limitation of liability clause in the contract and in the transfer deed.
Finally, once the trust property has been sold, any money received from the proceeds of the sale must be deposited into the trust bank account, or an account in the names of all of the trustees. Beneficiaries have the right to inspect trust accounts and documents, and trustees must keep these up to date and ensure they are accurate.
This article is intended to give a brief overview of the points to consider when selling a trust property, rather than covering all aspects of the procedures involved. Trustees should take legal advice on the title to the property before placing the property on the market.
Get in Touch
At Barrett & Co, we can help you with all aspects of your role as trustee, including the sale of a trust property. If you would like to speak to someone regarding a property matter, please email [email protected] or call 0118 958 9711.
We will be publishing shortly a separate article covering the tax aspects of selling a property as trustee.