A Trust or a Tenancy Agreement?

Trusts Discussion
1

The following query has been raised by a conveyancer:

In 2015, parents transferred the legal title of their property to their only daughter. They all then signed a tenancy agreement in favour of the parents. A lease was then registered on the legal title. One parent has died, the other is in a care home, having lost mental capacity. The Local Authority has disregarded the value of the property and daughter has a registered LPA for her surviving parent, in her favour only. Daughter would now like to sell the property, however the land registry will not agree to remove the reference to the lease from the land register as:

  1. The tenancy agreement states that the term “may only be determined … by the death of both tenants”;

  2. The attorney owes a fiduciary duty to the principal and to alter their legal position must be in the best interests of the donor. By making the application, the attorney (daughter) is benefiting herself to the detriment of the donor; and

  3. There is no surrender provision and the tenant lacks capacity to surrender his interest.

I have been asked if a trust, possibly a life interest trust, is in place. The tenancy agreement is signed as a deed by the parents and daughter. The daughter is named as the “Landlord”, and the parents as the “Tenants”. The property is described. The rent is one peppercorn. The term is the “lifetime of the Tenants” which may only be determined “from the date hereof by the death of both Tenants”.

There are covenants, i.e. pay rent, pay rates, keep fixtures and fittings in Tenantable repair, not to make alteration without the consent of the Landlord, not to assign, underlet or part with the possession of the premises, not to take in lodgers.

It is then signed as a Deed. Has anyone encountered such a set up before? I am not sure that the intention of the daughter as a possible Settlor, was to create a trust as we did not act for the family in 2015, (although the other two of the three certainties appear to be satisfied).

Emma Pringle
KWL

2

Clearly, a lease is not a trust. However a lease of the sort you describe might be deemed to be a settlement for inheritance tax purposes - see section 43 (3) Inheritance Tax Act 1984.

Paul Davies
Clarke Willmott LLP

3

Is not a tenancy for a life converted to a lease for 2001 years?

Julian Cohen

Simons Rodkin

4

Agree it looks nothing like a trust.

They could all sell for value (allowing the LPA to be used) and the proceeds divided between the mother and daughter on the basis of a valuation of the lease.

That would be cheaper than a COP application.

Or perhaps the advisers who set it up could explain how it should be resolved…

Andrew Goodman
Osborne Clarke LLP

5

As Julian says, a tenancy for life is converted to a tenancy by s. 149(6) of the Law of Property Act 1925, although the term is 90 years determinable by one month’s notice following the death of the tenant. And as Paul says, s. 43(3) of IHTA 1984 applies, since this is “a lease of property…which is terminable on, or at a date ascertainable only by reference to, a death…”. It is therefore likely to be a settlement for IHT purposes, even though it is not a trust as a matter of property/trusts law.

Surrender is a consensual act that does not require a power in the lease, so long as the tenant and the landlord agree, although HMLR may be right that it is not in the best interests of the donor of the LPA to surrender the lease.

The daughter could give a good title by conveying the freehold and assigning the lease. The two would then merge in the buyer. Some thought would have to be given to the application of the sale proceeds, since part would represent the lease and part would represent the reversion.

Josh Lewison
Radcliffe Chambers