Property Act must move with the times

A review of the Property Law Act recommends new formalities for creating and passing on interests in land.

A Victorian Law Reform Commission (VLRC) report tabled in Parliament is calling for a new Property Law Act.

Then Attorney-General Rob Hulls tabled the VLRC’s Review of the Property Law Act 1958 late last year. The review’s 58 recommendations call for the amendment or repeal of existing legislation, introduction of new law, or further review.

Significant reform has been recommended for ss52-55 of the Act, which deal with the formal requirements for creating and passing various interests in land and personal property.

These provisions have been part of Victorian legislation since 1928 and form the basis of similar provisions in other Australian and overseas common law jurisdictions. They reproduce similarly numbered provisions in the Law of Property Act 1925.

As currently drafted, the provisions contain certain anomalies, one being that a lower standard of formality applies to a declaration of a trust in land than is required to deal with an existing trust of land or of personal property.

Under s53(1)(b) of the Act, a declaration of trust in land may be “manifested and proved” by a signed document that came into existence some time after the trust was created. The document may be signed by a beneficiary of the trust.1

This low level of formality, together with the fact that there need not be a witness to the declaration of trust, creates a risk of fraudulent claims. The risk is present in areas such as family property disputes, bankruptcy proceedings and the administration of pension assets tests.

In these situations it can be asserted that property is held by the party as trustee under an earlier declaration of trust. The date or the terms of the declaration of trust may be in issue and there is a risk of collusion.

These issues arose in the case of Owens v Lofthouse2 where a bankrupt claimed that she had previously executed a declaration of trust with the effect that, at the date of the bankruptcy, four residential properties were beneficially owned by a family trust.

The court was not satisfied that the trust declaration was executed on the date it bore. The court commented that the declaration “surfaced conveniently and opportunely” when the woman faced difficulty with creditors.

In Dineen v Secretary, Department of Social Security,3 the appellant executed a declaration of trust in 1987 maintaining that certain properties were held in trust for his sons since 1980 and as such their value could not be taken into account for the purposes of a pension assets test. The court ruled that “the purported declaration is a self-serving document, deliberately created eight years after the alleged event, to assist the applicant in his claim for a pension”.

Through its research and consultations, the VLRC has identified a need for a higher standard of written formalities for a declaration of trust of land to provide better evidence of the terms, subject matter and date of the trust declaration.

In a consultation paper published in April 2010, the VLRC proposed two options for reform. The first was to require the declaration of trust to be by deed, signed by the person disposing of the land and preferably witnessed. The second was to require a declaration of trust to be in writing, signed by the person disposing of the land.

The LIV supported the second option, saying that it should not be mandatory for a declaration of trust to be by deed. This view was shared by others.

The VLRC accepted this argument and has recommended that s53(1)(b) be amended to provide that a declaration of trust respecting any land, or a trust consisting partly of land and partly of personal property, must be in writing and signed by the person disposing of the land or by the person’s agent.

This recommended reform will allow the use of written formalities to prevent fraud. It will allow for more legal certainty and transparency of dealings in equitable interests in land. It will have the effect of minimising family disputes and reducing the time currently spent by the court attempting to establish circumstances as to whether a declaration of trust of land has been “manifested and proved” by writing.

If the recommended change to the legislation is made, legal practitioners will need to take note, particularly if they are involved in matters concerning bankruptcy, family law or the administration of government entitlements.

The recommendation is only one of a series of proposed amendments to s53 to eliminate ambiguities, overlaps and inconsistencies. All of the proposed amendments would apply only to future dispositions and conveyances.

The final report, Review of Property Laws: Property Law Act 1958, is available online at the VLRC website

This article was produced by the Commission and appeared in the January/February 2011 issue of the Law Institute Journal.

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