https://hmlandregistry.blog.gov.uk/2016/08/16/legal-estates-beneficial-interests-whats-difference/

Legal estates and beneficial interests: what's the difference?

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Customers frequently ask us about the difference between the legal estate and the beneficial interests in land. It can be a complex topic and the aim of this article is to provide what I hope is an easy to understand overview of the distinction between the two.

Land Registry registers only legal estates and the proprietor is registered as the owner of a legal estate. The register records the ownership of the legal estate in the property, not the underlying ownership (the ‘equitable’ or ‘beneficial' interests). Accordingly a person dealing with registered proprietors can generally assume they have unlimited power to dispose of the property, unless there is a restriction or other entry in the register limiting their powers.

The owner at law may not be the same person as the beneficial owner. A beneficial owner is a person entitled to the benefit of the land and on their death the equitable interest may not pass in the same way as the legal ownership does. The register does not guarantee that the proprietor is the beneficial owner and that they own the land for their benefit.

So, what is the difference?

The legal estate

The term ‘owner’ in relation to land is generally understood to mean the legal owner and is normally the registered proprietor. When two or more people are registered as proprietor of the land they are known as ‘joint proprietors’. Their legal ownership of the land is truly ‘joint’ as the legal estate cannot be divided between them and each person cannot own a percentage share in that legal estate. There is no physical division in the land. When one joint proprietor dies, the legal estate in the whole of the land automatically vests in the surviving joint proprietor.

The equitable or beneficial interests

Think of the beneficial interests as being what the land turns into when sold – money. Money can be divided. Unlike the legal estate, the beneficial ownership can be split into equal or unequal shares. For example, a couple may have purchased a property with one contributing £25,000 and the other contributing £75,000, on the understanding their contributions would give rise to a beneficial interest for each of them in the land of 25 per cent and 75 per cent respectively.

Joint proprietors always own the registered estate on trust. A trust in land is the relationship between the legal owner(s) and the beneficial interest in the land. They can either hold it on trust for themselves or on trust for a third party.

If they hold it on trust for a third party this means that they, as legal owners, are not entitled to the equity at all and must pass this on to the person beneficially entitled to it. An example of this would be where parents are the registered proprietors of a property but they are holding it on trust for a child to whom a grandparent has left it to. Although the parents are the registered legal owners, they are not entitled to keep any monies from the sale of the property as the child is entitled to that. They are holding the property as trustees for the child.

If they hold it on trust for themselves, this means no one else has any beneficial interest in the property. They may have unequal interests, as in the example above, but they are the only ones with those interests.

Parties who hold land on trust for themselves can do so in two ways – as joint tenants in equity or as tenants in common. Remember, this still relates only to the beneficial interest.

Joint tenants in equity

If an equitable joint tenancy exists, the beneficial interest of any joint tenant (proprietor) will pass on death to the surviving tenant. The last survivor will then hold the land as sole legal and beneficial owner and, as a result, the trust will come to an end. On a sale of the land that person will then be entitled to receive the whole of the purchase money.

Tenants in common

Some people may not want their interest in the land to vest in the surviving tenant. If they decided to hold the land as tenants in common, on their death their share would vest in the beneficiaries under their will, for example their children or relatives. If the property was subsequently sold following the death of one of the proprietors, a second trustee would need to be appointed to sell it. This is because the purchase price needs to be paid to at least two trustees in order for the beneficial interest to be overreached. The trust would then attach to the proceeds of sale and the purchaser would take the property free from any trust.

Protection of beneficial interests

You may be wondering how anybody would know whether a legal owner is holding a property on trust or not. Under the Land Registration Act 2002, a restriction can be entered in the register of any property or land by anybody who has a sufficient interest in it. As well as generally safeguarding the interests of the beneficiaries of the land, restrictions may also control or limit the trustees’ powers in dealing with the property or land.

The duty of applying for any necessary restrictions falls on the trustees, though a beneficiary under the trust may also apply. There is one circumstance where the registrar is obliged to enter a restriction without an application. That is when registering two or more people as joint proprietors of a registered estate and there is no evidence to show they are holding it on trust for themselves as beneficial joint tenants.

Where more than one party has an interest in a registered estate, the general rule that decides the priority of each party’s claim is that each interest ranks in accordance with the date of its creation. Someone with an existing interest will not be affected by a later disposition. However, there is one important exception. Someone who acquires a registrable disposition for value will, by registering their interest, postpone the priority of any other interest that has not already been protected in the register.

Although the Land Registration Act 2002 reduced them, there are still some interests which can bind someone even though they bought the land for value and the interest is not recorded. These are known as ‘overriding interests’ and more information in relation to these can be found in Practice Guide 15.

Further information on this topic in general can be found in Practice Guide 24 which covers private trusts of land and Practice Guide 19 which deals with how beneficial interests can be protected.

13 comments

  1. Comment by Jeffrey Shaw posted on

    You refer to 'overriding interest'.
    But I think that the terminology is wrong.
    Under LRA2002, aren't these now renamed 'interests that override'?
    [Don't blame me for pedantry; it was you who changed the terminology!]

    ‘overriding interests’
    ‘overriding interests’

    Reply
  2. Comment by adamh posted on

    Simon - the law can be very complex around such matters and we can't really comment other than to the extent covered in the article. If you have a specific situation then it's legal advice you need. PG4 explains how land/property can be registered following a successful claim https://www.gov.uk/government/publications/adverse-possession-of-registered-land

    Reply
  3. Comment by Martin Dixon posted on

    If we are being pedantic.... "unregistered interests which override" ....... ..

    Reply
  4. Comment by Kim Basham posted on

    My parents are joint owners of their property. They were only able to secure a mortgage (they were both in their late 60s at the time) by having my husband act as guarantor. My husband and myself have always paid the mortgage and management fees. This has been going of for 25 years. My parents are now very elderly. Can we at least protest the money we have paid over the years if the property has to be sold to pay for their care?

    Reply
  5. Comment by Ian posted on

    Stef - you refer to the sale of your beneficial interest in the property, but this is distinct and separate from the registered ownership which we mainly deal with. So in simple terms, your name can be on the deeds as registered owner, but you may not necessarily hold a beneficial interest in the sale proceeds.

    The issue of any beneficial interest in the property will no doubt have to be considered and dealt with as part of the divorce proceedings and this is essentially a legal matter. If you have not already done so, I would suggest considering getting your own legal advice from Citizen's Advice or a conveyancer such as a solicitor, who should be able to offer advice on your legal position and the best way to proceed. There are also charitable organisations who may be able to give advice on the implications of your insolvency.

    Reply
  6. Comment by Bill James posted on

    Is it possible for an qwner of a property to give the beneficial rights to the income from the property to his wife. Thus she takes the income and pays tax and the owner takes nothing in return. I am thinking of a furnished holiday property

    Reply
    • Replies to Bill James>

      Comment by adamh posted on

      Bill - something you need tax/financial advice on. It's not a subject we deal with

      Reply
  7. Comment by Amy Higgins posted on

    If a beneficial interest cannot be overreached because there is only one legal owner at the time that the property is sold, once the trustee sells the property, would the beneficiaries equitable interest remain in the land? And if so would the equitable interest be binding on the new owner (and the trustee be free from any obligation)? If there is no restriction to protect the beneficial equitable interest, what can the beneficiary do?

    Reply
    • Replies to Amy Higgins>

      Comment by adamh posted on

      Amy - we deal with the legal ownership primarily rather than the beneficial one so the advice we can give is quite limited. But the beneficiaries interest will be in the proceeds of the sale so I can't see how it would remain in the land if the legal ownership has changed. If the seller won't play ball then it's legal advice/action you need to consider

      Reply
  8. Comment by Lucy posted on

    I have been told I hold a beneficial interest in a property (holiday home) purchased by myself and ex (I contributed half of the deposit) I'm not on the deeds, though I was promised that this would happen, and it never did. Court is prohibitively expensive, I need to protect my interest... if I apply for a restriction ...how will this help me, and can I pass this restriction to my child...in future...to protect my interest? Any advice re ways forward. Thanks

    Reply
    • Replies to Lucy>

      Comment by ianflowers posted on

      Lucy - This isn't something we can advise on as we essentially have an administrative role in considering registration applications once they are made to us. It appears you need to (a) ascertain whether your interest is one that can be/ is best protected by a restriction or by some other type of application, (b) whether you have the right sort of evidence to support your interest and (3) what type of restriction is most appropriate in your case. If you are unsure how to proceed on these points, you may want to consider getting some independent legal advice, e.g. from Citizen's advice or a conveyance such as a solicitor.

      I can confirm that where a restrictioner had died there is a process for transferring the interest to a personal representative. A independent legal adviser would be able to give further information about this.

      Reply

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