Co-ownership Flashcards
Types of trust - express trusts
A trust of land can be created expressly.
For example, a piece of land is transferred to A to hold on trust for B. A is the trustee, the legal
owner of the land. B is the beneficiary and has an equitable interest in the land.
Where a trust is expressly created, there are formalities which must be followed by the person(s)
who sets up the trust. The declaration of trust must be evidenced in writing and signed by the
declarant(s) (LPA 1925, s 53(1)(b)).
Types of trust - implied trusts
A trust of land can also be created impliedly if certain circumstances exist. There are no
formalities for the creation of such trusts (LPA 1925, s 53(2)).
An implied trust of land will be a resulting or a constructive trust.
A resulting trust may be implied if, for example, a property is bought in A’s name, but B makes a
financial contribution. So if B paid 25% of the price, A will hold the property on trust for A and B in
a 75%:25% ratio.
Note. In the context of the family home, a resulting trust no longer has any place, and a common
intention constructive trust will be used instead. You can learn about implied trusts of the family
home in Trusts Law.
Constructive trusts arise in a wider range of circumstances, but all respond to unconscionability.
They will therefore be imposed in cases where it is unconscionable for the legal owner of the land
to deny the interest of another person.
Joint tenancy
Where there is a joint tenancy all co-owners are deemed to constitute one single entity, and own
the whole property as one collective entity. Where a joint tenancy exists, the right of survivorship
applies.
Unity of
possession
Each co-owner is as much entitled to possession of any part of the
land as the others. No co-owner can be excluded from any part of the
land.
Unity of title All co-owners must acquire their title from the same document. This will
be satisfied if they all obtain title from the same transfer deed or lease.
Unity of interest The interest in land held by each co-owner must be of the same nature and duration. For example, in a leasehold context, all owners must
hold the lease for the same length of time, with joint obligations.
Unity of time The interest of each co-owner must vest at the same time. This does
not mean that they must all sign the document at the same time or
move into the property at the same time.
To have unity of time, the interest of each co-owner must take effect at
the same time.
The right of survivorship
The practical significance of holding land as a joint tenant or as a tenant in common arises when
one co-owner dies. Joint tenants are regarded as a single entity, and therefore when one joint
tenant dies, survivorship or ius acccrescendi applies.
This means that the notional interest of the deceased joint tenant accrues to the surviving joint
tenants.
It is incorrect to say that the deceased joint tenant’s ‘share’ goes to the surviving joint tenants as
of course a joint tenant does not have a ‘share’ in the first place.
Survivorship operates automatically as soon as the joint tenant dies. This means that the interest
accrues immediately on death and is unaffected by any provision in a will, or by the intestacy
rules if there is no will. This is because a will is of no effect until after death, by which time
survivorship has already operated. Therefore any provision in a will which purports to leave a joint
tenant’s interest to someone will have no effect: Re Caines deceased [1978] 1 WLR 540.
When there are two joint tenants, on the death of one, the interest accrues to the survivor who
becomes sole owner.
Survivorship does not apply to an interest held by a tenant in common, which will pass in
accordance with the deceased’s will, or under the intestacy rules if there is no will.
The legal title: keeping it simple
The legal title is the ‘public’ face of co-ownership: the trustees are named as registered proprietors
on the proprietorship register at the Land Registry and are the people who deal with buyers and
lenders.
The rules for holding the legal title are kept as simple as possible to make it easy to buy, sell and
mortgage land. For example, there is a limit on the number of trustees who can hold the legal title.
This means that a buyer or lender only has a limited number of people to deal with, making the
process quicker and easier.
To keep the title as simple as possible, the following rules apply:
* There must be a maximum of four legal owners: Trustee Act 1925, s 34(2).
* The trustees must be ‘sui juris’: of full age and sound mind: LPA 1925, s 1(6) and s 22 (a minor
cannot therefore hold legal title).
* The legal title holders must hold the property as joint tenants.
Note. If land is transferred to more than four people, the first four named who are sui juris will be
the legal title holders: LPA 1925, s 34(2).
Because the legal title must be held as a joint tenancy, the legal title holders must have the four
unities. They are seen a single entity, and collectively hold the whole legal estate. Thus, on the
death of any legal joint tenant, the right of survivorship will always operate, and the interest
accrues to the surviving joint tenants.
The legal joint tenancy cannot be severed to make a tenancy in common: LPA 1925, s 36(2). This
avoids the complications which would arise if the legal owners could leave their separate share to
their heirs, because on the death of a joint tenant the number of legal owners will reduce rather
than increase.
The equitable title: keeping it private
The equitable title is the ‘private’ face of co-ownership: the names of the equitable owners do not
appear on the registers of title, and the way the equitable interests are held is not disclosed. This
is known as the ‘curtain principle’ of Land Registration.
The equitable title is much more flexible and can be constructed to reflect the wishes of the
owners:
* There is no limit on the number of people who can hold an equitable interest in a piece of land.
* There is no requirement to be sui juris. For example, property is often held on trust for under18s.
* The equitable owners can choose whether they hold the equitable title as joint tenants or
tenantsin common
Equitable title: joint tenancy or tenancy in common?
The equitable title can be held as a joint tenancy if the four unities are present. If unity of time,
title or interest is missing, then there will be a tenancy in common providing unity of possession
exists.
It is possible, and good practice, for the parties to make an express declaration that they hold the
beneficial interest as joint tenants. These words will be found in the will or transfer deed. It is
important to remember that an express declaration by itself will not be enough: the four unities
must also be present.
Even if the four unities are present, an express declaration that the owners hold as tenants in
common will prevail: Pink v Lawrence [1978] 36 P&CR. Falling short of an express declaration,
words such as ‘in equal shares’ or ‘equally’ may be present, which indicate that the parties intend
to have ‘shares’ and hold as tenants in common.
Where there is no express declaration or specific wording, the equitable title will be held as a joint
tenancy (providing the four unities are present) unless a rebuttable presumption of a tenancy in
common applies. A rebuttable presumption of a tenancy in common will apply where:
(a) Land is a business asset (Lake v Craddock (1732) 3 P Wms 158); and
(b) The purchase price of a non-domestic property has been paid in unequal shares (Bull v Bull
[1955] 1 QB 234).
Severance
Severance: Severance is the process of converting an equitable interest held as a joint tenancy
into an interest held as a tenancy in common. It is important to understand that severance
does not bring co-ownership to an end: it simply changes the basis on which the equitable
co-owners continue to hold the equitable title.
Remember, the legal title must be held as a joint tenancy. The equitable (also known as the
beneficial) title can be held by the co-owners as a joint tenancy or tenancy in common.
An equitable joint tenant may wish to sever that joint tenancy to create a tenancy in common. The
usual reason an equitable joint tenant will want to so this in order to exclude the operation of
survivorship, so that a distinct share in the property can be left to someone other than the
surviving joint tenant(s) on death. This may be required because there has been a breakdown in
the relationship between the joint tenants, meaning that one person does not wish the other to
take the property by survivorship
Law of Property Act 1925, s 36(2)
Severance is governed by LPA 1925, s 36(2). It states that it is not possible to sever a legal joint
tenancy; only an equitable one, which can be severed by two basic ways.
The reason the legal title cannot be severed is to preserve the simplicity of the legal title. If legal
trustees could sever the joint tenancy and leave an interest held as a tenancy in common to
other(s), that would complicate the legal title for two reasons: first, the number of legal owners
could grow, not shrink! Second, documents would be required to prove that the new holders had
actually acquired title properly. With a joint tenancy, the only document required on the death of
a joint tenant is a copy of that person’s death certificate.
Assessment focus point
The severance must take place during the joint tenant’s lifetime. Making a will does not sever a
joint tenancy as it takes effect after death, whereas severance takes place immediately on
death: Re Caines deceased [1978] 1 WLR 540.
As per s 36(2), severance of an equitable joint tenancy can take place by either:
(a) notice in writing; or
(b) ‘other acts or things’
‘Other acts of things’ is deliberately vague. It was intended that the modes of severance
recognised by Williams v Hensman (1861) would continue to apply.
In Williams v Hensmen three possible ways in which a joint tenancy in personal property and land
could be severed were identified. These three ways falls under the ‘other acts of things’ mode of
severance in s 36(2).
The effect of severance
[…] it seems to us that it is of the very nature of a joint tenancy that, upon a severance, each
takes an equal aliquot share according to the number of joint tenants.
Slade LJ in Goodman v Gallant [1986] Fam 106
Therefore, if a joint tenant successfully severs the equitable joint tenancy, they will hold a tenancy
in common which is an equal share, based on the number of former joint tenants not on the
proportion of contributions made to the initial price.
Assessment focus point
Remember, severance only affects the owner who instigates the severance. The remaining
equitable joint tenants will continue to hold the equitable title as joint tenants. However, if
there are only two joint tenants, severance will affect both of them.
Severance by notice in writing
Section 36(2) states that the equitable joint tenancy can be severed. One way this can be done is
for the severing joint tenant to give a notice in writing to all of the other equitable joint tenants.
Rules concerning the content and service of such notices must be observed if the notice is to have
the effect of severing the joint tenancy.
The writing could be deliberately intended to sever the joint tenancy, such as where it is the
starting point to a tax planning scheme. However, writing which is primarily intended for another
purpose could have the unintended consequence of severing the joint tenancy.
4.1 Form and intention of the notice
There are no particular formalities to be observed for the notice: it does not even need to be
signed. However it must demonstrate an unequivocal and irrevocable intention to sever the
equitable joint tenancy immediately.
Two cases with similar facts but different results demonstrate the ‘intention’ aspect perfectly. In
each, one co-owner had died and the dispute had arisen between the surviving co-owner and the
deceased’s next of kin. The surviving co-owner argued that the deceased had died as a joint
tenant and that they took the property by survivorship. The next of kin argued that the deceased
died as a tenant in common and that the share passed to them.
Service of the notice
A notice in writing must be served on all of the other equitable joint tenants in order to sever the
joint tenancy.
A notice can be served by handing it over personally or posting it.
If it is posted it will be deemed to be served if it has been left at the ‘last known place of abode or
business’ of the joint tenants. This means that it could be served by the severing joint tenant
leaving it there, or by postal delivery there. If it is made by registered post and not returned
undelivered, it will be deemed served at the time a registered item would in the ordinary course of
events be delivered (s 196(3) and s 196(4) LPA 1925).
The provision says that the notice is deemed to have been served when it has been delivered. It
does not say that the notice has to be received or read. This has been confirmed by case law.
Assessment focus point
Remember, it is only the equitable joint tenants that need to be served, any equitable tenants
in common do not need to be served with the notice. If only a few of the equitable joint tenants
(ie not all of them) are served, the notice is completely ineffective.
Severance by ‘other acts or things’
Section 36(2) states that the equitable joint tenancy can be severed by notice in writing or by
‘other acts or things’.
In Williams v Hensman (1861) 1 J & H 546 Page-Wood VC identified three possible ways in which a
joint tenancy could be severed. These three ways are what the drafters of s 36(2) intended to be
adopted as severance by ‘other acts or things’.
These three ways are:
(a) A unilateral act by a joint tenant operating on its own share
(b) Mutual agreement of the joint tenants
(c) Any course of dealing which indicates that the interests were mutually treated as constituting
a tenancy in common (known also as ‘mutual conduct’)
Unilateral act by one joint tenant
There is a logical inconsistency in saying that a joint tenancy can be severed by one joint tenant
‘acting on its own share’ as we already know that the joint tenant does not have a ‘share’ in the
first place. However we can interpret this as meaning that the act itself creates the share: it does
not exist unless and until the act takes place.
The most important point to note here is that the act can be unilateral: there is no requirement for
the other joint tenant(s) to know or consent to the act for severance to take place.
The unilateral acts can be subdivided into acts of total alienation; partial alienation; and
involuntary alienation.
Mortgage as an act of partial alienation
Most property purchases are funded by mortgage finance. Where all legal joint tenants act
together to create a legal mortgage or charge over the property as security for a loan, this does
not result in severance, because the joint tenants are charging the legal estate. The equitable
estate remains unaffected.
If an equitable joint tenant mortgages their equitable interest, that will be an act of severance,
resulting in a tenancy in common.
7: Co-ownership 137
Alternatively, where one joint tenant fraudulently tries to mortgage/sell the entire property, the
disposition is deemed to be a mortgage/sale of their equitable interest.
