Protheroe v Protheroe

Where a trustee holding leasehold trust property acquires the freehold reversion, equity prevents the trustee from retaining the freehold personally. The freehold attaches to, and becomes part of, the trust property. This applies where the trustee gains a particular advantage in obtaining the reversion.

Equity nevertheless permits the trustee to receive full reimbursement for the expenditure properly incurred in acquiring the freehold, including mortgage payments and legal costs, before the trust beneficiaries divide the net proceeds.

A husband and wife were beneficially entitled in equal shares to the leasehold of their former matrimonial home, although it was held in the husband's name. After the wife began divorce proceedings, the husband purchased the freehold reversion using a separate building-society mortgage.

Registrar Caird held that the wife was entitled equally to the net proceeds of sale of the resulting freehold property, subject to the husband's prior and complete reimbursement for the separate mortgage payments and associated legal expenses. The husband appealed, contending that the enhanced value attributable to the freehold belonged solely to him.

1. Appeal dismissed unanimously. Lord Denning MR held that the husband held the matrimonial leasehold as trustee for both parties in equal shares. It was therefore family trust property, notwithstanding that the legal title stood in his name.
2. The husband acquired the freehold reversion while in that fiduciary position. Applying the equitable rule associated with Keech v Sandford, a trustee who obtains the freehold of leasehold trust property cannot appropriate that advantage personally. The freehold consequently attached to and became part of the trust property.
3. The husband could not retain for himself the additional value created by conversion of the leasehold interest into a freehold. The parties were entitled equally to the net proceeds of sale of the freehold premises.
4. Equity required an allowance for the husband's proper expenditure in acquiring the freehold. The Registrar's direction for prior and complete reimbursement of the husband's payments under the separate freehold mortgage and the related legal expenses was proper and just.
5. Danckwerts and Widgery LJJ agreed. The Registrar's order disclosed no error and was affirmed.

• Court of Appeal (Civil Division): The husband's appeal from Registrar Caird was dismissed. The Registrar's determination of equal entitlement to the net sale proceeds, subject to reimbursement of the husband's acquisition costs, was upheld.
• Registrar Caird: Held that the wife and husband were equally entitled to the net proceeds of sale of the freehold premises, after the husband's separate mortgage payments and legal expenses had been fully reimbursed.