Artist Court Collective Ltd v Khan

A trust declared in contemplation of a conveyance may take effect simultaneously with the transfer of the legal estate. The transferee then acquires only the legal title subject to the trust; the law does not create an artificial interval in which the transferee owns the full beneficial interest. Under section 4(2)(g) of the Landlord and Tenant Act 1987, a transfer by a trustee to the sole beneficiary may be an exempt disposal where it terminates the trust and discharges the trustee. The exemption is not confined to transfers where the trust continues after the disposal. Statutory construction must respect the language and coherent purpose of the scheme.

Artist Court Collective Limited, representing qualifying residential tenants, claimed that transfers of a mixed residential and commercial property triggered rights under Part I of the Landlord and Tenant Act 1987. The County Court held that Mr Khan was a purchaser under the Act and ordered him to transfer the freehold to Artist Court and account for specified rental sums.

Mr Khan appealed. The principal issues were whether a trust in his favour was constituted when the property was transferred to SGR Properties (UK) Limited, whether the later transfer from SGR to Mr Khan was an exempt disposal under section 4(2)(g), and whether the tenants could enforce the statutory rights against him.

1. Appeal allowed. The County Court order was set aside in substance. Mr Khan was not a purchaser from SGR within the meaning of the Landlord and Tenant Act 1987, the purchase notice was invalid, and he was not in breach of the Act.
2. The Trust Deed and the Contract were to be read together. The Trust Deed validly declared that SGR would hold the whole property, including the Shops, on trust exclusively for Mr Khan. The contractual provisions were compatible with that trust and did not supersede it.
3. The trust took effect simultaneously with the transfer of the property to SGR. SGR acquired only the legal title impressed with the trust. The transfer and constitution of the trust formed one indivisible transaction. The judge’s contrary analysis wrongly introduced a momentary transfer of the entire beneficial interest and therefore resurrected the rejected notion of a scintilla temporis. The reasoning in Abbey National Building Society v Cann [1991] AC 56 supported this conclusion.
4. Although the Trust Deed could not itself be a relevant disposal when SGR had no interest in the property, the position changed when SGR acquired the legal estate and became landlord. However, the trust did not then constitute a separate disposal of the beneficial interest by SGR.
5. Section 4(2)(g) applied to the Second Transfer. The property was held on trust for Mr Khan when SGR transferred the legal estate to him. That transfer terminated the trust and discharged SGR as trustee. The statutory language did not require the trust to continue after the transfer. This construction was also consistent with the legislative purpose and avoided an incoherent distinction between lifetime and testamentary trusts.
6. It was unnecessary to determine the remaining grounds of appeal. Permission to appeal was granted in respect of the live grounds in case Artist Court sought a second appeal.

• High Court (Chancery Division): Appeal from the County Court at Central London allowed. The County Court’s declarations and consequential orders in favour of Artist Court were displaced.
• County Court at Central London: The claim was upheld. The court declared that Mr Khan was a purchaser under the Act and ordered transfer of the freehold and payment of specified rental sums.