15 Declaration of Trust

We now come to one of the more interesting and challenging aspects of the topic of transfer of property in financing transactions.
Declarations of trust are commonly used as the mechanism of transferring assets in financing transactions.
It is a declaration by an originator of property that it holds that property on trust. In a financing transaction the property will usually be held on trust for a special purpose vehicle (SPV) as beneficiary.
The legal effect of a declaration of trust is that the SPV becomes the equitable owner of the property.
As a general rule a declaration of trust will be used to transfer property when there is a prohibition on either assignment or novation in the underlying agreement.
There are good reasons for this mechanism of transfer should not be the default mechanism as we will discuss in detail below but the cases referred to below provide authority for the proposition that absent a prohibition on the declaration of trust notwithstanding that there may be a prohibition on assignment, a declaration of trust is a means by which property can be transferred.