If you are a trustee of a trust which owns a property, then it will be your responsibility to ensure that you comply with trust law at every stage of the process when selling the property.
As trustees, you will need to engage an estate agent to market the property and solicitors to prepare the contract for sale and act on the conveyance.
Trustees have a duty to ensure that the property sells for fair market value. It is prudent therefore to sell the property on the open market. This should avoid any claim for breach of trust for not obtaining the best price possible.
If the trustees agree to a private sale, they should satisfy themselves as to the correct purchase price by obtaining a valuation from a surveyor. This is to ensure that the property is not sold below market value. A trust property sold at a price below market value may invite claims from the beneficiaries, and the trustees may end up being held personally liable for any deemed loss to the trust.
Before the property can be sold, it may require some work to be done on it. Trustees have the power to effect repairs and to improve the property. However, the sale should not be delayed and must take place within a reasonable time for a fair and reasonable price.
The trustees also need to consider what kind of “Title Guarantee” they are able to give the buyers of the property. “Title Guarantee” is used to imply covenants of title and is given in the sale contract.
If the contract is silent about Title Guarantee, then there is a presumption 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 trustees wish to give anything other than Full Title Guarantee, 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 the sellers are trustees, however, then generally 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 may never have visited the property and will have little (if any) knowledge of the history of the property and its ownership.
“Caveat emptor” (“buyer beware”) is a well-established principle of English property law. 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 that incorrect information, 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. In many cases, it will be one of the beneficiaries of the trust who provides answers to the buyer’s enquiries. But it is the trustees, as owners of the property, who must sign off those replies, and so it is the trustees who would be liable for any misrepresentation (for example, not informing a buyer that there is a dispute, or that there is an issue with the local authority).
It is particularly important therefore that the trustees carefully check any responses given by a 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. The trustees are also under a duty to use the sale proceeds strictly in accordance with the terms of the trust.
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.
If you are considering putting a property into trust, or wish to sell a trust property, please get in touch with our specialist trust lawyers on 0118 958 9711 or email us on [email protected] and we will be happy to assist you further.
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Jane Whitfield can meet with you to discuss your personal circumstances, your options and your next steps. This would normally take place in our office in Reading, Berkshire. During the coronavirus situation, however, all of our meetings are currently being carried out either by telephone or by video link.
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Jane is a Solicitor specialising in Private Client matters. Jane is a qualified Trusts & Estate Practitioner with STEP (Society of Trusts & Estates Practitioners) and a fully accredited member of Solicitors for the Elderly, as well as being a Dementia Friends Champion. Jane is also President of the Berks, Bucks & Oxfordshire Law Society.