4.4 Co-ownership and Trusts

Question 1

When does a co-ownership situation arise?

Answer 1

When 2 or more people purchase or contribute towards a property

Question 2

How many people can hold the title to any legal estate?

Answer 2

A maximum of 4 people can be the legal owners

Question 3

Why should a buyer be considered with beneficial interests?

Answer 3

There may be behind-the-scenes beneficial interests of great significance - a buyer could be bound by them.

If someone has contributed to the purchase price of a property but is not on the legal title, they may want to protect their beneficial interest.

Question 4

How does co-ownership create a trust of land?

Answer 4

Section 34(2) of LPA 1925 imposes a trust of land whenever land is purchased that involves co-owners.

The trust of land arise automatically, whether or not the co-owners realise that it has arisen.

Question 5

What does a trust of land establish?

Answer 5

It separates the legal and equitable titles. The legal title is held by the trustees on trust for the beneficiaries in equity (TLATA 1996 s1).

N.B: TLATA imposes a trust of land automatically whenever a co-ownership situation arises and contains important provisions for resolving disputes between co-owners

Question 6

What is the position at common law for a co-ownership situation?

Answer 6

The legal estate can only be held as a joint tenancy - very important!!

Max no. of trustees is 4, must be of full age (18 years or older) and have full mental capacity.

The legal estate cannot be severed to create a tenancy in common.

Question 7

What is the position at equity for a co-ownership situation?

Answer 7

The equitable interest in the property can either be held as joint tenants or tenants in common.

Question 8

What must be established for a joint tenancy to be created in equity?

Answer 8

The four unities (P.I.T.T).

1. Unity of possession - no co-owner can be excluded from any part of the land
2. Unity of interest - each co-owner holds the same estate in the land
3. Unity of time - each co-owners acquired their interest in the land at the same time
4. Unity of title - all co-owners acquired their title to the land under the same document

N.B: If any of the four unities are not present, the equitable interest must be held as tenants in common

Question 9

What does a joint tenancy in equity look like?

Answer 9

All co-owners have an equal entitlement to the whole of the land.

Question 10

What does a tenancy in common look like?

Answer 10

Each beneficiary has an identifiable ‘share’ in the land

Classic situation: parties will choose to hold as tenants-in-common if they have contributed to the purchase price of the property in unequal shares

Question 11

Explain the term of ‘survivorship’ that is used in a joint tenancy in equity

Answer 11

The co-owners are treated as one legal owner, so that on the death of a joint tenant, their interest in the property passes automatically to the surviving joint tenant. This is known as the right of ‘survivorship’.

Legal formalities: none required except for the production of the death certificate of the deceased joint tenant.

The interest of the deceased co-owner passes automatically to the remaining joint tenants by way of survivorship and NOT in accordance with the terms of their will or intestacy rules

Question 12

Is there doctrine of survivorship in a tenancy in common in equity?

Answer 12

No.

Each co-owner has an entitlement to a share in the property which can be equal or unequal. The interest of a deceased co-owner who holds as a tenant in common will pass in accordance with the terms of their will or otherwise according to the intestacy rules.

Question 13

How can we convert a joint tenancy in equity to a tenancy in common?

Answer 13

Severance.

N.B: Only the equitable interest can be severed. An act of severance only operates to sever the interest of the severing joint tenants.

Question 14

What are the ways in which severance can occur?

Answer 14

1. Written notice
2. An act operating on own share
3. By mutual agreement or a course of conduct

Question 15

Explain ‘written notice’ as an act of severance

Answer 15

This is given to all co-owners and must state an irrevocable intention to sever immediately. Served on joint tenants by being left at the co-owners’ last known home or business address.

Once served, a notice cannot be revoked.

Question 16

Explain ‘an act operating on own share’ as an act of severance

Answer 16

This can come about as a result of:
- Total alienation (disposition of co-owner’s share to a third party under s53(1)(c)LPA 1925)
- Partial alienation, such as taking out an equitable mortgage
- Involuntary alienation, such as bankruptcy
- Divorce proceedings that have become irrevocable

Question 17

Explain ‘by mutual agreement or a course of conduct’ as an act of severance

Answer 17

There must be mutual agreement or a course of conduct - merely agreeing to put a jointly owned property up for sale is insufficient to constitute severance.

N.B: Murder (or assisting a suicide) severs the joint tenancy under the Forfeiture Rule (it would be against public policy to allow the killer to benefit from the right of survivorship after murdering a co-joint tenant)

Question 18

What should the buyer be wary of if the legal estate is only held by 1 person?

Answer 18

There could be behind-the-scenes beneficiaries who may have a claim on the property.

The buyer’s solicitor MUST ensure that a second trustee is appointed to overreach the beneficial interest.

N.B: Whenever you see the legal estate held by only 1 person… think: is there a beneficiary lurking behind the scenes?! We need another trustee appointed to give valid receipt and overreach this interest

Question 19

What is overreaching?

Answer 19

Overreaching is the legal mechanism by which the interest of the beneficiary is transferred from the land to the sale proceeds.

A buyer from a surviving tenant in common must pay the purchase money to two or more trustees to overreach the beneficial interest.

Question 20

What happens if there are disagreements between co-owners?

Answer 20

Sections 14 and 15 TLATA may help co-owners who cannot agree about how or when to dispose of a property.

Question 21

Explain the provision of Section 14 TLATA

Answer 21

Section 14 TLATA allows a trustee or beneficiary ( any other person with an interest in property subject to a trust) to apply to the court for an order relating to the trustee’s duties.

Question 22

What potential orders can the court grant under Section 14 TLATA?

Answer 22

• Order to sell the property
• Order relieving a trustee of a duty to obtain beneficiaries’ consent or to consult with beneficiaries regarding the exercise of the trustee’s functions
• Order declaring the nature or extent of a person’s interest in property

Question 23

Explain the provision of Section 15 TLATA

Answer 23

Section 15 sets out the factors a court must consider in determining an application for an order under s14. The factors include:

a) The intentions of the person(s) who created the trust
b) The purposes of 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 their home;
d) The interests of any secured creditor of any beneficiary

Question 24

What is the rule with appointing a new trustee?

Answer 24

Section 14 does not give courts power to appoint or remove a trustee.

However, the trust deed which created the trust will often contain a mechanism for appointing new trustees. Must be by DEED to ensure that the legal estate of the property is transferred to the trustees (who will hold as joint tenants).

Minimum of 2 trustees required to give valid receipt for purchase money to overreach behind-the-scenes beneficial interest.