In construction projects, rights often need to be transferred from one party to another. Whether it is a right to payment, access to a consultant’s report, or reliance on a collateral warranty, assignments are the standard legal mechanism. But what happens when an assignment cannot be made or has already been exhausted?
This is where the old but still powerful concept of a declaration of trust comes in. While this approach is rooted in equity, it continues to be used as a practical solution in today’s construction environment. When carefully applied, it can help secure interest in documents, payments, and entitlements – especially when dealing with insolvency, contractual relationships, or third-party funders.
Assignments – legal and equitable
Assignments allow one party to transfer its rights under a contract to another. Under English law, a legal assignment must meet the strict requirements of Section 136 of the Law of Property Act 1925. That means it must be in writing, signed by the person assigning the right, and the other party to the contract must be given express notice.
If those formalities are not met, the assignment may still take effect in equity, as long as there is: a clear intention to assign and the subject matter is identifiable. However, equitable assignments do not bind third parties in the same way. That becomes a real problem when insolvency arises, or multiple parties claim competing interests.
In the construction context, limitations on assignment are common in contracts. Standard form provisions often restrict or prohibit the assignment of rights without consent. Sometimes all available assignments have already been made – leaving funders, developers, or purchasers with no straightforward route to step into a contract or access key documents. This is where a declaration of trust can be a useful tool.
What is a declaration of trust?
A declaration of trust involves one party (the trustee) confirming that it holds a right or asset for the benefit of another (the beneficiary). In construction, this might mean a contractor, developer, or consultant holds certain documents, claims, or entitlements on trust for a third party. It is often used when formal assignment is not possible or not yet appropriate.
This approach has long been used to give third parties a beneficial interest in construction assets, without needing to meet the strict requirements of a legal assignment. The courts will uphold such arrangements, but only if the declaration is clear and the intention to create a trust is unmistakable.
Trusts over construction documents – practical examples
A declaration of trust can apply to more than just payment entitlements. In fact, one of its most useful roles is in securing access to project documents. These may include:
- Architectural drawings and engineering plans;
- Consultant reports and certifications;
- Collateral warranties or third-party agreements;
- Contracts and specifications;
- Payment certificates or adjudication decisions.
In many cases, a contractor or consultant may declare that these documents are held on trust for a client, funder, or future purchaser. This can have several important effects:
- Ownership and priority – The beneficiary gets an equitable interest in the documents. If the document holder becomes insolvent, those documents are not part of the insolvent estate and must be returned to the beneficiary.
- Fiduciary duties – The party holding the documents (the trustee) owes duties to protect and manage them properly. This prevents them from being withheld, lost, or destroyed without consequence.
- Access and control – Depending on the terms of the trust, the beneficiary may have a say in how documents are used or shared. This is especially valuable in project finance or sale situations.
- Dispute resolution – Documents held on trust are more likely to be accessible during disputes or legal proceedings. This can help a party assert or defend a claim effectively.
However, the trust must be clearly declared. It must specify the property, name the beneficiary, and show that the declaring party no longer intends to keep any benefit for itself. Without this clarity, the courts will not infer a trust – no matter how commercially reasonable it might seem.
Why use a trust when assignments fall short?
In many live projects, assignments may be restricted by contract, refused by the other party, or simply unavailable due to timing or structure. Funders and purchasers often face these hurdles when they come late to a transaction. Rather than leave them exposed, a declaration of trust can provide a useful workaround.
For example:
- A contractor cannot assign its contract due to a restriction, but still wants to protect the lender's interest in design documents.
- A developer has already assigned rights to one party, but also wants to give a future buyer reliance on certain reports.
- A joint venture partner wants reassurance that its co-investor will not withhold documents in future litigation.
In each case, a well-drafted declaration of trust can provide that assurance without breaching contract terms or overreaching the limits of assignment law.
A cautionary note from case law
While not the central focus here, the case of Goldkorn v MPA (Construction Consultants) Ltd and Kazu Restaurants 1 Ltd (in liquidation) [2025] EWHC 385 (TCC) is a good reminder of the risks of informality. In that case, the claimant argued that he had an entitlement to litigation proceeds under a trust or assignment. But the court found the language too vague, with no clear declaration or intention. His claim failed.
The lesson is simple: if you intend to declare a trust, say so clearly, in writing, and in a way that shows exactly what is being held, for whom, and on what terms.
Final thoughts
The declaration of trust remains a powerful but underused tool in construction. It can step in where assignments fall short and provide funders, purchasers, and third parties with real, enforceable rights – if done properly.
As the old equitable maxim puts it, "equity will not perfect an imperfect gift." Commercial intentions, however well-meaning, are not enough without proper legal form.
Construction professionals should continue to adopt a belt-and-braces approach. Where assignments are not possible or have already been made, a carefully worded trust declaration can help protect key interests in documents, payments, or entitlements – before problems arise.
