3. Co-ownership and Trusts Flashcards
Co-ownership and Trusts
Where two or more persons are entitled to possession of land at the same time, there is a trust of land governed by the Trusts of Land and Appointment of Trustees Act 1996
The legal estate is vested in the trustees
The persons with co-ownership rights are known as the beneficiaries
The trustees hold the legal estate but the beneficiaries as owners in equity are effectively the ‘real’ owners
Trusts can be created expressly or may be implied by law
Types of Trusts in Land
Implied trusts:
- Co-ownership may arise in favour of someone even though that person’s name does not appear on the register of title or in the deeds
Resulting trusts:
- A resulting trust occurs typically where the legal estate is transferred into the name of one person following the payment of some or all of the purchase price by another person
Constructive trust:
- A constructive trust arises where it would be unconscionable for the legal owner of the land to deny the equitable interest of another
Overreaching
Payment of capital money to at least two trustees will overreach the interests of the beneficiaries under the trust
This means that a buyer or mortgagee making the payment will not be bound by the interests of the beneficiaries, as those interests will attach to the proceeds of sale
Once overreaching has occurred, the beneficiaries will no longer be entitled to remain in possession of the land. Instead, they will obtain an interest in the proceeds of sale which will be held on trust for them by the trustees, for instance the sellers of the legal estate
Co-ownership
There are two types of co-ownership—joint tenancy and tenancy in common
The beneficiaries holding the equitable estate can hold either under a joint tenancy or a tenancy in common
Joint Tenancy:
- The legal estate can be held
- The survivorship principle applies: on the death of a joint tenant the land immediately passes to the surviving joint tenant(s); it does not pass under the deceased’s will or intestacy
Tenancy in Common:
- The legal estate cannot be held
- The survivorship principle does NOT apply: the deceased’s share passes under their will or intestacy
Joint Tenancy
Under a joint tenancy, the co-owners own the whole of the land together and all joint tenants have the same interest in the land irrespective of their respective contributions to the purchase price
Four unities must be present as between the co-owners:
1. unity of possession (ie all joint tenants are entitled to possess every part of the land)
- unity of interest (eg the land is all freehold or all leasehold)
- unity of title (ie title acquired under the same document or transaction)
- unity of time (ie all co-owners acquired their interest at the same time)
Tenancy in Common
Only the equitable estate can be held as a tenancy in common
Each co-owner owns specific shares in the land, either equally or unequally
Only unity of possession is necessary
Where co- owners of registered land hold as tenants in common, the Land Registry will enter the following restriction in the proprietorship register of the title:
No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.
Joint tenancy vs tenancy in common
Severance of a Joint Tenancy in Equity
A joint tenancy in equity can be severed and thereby converted into a tenancy in common - the right of survivorship no longer applies
If there are more than two joint tenants, severance operates only on the share of the party effecting the severance. The other parties remain as joint tenants as between themselves
Methods of severance:
- written notice under s36(2) of the LPA 1925 given by one or more joint tenants to all the other joint tenants
- selling or charging the beneficial interest (including a charging order made by a court)
- bankruptcy—the bankrupt’s severed beneficial interest vests in the trustee in bankruptcy
The maximum number of trustees of the legal estate permitted by statute is four (s34(2) Trustee Act 1925). Where more than four are named in the deed, the property vests in the first four who are of full age.
Effect of Severance
2 joint tenants in equity = both become tenants in common in equal shares
3 or more = only the co-owner who severs their joint tenancy becomes a tenant in common. The other joint co-owners continue to hold a joint tenancy in equity of the remaining interest
Their ‘share’ of the property is proportionate to the number of joint tenants. So, if there are three joint tenants, the co-owner who severs their joint tenancy will hold one-third as a tenant in common and the remaining co-owners will continue to hold two-thirds as joint tenants
Solving Disagreements Between Co-owners:
Section 14 TOLATA 1996
A trustee or any person who has an interest in the property may make an application to the court for an order under s 14
The court has wide discretion to make an order:
(a) relating to the exercise by the trustees of any of their functions; or
(b) declaring the nature or extent of the person’s interest in property.
Applications under s 14 are likely to fall into one of the following categories:
- disputes regarding the size of co-ownership interests, for example where there has been no express declaration of trust
- disputes regarding the occupation of trust land
- authorising transactions without the consent of all the trustees
- disputes as to whether co-owned land should be sold.
Solving Disagreements Between Co-owners:
Section 15 TOLATA 1996
Section 15 of TOLATA 1996 sets out the factors that the court should consider in exercising its powers under s 14.
The factors in s 15(1) are:
(a) the intentions of the person or persons (if any) who created the trust;
(b) the purposes for which the property subject to the trust is held;
(c) the welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home; and
(d) the interests of any secured creditor of any beneficiary.
And
Section 15(3): “‘… the matters to which the court is to have regard also include the circumstances and wishes of any beneficiaries of full age and entitled to an interest in possession in property subject to the trust or (in the case of dispute) of the majority (according to the value of their combined interests).’”
Co-ownership and Trusts:
Summary
Section 1 of TOLATA 1996 automatically creates a trust of land when more than one person owns land.
The legal estate is always held as a joint tenancy (s 1(6) LPA 1925) and the trustees have all the powers of an estate owner (s 6 TOLATA 1996).
Beneficial owners can hold their equitable interests as either joint tenants or tenants in common.
In the absence of an express declaration (which is conclusive), if the four unities are present, there is a presumption in favour of a joint tenancy.
That presumption can be rebutted (ie words of severance or business use).
The right of survivorship applies to joint tenancies (but not tenancies in common).
A joint tenancy in equity can be severed formally or informally.
A co-owner severing a joint tenancy in equity (where there are more than two co- owners) holds as a tenant in common (in proportion to the number of co-owners) and the remaining co-owners continue to hold the remainder as joint tenants.
A dispute between co-owners may be resolved using ss 14 and 15 of TOLATA 1996.
Severance:
2 joint tenants - Example
Harry and Seema purchase 77 Bottle Lane (‘the Property’). Seema contributed 70% of the purchase price and Harry the remaining 30%. The transfer to them contained a declaration that the Property was held legally and beneficially as joint tenants. Harry sells his interest in the property to his brother, Joseph. Subsequently, Seema is killed in a tragic road accident. Seema left all her interest in the Property to her cousin, Ambar. Ambar now wants confirmation that she holds a 70% interest in the Property.
How is the property held?
Legal estate:
The legal estate was held as a joint tenancy. On Seema’s death, the rule of survivorship applies and Harry becomes the sole trustee of the legal estate.
Equitable interests:
Harry and Seema held the equitable interest as joint tenants. Harry’s sale to Joseph was an act operating on one joint tenant’s share and severs the joint tenancy in equity. Upon severance, Harry and Seema held the equitable interest as tenants in common in equal shares. Their initial contributions are irrelevant.
On Seema’s death, her interest passed to Ambar. Amber holds a 50% interest in the Property as a tenant in common. Joseph also holds a 50% interest in the Property as a tenant in common.
Severance:
More than 2 joint tenants - Example
Amy, Ben, Clive, Diana and Eddie purchase 4 Station Drive (‘the Property’) for them to live in whilst they are studying at University. The Property is transferred to them as express beneficial joint tenants in equity. Ben is short of money and sells his interest in the Property to Fiona.
How is the Property held?
Legal estate:
There can only be a maximum of four trustees. On this basis, Amy, Ben, Clive and Diana will hold the legal estate as trustees as joint tenants (as the first four named). Ben’s sale relates only to his equitable interest and does not affect his position as a trustee of the legal estate. Ben, therefore, remains a trustee.
Equitable interest:
There is an express declaration which is conclusive, meaning that Amy, Ben, Clive, Diana and Eddie hold the equity as joint tenants. Ben selling his equitable interest to Fiona acts as a severance. Fiona holds one-fifth of the equitable interest as a tenant in common. The remaining four-fifths will be held by Amy, Clive, Diana and Eddie as joint tenants.
