Unit One: Legal and Equitable Interests in Land 2024-2025 PDF

**UNIT ONE:- LEGAL AND EQUITABLE INTERESTS IN LAND** By the end of this unit you will be able to:- - **Understand what is meant by ownership of Land** - **Understand the difference between tenures and estates** - **Distinguish between estates and interests in land** - **Distinguish betw...

**UNIT ONE:- LEGAL AND EQUITABLE INTERESTS IN LAND** By the end of this unit you will be able to:- - **Understand what is meant by ownership of Land** - **Understand the difference between tenures and estates** - **Distinguish between estates and interests in land** - **Distinguish between legal and equitable interests** **A set of oral power point slides accompanies these notes** 1. **Introduction** What do we mean by 'ownership' of land? When we talk about ownership of our car, books or clothes we tend to think on the basis that we have the absolute right to do what we like with our property such as sell, give away or even destroy. The definition of land ownership is somewhat different. Ownership of land cannot be considered in such an absolutist manner. Not only do we want to be able to sell and buy land but we also want to be able to grant and restrict a variety of rights over the land and have multiple concurrent owners for restricted periods of time. **1.1 Land Ownership** Ownership is therefore concerned with the relationship between a person or persons and a piece of land. This relationship can be best viewed through a power relationship lens. The relationship can be seen as the extent of power by a person over a particular piece of land. In other words, the extent of control a person has over a piece of land. By taking this approach we can see that there multiple of levels of control over property, but none are absolute. It follows from this that land ownership is therefore relative. Indeed, the Common Law does not and never has recognised absolute ownership of land. The highest level of control is a freehold estate in fee simple absolute in possession with a sliding scale down to a person with a bare licence who has no control over the land whatsoever. The rules governing the control of land have developed over a long period of time and are a consequence of that historical development. This power relationship between a person and land is a social construct. In other words, the rules governing the control of land in England and Wales exist due to human interaction so that Society can control and regulate rights and obligations over land. **1.2 History** Current land law has been crafted from its historical development. It is important to have some understanding of the historical development as the past has significantly influenced current land law. Understanding the past will also aid understanding of current land law. Historically all land was owned by the Crown. When the Normans invaded in 1066, William the Conqueror declared England to be his. In other words, the new King took control of the land and then determined how much power he would delegate to his barons who had supported him in the invasion. William gave rights to his Barons to large areas of land in return for favours. In turn the Barons, granted rights to people over areas of their land. A system developed which was based on relative ownership. This system known as the doctrine of Tenure exists only nominally today, to the extent that if we die with no relatives to inherit, our property reverts to the Crown. The consequence of this system is that the law relating to ownership has developed in a way that allows us to have rights over land in various ways which enables land to be used efficiently. This land system became known as Tenures and Estates. **1.3 Tenures and Estates** When we talk about ownership of land, we are referring to tenures and estates. [1.3.1 Doctrine of Tenures] This is the system I was referring to above. After 1066 it was held that all land was owned by the King and his subjects were granted rights in that land. The rights were more like rights as tenants of the king. In return for the right to enjoy the land each tenant agreed to carry out certain duties for the king. These duties were called tenure and were the equivalent to paying rent. Overtime the variety of tenures disappeared leaving freehold tenure as the one remaining. It is why it is still true to say that the Crown owns all freehold land. For all practical purposes Tenures have little relevance today. [1.3.2 Doctrine of Estates] Land held in tenure is also held for an estate i.e. for a period in time. In law an estate means that whilst you have the estate you have the right of possession to that land. In feudal times this was known as seisin. When we speak of Estates, we are referring to how long a person is allowed to enjoy the a particular piece of land. In other words, the term indicates the **duration** of a particular interest in land. 'The land itself is one thing, and the estate in the land is another thing, for an estate in the land is a time in land, or land for a time, and there are diversities of estates, which are no more than diversities of time.' Walsingham's Case (1573) 75 ER 805 Before 1925 there were several legal estates in land. The Law of Property Act 1925 (LPA 1925) revised the number of legal estates which could exist in land. The legal estates listed in the LPA remain important today. Since 1st January 1926 the only estates in land which are capable of subsisting or of being conveyed or created at law are- (s. 1 (1) Law of Property Act 1925) \(a) an estate in fee simple absolute in possession; \(b) a term of years absolute. **1.3.2.1 The Fee Simple Absolute in Possession (Freehold) (s. 1 (1) LPA 1925) (a)** **HERE** Fee simple --means ownership that will not end with the death of the present owner but will descend to his or her heirs. Absolute\' means that owner\'s rights of ownership are not limited by any condition. In possession\' signifies immediacy of those rights. Therefore, this is as near as absolute ownership you can have in respect of land. **1.3.2.2 The Term of Years Absolute (s. 1 (1) LPA 1925) (b)** Otherwise known as leases and concern the relationship between landlord and tenant. The other estate which was designated as such by LPA 1925 and is recognised at law is the leasehold estate (or term of years absolute). The concept of the term of years does not have its origins in the feudal system. There are (amongst others) two important differences between freehold and leasehold estates:- a\) When a leasehold estate is created, it is always for a fixed period, or for a period that can be made certain by a notice to quit. b\) Ownership of a freehold estate is the nearest an individual can get to owning the land itself and the law regards such an interest as realty (real property). A lease, however, is not included in the category of realty, but is classified as personalty (personal property). However this distinction has no practical relevance today. S.205 LPA 1925 defines term of years as including \"a term of less than a year or for a year or years and a fraction of a year, or from year to year\". i.e. a term for any period having fixed and certain duration. e.g. To X for 99 years. e.g. To Y a yearly tenancy e.g. To Z a weekly tenancy The above examples are all capable of being a term of years as defined by section 205 as there is a defined minimum duration of either a year or fraction of a year, or from year to year. **NOTE** Note that it is possible to have concurrent legal estates: e.g. one or more leasehold estates may be carved out of the freehold estate (s.1(5) LPA 1925). So for example Fred owns the fee simple absolute in possession. Fred grants Doris a 99 year lease and Doris grants Ahmed a periodic tenancy. **1.4 Distinction between Estates and Interests in land** Rights in land can essentially be divided into two categories: - Estates- discussed above- more akin to ownership and - Interests A person who has an **interest** in land has a right against land owned by another person. There are numerous types of interest in land: For example: Mortgages Easements Profit Prendre Restrictive Covenants **More than one right can exist at the same time** A number of people may have different, sometimes competing rights over the same piece of land. +-----------------------------------------------------------------------+ | ***Question*** | | | | *How many rights exist over Blackacre?* | | | | *Mr Black is **the owner** of Blackacre, an extensive property in the | | country.* | | | | *He has leased the outbuildings on Blackacre to Lenny Lee for 25 | | years**.*** | | | | *He has granted Miss East of neighbouring Eastacre the right to walk | | across Blackacre to reach her allotment**.*** | | | | *He has agreed that Farmer Prune of Prune Farm can graze his sheep on | | Blackacre's meadow.* | | | | *He has borrowed money from Midwest Bank in return for a mortgage to | | do renovation work.* | +-----------------------------------------------------------------------+ 2. **Legal and Equitable Rights** **Every** property right (whether it be an estate or an interest) will either be **legal** or **equitable**. **2.1 Why is there a distinction between a legal right and an equitable right?** The distinction between legal and equitable rights is a historical one and is unique to Common Law legal systems. Following the 1066 invasion of England by William the Conqueror, a legal system developed over several centuries a legal system which became common to England and Wales. The principles were developed though a system of courts known as the Kings Court (Curis Regis) which initially had the King as its head and the king personally gave out justice. Over time judges were appointed who dealt out the law in the King's name. By 13^TH^ century this had developed into a system of three courts known as :-The Common Pleas, Court of Exchequer and Kings Bench which were independent from the King and which practised law common to England and Wales. By the 14^th^ Century the system was becoming rigid in its development and in particular the procedure was overtly technical, types of action were restricted, and remedies were limited. Since the king in the medieval period was still all powerful, litigants would sometimes petition the king instead of using the Common Law instead or if they had not obtained the desired result from the common law courts. The King tended to pass these petitions to the Lord Chancellor. The Lord Chancellor in medieval times was equivalent to a modern day deputy and tended to be a man of the church. The Lord Chancellor made his decisions based on conscience. In time a separate court from the Common Law courts was established known as the Court of Chancery which developed the rules of equity. Over a long period of time two separate legal systems developed. One based on the common law and one based in equity. Not surprisingly over time the issue arose as to whether the Common Law Courts or the Court of Chancery was superior and took priority. This was particularly relevant where the decision would not be same in both courts. The issue of priority came to ahead in the Earl of Oxford's Case (1615), when the King held that equity prevailed over the common law in the event of a conflict. Having two separate systems of law was not ideal and became increasingly problematic. The systems were wasteful and inefficient since common law issues had to be heard in the common law courts and equitable matters in the Equitable courts. Consequently, after a review of the Common law and Equity Courts the legal system of England and Wales was extensively overhauled by the Judicature Acts 1873-75. The Judicature Acts combined the two courts and systems enabling litigants to pursue common law and equitable remedies in the same court room. The Acts confirmed that equity prevails over the common law and this is still true today. Today we still have equitable and legal distinctions which remain important today, particularly in relation to Land law. In 1925 the law relating to land was further extensively overhauled by the Law of Property Act 1925 and Land Registration Act 1925 which was replaced by the **Land Registration Act 2002** The Land Registration Act 1925 introduced for the first time a national paper data base of ownership of land called the Land Registry. Creating a system of registration was a massive undertaking. Initially compulsory registration only occurred in designated areas such as London. As more land became registered at the Land Registry, more areas of the country became in compulsory registrable areas. By 1990 the Land Registry was in a position to compulsory register land anywhere in Wales and England. In 1990 registration became compulsory for all areas of the country. The system was extensively overhauled by the Land Registration Act 2002 and paper deeds were abolished. Approximately 95% of the country is now registered land and proof of ownership is now digitalised. Note Land Registration will be covered in Unit Two (Weekend Two). Note land registration is relevant to whether an interest is legal or equitable. Just 5% of the land in England and Wales remains unregistered and this shrinks a little bit every year. As unregistered land comes up for sale or other triggering event, the land must be registered at the land registry for the first. Since only 5% of the land remains unregistered this module does not cover unregistered land. Although you will not be examined on unregistered land it is worth noting the rules are different. **2.2 Relevance of the distinction between Legal and Equitable interests.** The distinction is relevant in relation to the extent of the right and its enforceability. Therefore, it is paramount that you must be able to understand the difference between legal and equitable rights and be able to distinguish them. It should be noted that it is possible and common place to have agreements in place regarding land which are not land rights. Such arrangements are of a personal nature. Enforcement is a personal one and cannot be passed on. An example is a licence eg a lodger. Whereas legal and equitable rights are vested in the land. This means the rights have the potential to run with the land. **2.3 Distinguishing between legal and equitable property rights** **Note that only certain property rights can ever be legal, but all property rights are capable of being equitable.** 1. **Test for Legal Property Rights** **This is a three stage test** [Three stage test.] You must ask yourself the following three questions and if you can answer yes to all three the right will be legal: (a) Is the right listed in section 1(1) or (2) Law of Property Act 1925? and b) Has the right been created or transferred by deed? and - \(c) Has the right been registered at the Land Registry? (Subject to the exception of leases within s.54(2) Law of Property Act, implied and presumed legal easements) **2.3.1.1 Is the right listed in section 1(1) or (2) Law of Property Act 1925?** Section 1(1) and (2) Law of Property Act 1925 lists the rights that are potentially legal. Note only those rights listed in this section are potentially. Section 1 (1) = Lists the legal estates as:- a. Freehold b. Leasehold *s.1(2) Lists five legal interests:-* *(a) An easement, right, or privilege in or over land for an interest equivalent to an estate in fee simple absolute in possession or a term of years absolute;* *(b) A rentcharge in possession issuing out of or charged on land being either perpetual or for a term of years absolute;* *(c) A charge by way of legal mortgage;* *(d) By operation of statute* *(e) Rights of entry exercisable over or in respect of a legal term of years absolute, or annexed, for any purpose, to a legal rentcharge.* If the interest it falls outside the list above it **cannot** be a legal property right. It can only be an equitable property right. **2.3.1.2 (b) Has the right been created or transferred by deed?** **There must also** be a deed for the legal estate or legal interest of land listed in S.1 LPA 1925 to pass from one party to another party. (Note the exceptions mentioned above.) **The rule is found in LPA 1925 s.52** s\. 52 Conveyances to be by deed. *(1)All conveyances of land or of any interest therein are void for the purpose of conveying or creating a legal estate unless made by deed.* *This means that the two estates in land and the five interests in land (s.1 LPA 1925) must be by conveyed by deed.* *There are a few exceptions to this rule such as a deed is not required to transfer a lease less than three years old. (See LPA 1925 s.52(2)(d) and s.54(4)) and implied/presumed easements.* **2.3.1.2.1 What are the legal formalities for a deed?** In order for a document to be a deed it must comply with certain requirements These requirements are found in:- Law of Property (Miscellaneous Provisions) Act 1989 *s.1 (2) An instrument shall not be a deed unless---* *(a) it makes it clear on its face that it is intended to be a deed by the person making it or, as the case may be, by the parties to it (whether by describing itself as a deed or expressing itself to be executed or signed as a deed or otherwise); and* *(b) it is validly executed as a deed by that person or, as the case may be, one or more of those parties.* *(3) An instrument is validly executed as a deed by an individual if, and only if---* *(a) it is signed---* *(i) by him in the presence of a witness who attests the signature; or* *(ii) at his direction and in his presence and the presence of two witnesses who each attest the signature; and* *(b) it is delivered as a deed* [In other words the requirement for a deed are:-] It must be clearly stated that the document is a deed. It must be validly executed which requires to be signed and witnessed by one witness and the deed must be delivered. Note delivery means an intention to be bound by the deed. **2.3.1.3 (c ) Has the right been registered at the Land Registry** **For the right to be legal it must be registered at the land registry. The exception are implied grants of easements. This will be discussed in Unit Two.** 2. **Test for equitable property rights --** Two stage Test a. Generally, formalities are still required but there are some exceptions. b. Usually the equitable right must be registered but there are some significant exceptions. 1. **Formalities** If the right is not a legal property right, it has the potential to be equitable but as said above equitable rights in land still require a certain level of formality in their creation. To decide what formality is necessary you must ask yourself: Why has the right failed to be legal? Is it because it is **not** listed in section 1(1) or 1(2) Law of Property Act 1925 or is it because it has not been created or transferred by deed? **2.3.2.1.1 If the right is not listed in section 1(1) or 1(2) Law of Property Act 1925** Formality required: Section 53(1) Law of Property Act 1925 (1)Subject to the provision hereinafter contained with respect to the creation of interests in land by parole--- \(a) no interest in land can be **created or disposed of except by writing** signed by the person creating or conveying the same, or by his agent thereunto lawfully authorised in writing, or by will, or by operation of law; \(b) **a declaration of trust** respecting any land or any interest therein must be manifested and **proved** by some **writing** signed by some person who is able to declare such trust or by his will; (c)**a disposition of an equitable interest** or trust subsisting at the time of the disposition, **must be in writing** signed by the person disposing of the same, or by his agent thereunto lawfully authorised in writing or by will. 2)This section does **not affect** the creation or operation **of resulting, implied or constructive trusts.** **2.3.2.1.2 If the right is listed in S.1 LPA 1925 and has not been created or transferred by deed** If the right is listed in S.1 LPA 1925 and has not been created or transferred by deed, then it will be an equitable interest if it was created by contract. **Deeds are enforceable even where there is no consideration. However, if an agreement is not by deed, under common law consideration is required to create a binding contractual agreement. Consequently, if there is no deed an interest listed in s.1 LPA can still be binding as an equitable interest provided it was created by contract.** **Contracts for Land** **The most common type of contract for land is for the sale of land and is part of the conveyancing process in respect of the sale of land.** The sale of land is usually a two stage process. The first stage is exchange of contracts which is an agreement to transfer the land by deed on a certain date from the vendor to the buyer. This contract will create an equitable interest provided that the contract complies with Section 2 Law of Property (Miscellaneous Provisions) Act 1989 in order to be valid. In order for a contract for the sale of land to be valid under this provision it must contain the following:- LPA (MP) 1989 2.(1) A contract for the sale or other disposition of an interest in land can only be made **in writing** and only by **incorporating all the terms** which the parties have expressly agreed in one document or, where contracts are exchanged, in each. (2)The terms may be incorporated in a document either by being set out in it or by reference to some other document. (3)The document incorporating the terms or, where contracts are exchanged, one of the documents incorporating them (but not necessarily the same one) **must be signed** by or on behalf of each party to the contract. Note contracts for land include any of the interests listed in s.1(2) of the LPA 1925 and contracts can be inferred where a disposition of land by deed was intended but the deed was defective. (See later regarding the equitable interests) 3. **Legal Rights in land** In relation to legal rights as we have already seen -- these are restricted by statute and are classified under the S.1 LPA 1925 as legal estates and legal interests. We have already discussed the two legal estates which are :- **S.1 LPA 1925** \(1) The only estates in land which are capable of subsisting or of being conveyed or created at law are--- \(a) An estate in fee simple absolute in possession; \(b) A term of years absolute. 3. **Legal Interests** **This is a brief introduction to the legal interests listed in section 1(1) or (2) Law of Property Act 1925) (2.3.1.1).** 2. **Easements** a. [An easement, right, or privilege in or over land for an interest equivalent to an estate in fee simple absolute in possession or a term of years absolute;] Easements- gives a third party a right to enjoy over someone else's land. Examples are a right of way, right to light, right to park, right to fix a sign. The list is not exhaustive. Profit a prende- is a right to remove something from someone else's land which exists naturally eg apples from an orchard, cutting hay or hunting. List not exhaustive Not all easements and profits can be legal though -- it depends on their duration. An easement or profit can only be legal if its duration is equivalent to: a fee simple absolute in possession - meaning that it has the potential to last indefinitely or a leasehold estate -- meaning that: it is for a fixed duration **2.4.1.2 Rentcharge** [(b) A rentcharge in possession issuing out of or charged on land being either perpetual or for a term of years absolute;]... but only those which are perpetual or for a term of years absolute. A rentcharge is a right to receive a periodic payment charged on the land. They are uncommon and being phased out of existence. Note rentcharges are not part of the assessment for this module 3. **Legal Charge** [(c) A charge by way of legal mortgage;] In essence a mortgage is form of security interest in land. The lender will loan the money by way of a mortgage which gives the lender an interest in the property. (More about this later in the module) The charge by way of legal mortgage is the standard modern form of legal mortgage. They are extremely common. Terminology: Mortgagor = borrower Mortgagee = Mortgage company C:\\Users\\als3winfiel\\AppData\\Local\\Microsoft\\Windows\\Temporary Internet Files\\Content.IE5\\Y5JAZ00P\\PngMedium-home-building-15785\[1\].gif ![C:\\Users\\als3winfiel\\AppData\\Local\\Microsoft\\Windows\\Temporary Internet Files\\Content.IE5\\Y5JAZ00P\\Stick-figure-male-2-11608-large\[1\].png](media/image2.png) http://www.clker.com/cliparts/3/Z/p/2/P/6/bank-icon-md.png **Mortgagor Mortgagee** 4. **Statute** ([d) By operation of statute] Some rights arise against a piece of land by operation of an Act of Parliament. The owner of the rights will in practice be some form of government agency. Examples: eg inheritance tax and the Legal Aid Charge **2.4.1.5 Rights of Entry** [(e) Rights of entry exercisable over or in respect of a legal term of years absolute, or annexed, for any purpose, to a legal rentcharge.] Examples A landlord's right to forfeit a lease if the tenant breaks the terms of the lease; Or a rentcharge owner's right to reclaim the land if the money owed is not paid. [ ] **2.4.2 Equitable property rights** Whilst only certain property rights can be legal, **all** property rights are capable of being equitable. **Equitable property rights can be created in a number of different ways, the most significant of which are as follows:** 1. **By contract to create or transfer a legal estate or interest** 2. **By trying to grant a legal estate or interest but failing to use a valid deed** 3. **By grant of an estate or interest by a person who owns only an equitable right** 4. **By grant of an estate or interest which can only exist in equity** 5. **By express written and signed trust** 6. **By implied trust** **2.4.2.1 By contract to create or transfer a legal estate or interest** **Remember that if a right has not been created or transferred by deed it cannot be legal subject to a few exceptions.** **However, if there is a valid contract, there is sufficient formality to create an equitable right.** **Remember that in order to be valid, all contracts for the creation or transfer of rights in land must comply with Section 2** Law of Property (Miscellaneous Provisions) Act 1989. **The contract must:** **In addition, the remedy of specific performance of the contract must also be available.** **What is specific performance?** **Specific performance is an order of a court which requires a party to perform a specific act, usually what is stated in a contract.** **Specific performance is an equitable remedy, therefore the courts will only grant it if the person seeking it has behaved justly and fairly -- he must not be in breach of his obligations under the contract or acting in bad faith.** **'He who comes to equity must come with clean hands'.** *So to put it simply:* Some key examples (assuming clean hands): A contract to create a legal lease will create equitable lease A contract to create a legal easement will create an equitable easement A contract to create a legal profit will create an equitable profit Note however that a contract to **transfer** an **existing legal estate** (freehold or leasehold) produces a slightly different result. This will **create an estate contract.** **An estate contract is simply a contract to transfer an estate.** The transfer of an estate in land is a two stage process: Stage 1 - exchange of contracts when the parties become legally bound Stage 2 - completion when legal title is transferred by the execution of a deed Once a contract for the sale of an estate has been made, i.e. 'exchange' has taken place, equity regards the purchaser as owning an estate contract. On 'completion', the purchaser acquires the legal estate so has legal title to the property provided the formalities and procedure is valid. **Some key cases:** ***Walsh v* Lonsdale (1882) 21 Ch D 9** The parties had made a valid **contract** for a seven-year lease and the tenant had taken possession of the property. However the parties had forgotten to execute the formal deed needed for a valid legal lease. Court of Appeal Held that equity would regard as done that which ought to be done, or more simply, creating an equitable equivalent of a formally defective but otherwise legal lease The doctrine will only operate where the contract underlying the defective lease complies with the Law of Property (Miscellaneous Provisions) Act 1989, in that it is in writing, contains all express terms, is signed by or on behalf of all parties, provides for consideration and is specifically enforceable **Coatsworth *v* Johnson \[1886\] 55 LJQB 220** Johnson entered a valid contract with Coatsworth to lease a farm to Coatsworth for 21 years. The lease was never actually completed by deed (so could not be legal) but Coatsworth took possession of the farm. The contract contained an obligation on Coatsworth to farm 'in a good and husband-like manner'. Coatsworth allowed the farm to deteriorate, however. Johnson tried to evict Coatsworth and Coatsworth claimed to have an **equitable lease for 21 years.** The Court of Appeal held that: Held: The tenant was in breach of a covenant in the intended lease. Specific performance is discretionary, and a court under equity will require a party seeking an equitable remedy to come with clean hands. ***Mason v Clarke* \[1955\] AC 778** SM Ltd owned the freehold of a farm. In 1950 the farm was plagued by rabbits and SM Ltd agreed to grant Mason, a rabbit catcher, the right for a year to catch rabbits on the farm. The arrangement was purely verbal but Mason paid £100 for the right and placed traps on the farm. Held Prior to the coming in to force of the Law of Property (Miscellaneous Provisions) Act 1989 this was sufficient to create a contract: Previous law - Verbal contract + part performance of contract = valid contract This decision would be decided differently today because partial performance was abolished by the LPA 1989 Act and under the Act the agreement must be in writing as opposed to evidenced in writing under the previous legislation. **2.4.2.2 By trying to grant a legal estate or interest but failing to use a valid deed** *Here the parties do not deliberately intend to enter into a contract-rather they fail to comply with the requirements for a valid deed.* *In this situation the court finds a contract so that the transaction does not fail entirely.* *As above,* **for this type of equitable property right to arise** *there must be a **valid contract** and **specific performance** must be available.* *So once again:* *Parker v Taswell* (1858) 2 De G & J 559 The landlord and the tenant signed a document which was intended to **grant** a lease to the tenant. **The document had not been executed correctly**, so it was not a deed. It therefore could not create a **legal** lease. T argued that the agreement was unenforceable since the intention had been to create a lease that would be valid at common law. The Court of Chancery held that: In principle, the agreement could take effect in equity and the relevant legislation did not lead to a contrary conclusion (570 -- 571 per Lord Chelmsford). 'The agreement, moreover, is admitted to be sufficiently certain as to all the substantial parts of it, and the only portions of it to which uncertainty is attributed are subordinate matters. No authority has been cited to shew that in such a case specific performance may not be decreed.' (571 -- 572 per Lord Chelmsford). **2.4.2.3 By grant of an estate or interest by a person who owns only an equitable right** An equitable interest can be granted by a person who has an equitable interest. Below is a case which although not directly on this point illustrates what is required. The case is somewhat complicated and unusual. **North East Property Buyers Litigation (Scott v Southern Pacific Mortgages Ltd \[2014\] UKSC 52).** Mrs Scott owned her home but was struggling to meet the mortgage payments. Company x offered to buy her house at a reduced price and allow her to live in the property at a reduced rent. Mrs Scott sold the property to X. Later she discovered that X had mortgaged the property to Southern Pacific Mortgages without her knowledge. Mrs Scott argued that she had an equitable interest in the property. The case was about priority of interest. Unfortunately for Mrs Scott X could not grant Mrs Scott an interest until they had acquired the freehold. They purchased the property using the mortgage and the court deemed that the mortgage company interest was simultaneously created when X purchased the property. Therefore Mrs Scott interest was created after the Mortgage Company. The Supreme Court held that the seller could not acquire any equitable interest in the property until after the buyer acquired the legal title. In other words when Mrs Scott sold her freehold interest to the buyer, at that moment she nolonger had an interest in the property. The buyer could only give Mrs Scott an equitable interest once they had purchased the property. The purchase took place at the same time as the purchaser's mortgage concluded. Only then could Mrs Scott acquire an equitable interest. The case confirmed that you can only grant interest from an interest you already have. Examples:- If person a has a legal interest in land they can grant a legal or equitable interest in land. If a person only has an equitable in land they can only grant an equitable interest in land. A person who has neither a legal or equitable interest in land is not capable of granting an interest in land. **2.4.2.4 By grant of an estate or interest which can only exist in equity** Certain equitable rights have no legal equivalents. For example: Restrictive Covenants- Will be examined in the module Proprietary Estoppel - Will not be examined in the module Estate Contracts- Examinable Express Trusts- Examinable Constructive Trusts/Resulting Trusts- Examinable Even if these interests are created by deed they will only ever be equitable. They are not listed in section 1(1) or (2) Law of Property Act 1925 so they are not capable of being legal. This is confirmed in Section 1(3) Law of Property Act 1925 This type of equitable right **must be created by signed written document other than implied trusts. A valid contract is not required.** **2.4.2.4.1 By Trust** A trust is created when a person called the Settlor who owns the property absolutely (by this I mean the Settlor has the legal and equitable rights in the property) splits the legal and equitable title between two parties. The settlor gives the legal title to the Trustee and the equitable title to the beneficiary. Splitting the legal and equitable title in this way gives the Trustee the responsibility of managing and looking after the property but the real ownership is in the hands of the beneficiary although they are unable to manage it. The trust is ideal in relation to providing for underage persons under a will for example. **Settlor** *Transfer of Legal title* **Trustee** (Absolute Owner) (Legal title) (Has both legal and equitable ownership which he separates) (Personal obligations in respect of the trust property *Transfer of* *Equitable Title* **Beneficiary** **2.4.2.4.1.1 Express and Implied Trusts** Trusts can be express or implied. **2.4.2.4.1.1.1 Express Trust** As the name implies the trust is created expressly and arise as a deliberate act of the settlor. Note whenever there is an express declaration of trust in land inter vivos it must be evidenced in writing. Law of Property Act 1925 (LPA) s.53 1. (b)a declaration of trust respecting any land or any interest therein must be manifested and proved by some writing signed by some person who is able to declare such trust or by his will; **2.4.2.4.1.1.2 Implied Trusts** However trusts can also be created by implication. There are two types which are resulting and constructive trusts. Implied trusts will be discussed in more detail in Unit Three These trusts are not deliberately created by the settlor but rather are created by implication of law \[constructive trust\] or on the presumed intention of the settlor \[resulting trusts\]. **Resulting Trust** A resulting trust is imposed where a person contributes to the purchase price of the property but is not named as a legal owner. In the those circumstances there is a presumption that the person has an equitable share in the property and the legal owner is holding the property on behalf of the beneficiaries in equity. **Constructive Trust** Constructive trusts are imposed by the courts where the court considers it unconscionable for the legal owner to hold the property absolutely. In other words a person who does not have legal title is given an equitable share in the property. In relation to constructive trusts there has been a considerable amount of case law in relation to the circumstances which create such a trust arise and we will look at this later. **2.5. Summary** 1\. If it falls within S.1 LPA, and is created by deed then it is a legal right. 2\. If it falls within s.1. LPA but has not been created by deed then it will be equitable provided it has been created by a written contract which complies with s.2 LPA (MP) 1989 3\. If the purported right does not fall within S 1.LPA it may be equitable if it complies with s.53 (1) LPA 1925 4\. Note that the general rule is that legal and equitable rights must be registered at the Land Registry to be binding but there are significant exceptions. 5\. Presumed/Implied Legal easements, legal leases under s.54(2) LPA and Implied trusts are exception to these rules Remember that all rights have the potential to be equitable but not all rights can be legal. Therefore the legal rights listed in S.1 LPA all have the potential to be equitable. Remember that equitable property rights must be created either by a signed written document (except for implied trusts) or by a valid contract -- discussed above **\ **