August 4 2014

All Trustees Must Sign when Dealing with Trust Assets

No short cuts when dealing with property.

“When establishing a family trust that usually owns your family home and some investments, the usual ‘mum and dad’ trust has you and your partner as trustees, together with an independent trustee. This article looks at the importance of ensuring all trustees sign all relevant documentation when dealing with trust assets.”

You’ve taken the sensible step of transferring your home into a family trust. There are now three owners (the three trustees) listed on the title – you and your partner/spouse, and Mary who is your independent trustee, and also your lawyer. In the past, Mary has always acted on your instructions. After all, you still think of your home as being ‘yours’. But could you, if you wanted to, commit your trust to the sale of your home – without Mary’s signature? Is it safe to assume that Mary will ‘rubber stamp’ the Agreement with her signature if you tell her to?

From a purchaser’s perspective, could they enforce such an Agreement against the trust, when it has only been signed by two of the trustees (ie: you and your partner/spouse’s signature), but not signed by the independent trustee?

Recent decision says all trustees must sign

According to the recent decision in WT Trustee Company Ltd v Cato and Ors¹, the answer is a definite NO. In WT Trustee Company Ltd, a couple’s Waiheke Island home was owned by their family trust. The couple were the trustees of that trust, together with their third independent trustee Mr Compton.

The couple decided to sell the trust’s Waiheke property. Negotiations for the sale of the property to WT Trustee took place fairly quickly over the course of a weekend and the couple signed the Agreement for Sale and Purchase. WT Trustee claimed that various assurances had been made to the director of WT Trustee by the real estate agent and the couple, to the effect that Mr Compton’s signature was just a formality, or that it would be forthcoming, or that the couple had the power to bind Mr Compton. A ‘Sold’ sign went up on property. WT Trustee paid the deposit to the real estate agent. Mr Compton then refused to sign the Agreement, because he believed that the price was too low. WT then lodged a caveat against the title to the property, which had the effect of preventing the trust from selling its property to anyone else.

After the trust applied to remove the caveat so it could put the property back on the market, WT Trustee applied to the High Court to keep the caveat on the title. In order to succeed, WT Trustee had to show that they had a ‘reasonably arguable case’ that the Agreement was legally enforceable. The judge decided that there was not enough evidence of a binding agreement to support the company’s caveat. She said,

“As a general rule, all registered proprietors must execute any agreement for sale and purchase before the vendors are bound to sell. It is usually presumed that any registered proprietor who does execute does so on condition that the other or others will do likewise.”

To be enforceable, the Agreement had to have the signatures of all the trustees. Without Mr Compton’s signature, it wasn’t possible for the couple, or the trust’s real estate agent, to commit Mr Compton to the Agreement, or to make the Agreement enforceable against the trust, by making promises or representations about what the trustee would, or wouldn’t agree to. To bind Mr Compton without his signature at the time they signed the Agreement, the couple would have had to show WT Trustee some evidence that they had Mr Compton’s authority to sign on his behalf. And this they did not have.

With limited exceptions (for example, powers of attorney, and executors of estates), if a person’s name is on the certificate of title, their signature (or in the case of a company, the director’s signature) will normally be required.

All trustees have joint obligations

If you are a trustee of a family trust this is an important principle to remember when dealing with property. An independent trustee’s signature is not just a ‘rubber stamp’, and trustees will not always do what you tell them to do. Trustees are obliged to consider the best interests of the trust’s beneficiaries when deciding whether or not to sell any trust assets, and at what price.

This principle is also relevant if you are considering buying a property which is in the name of three or more people or is owned by the trustees of a family trust. It’s not safe to assume that you have a binding agreement until you have the signature of all the parties named on the title.

¹ WT Trustee Company Ltd v Cato and Ors [2014] NZHC 1084