C6: Co-ownership

Question 1

What are the two types of co-ownership?

Answer 1

Joint ownership and tenants in common.

Question 2

What is the significance of the TLATA 1996?

Answer 2

The Trusts of Land and Appointment of Trustees Act 1996 (TLATA 1996) provides that, whenever there is co-ownership, the land is subject to a trust of land. This trust arises automatically and exists even if the co-owners are not themselves aware of it.

Question 3

Explain the difference between a “trustee” and a “beneficiary” in a trust of land. Can they be the same people?

Answer 3

When a trust of land arises, there must be trustees and beneficiaries.

A trustee holds the legal estate (they are registered as the legal owner and if there are two, they will ALWAYS be known as joint tenants), so they have the right to sell the property.

A beneficiary holds an equitable interest in the property, so are entitled to the proceeds of sale. If there are two, they can choose either a joint tenancy or be tenants in common.

Question 4

For the legal estate, what would co-owners always be known as? How is this different to the beneficial interests?

Answer 4

For legal estates, the trustees (co-owners) will always be JOINT TENANTS. However, for the beneficial interest, they have the choice to be either (beneficial) joint tenants or tenants in common.

Question 5

How are joint tenants different to tenants in common?

Answer 5

Joint tenants are both the legal and equitable owners of the property, equally. This means that they will split the proceeds of the property 50/50. If one of the joint tenants dies, the other joint tenant will automatically get the whole property via survivorship.

Tenants in common can be seen as holding a ‘share’ of the property (the beneficial interests). If they die, then their share will be passed via their will or through intestacy.

Question 6

How old do you have to be a legal owner and how old do you have to be to be an equitable owner?

Answer 6

18 for legal ownership and any age for beneficiary.

Question 7

What does s1(6) LPA 1925 provide?

Answer 7

Joint tenants each own the whole property.
Tenants in common own a notional share in the property.
s1(6) LPA 1925 states that the trustees, that is, the legal owners, can own land only as joint tenants.
The beneficiaries (i.e. equitable owners entitled to the monetary value of the property) may be either joint tenants or tenants in common. So, the beneficial owners can choose to be either joint tenants or tenants in common. They will make this choice when they buy the property, following advice from their conveyancer.

Question 8

For a joint tenancy, what are the four elements needed under the “four unities”?

Answer 8

1. possession – each tenant is entitled to possession of the whole land (i.e. they cannot be a trespasser on any part of the land);
2. interest – the interest of each tenant must be the same (e.g. each must hold the freehold, or each must hold the leasehold);
3. time – the interests must arise at the same time;
4. title – each tenant must gain their title from the same document.

Question 9

What is “survivorship”?

Answer 9

The right of survivorship means that surviving joint tenants automatically take the interest of any joint tenant who has died, regardless of any provisions to the contrary in the deceased’s will, if any. This only applies to joint tenants rather than tenants in common.

Question 10

Can a tenancy in common exist in both common law and equity?

Answer 10

No, tenancies in common can only exist in equity.

Question 11

Which is the only “unity” from a joint tenancy which also applies to a tenancy in common?

Answer 11

The only unity that applies to both j int tenancy and a tenancy in common is the unity of possession.

Question 12

Joint tenancy or tenancy in common?

Each owns a notional share
Each owns the whole

Answer 12

JT: each owns the whole

TIC: each owns a notional share

Question 13

Joint tenancy or tenancy in common?

Four unities apply
Only unity of possession applies

Answer 13

JT: Four unities apply

TIC: Only unity of possession applies

Question 14

Joint tenancy or tenancy in common?

Can exist only in equity
Can exist at law and in equity

Answer 14

JT: Can exist at law and in equity

TIC: Can exist only in equity

Question 15

Joint tenancy or tenancy in common?

Survivorship rule applies
Survivorship rule doesn’t apply

Answer 15

JT: Survivorship rule applies

TIC: Survivorship rule doesn’t apply

Question 16

What is a “restriction” in the title register at HMLR?

Answer 16

A restriction is the method used to protect an interest under a trust. This means that if someone has a behind-the-scenes beneficial interest in a property, perhaps because they contributed to the purchase price, a restriction will be placed on the proprietorship register. On the HMLR proprietorship register, the entry will be prefixed with ‘RESTRICTION’. Remember that the details of the beneficial interest do not appear on the register of title. This means that the party with the benefit of the equitable interest will not be detailed on the register. The purpose of the restriction is simply to alert a buyer’s conveyancer that a behind-the-scenes beneficial interest exists but the conveyancer is not concerned to know who holds the interest or the exact nature of that interest.

Question 17

What is a “Form A” restriction?

Answer 17

A ‘Form A’ restriction tells us that someone holds a behind-the-scenes beneficial interest in the affected property. The wording of the Form A restriction is as follows:

‘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.’

Question 18

What is the unregistered version of a ‘restriction’?

Answer 18

A memorandum of severance on the conveyance for unregistered land.

Question 19

What does the term “disposition” mean in a Form A restriction? Is it officially (legally) defined?

Answer 19

No, it isn’t legally defined in either the LRA 2002 or the LRR 2002. However, in general terms, “disposition” can be taken to mean an action by the registered proprietor which results in a registration application. The most common examples would be a transfer of the legal estate or the creation of a legal charge. However, in general terms, “disposition” can be taken to mean an action by the registered proprietor which results in a registration application. The most common examples would be a transfer of the legal estate or the creation of a legal charge.

Question 20

What does the absence of a Form A restriction on the title register mean?

Answer 20

In registered land, in the absence of a Form A restriction on the register, the buyer is entitled to assume that the sole surviving registered proprietor (owner) is solely entitled to the property. The buyer may, therefore, deal with the survivor on proof of the death of the deceased co-owner. This will be achieved by checking the death certificate.

Question 21

What is “severance” in this context? Why is the distinction between the legal and beneficial title important here?

Answer 21

Severance is a method by which a beneficial joint tenancy is converted into a beneficial tenancy in common. The joint tenancy can be brought to an end by severance which has the effect of converting the joint tenancy of the severed share into a tenancy in common.

Question 22

How is “overreaching” important here?

Answer 22

It is a legal mechanism whereby, if the purchase price for a property is paid to two or more trustees, any behind-the-scenes beneficial interest is converted from an equitable interest in the land to an interest in the sale proceeds. Put simply, the interest of a behind-the-scenes beneficiary transfers from the land to the money. A buyer will take free of any beneficial interests that might exist under a trust of land if they pay the purchase price to at least two trustees. This is why the Form A restriction in registered land states that there is to be no disposition by a sole registered proprietor, so the restriction warns a buyer to deal with two trustees. This principle whereby the buyer takes free of beneficial interests under a trust of land is called overreaching.

The buyer thus takes the land free of the beneficiary’s interest. The beneficiary then has a claim over the proceeds of sale paid to the trustees. This may seem harsh on the beneficiary who has lost an interest in the land, but beneficiaries are usually consulted about any sale under TLATA 1996. The practical effect of this is that a second trustee will need to be appointed in cases where land is held by a sole trustee; if no such appointment is made a purchaser runs the risk of purchasing land subject to unwanted beneficial interests.
Therefore, if there is a sole surviving legal owner and there was a tenancy in common, it will be necessary for a second trustee to be appointed so that two trustees can sell.

Question 23

How can joint tenancies be severed?

Answer 23

If the title to the property is registered, the joint tenancy in equity can be severed by the serving of a notice of severance on the testator’s fellow co-owner/s. To ensure that the title accurately reflects the severance, HMLR’s Form A restriction must be added to the proprietorship register. The most straightforward way of doing this is by submitting form SEV to HMLR.

Question 24

Why is it important to ensure conveyancing clients receive the correct advice on co-ownership of property? How is this done in practice?

Answer 24

• WRITTEN: Generally, most conveyancers will give written co-ownership advice towards the beginning of the purchase transaction.
• FUNDING + GENERAL INFO: They will often ask their clients to complete and sign a pre-printed form providing the general information (incl funding) to the conveyancer about the transaction and confirming whether the buyers would like to hold the beneficial interest as joint tenants or tenants in common.
• CONFLICT: Giving co-ownership advice on a purchase is an area where a conflict-of-interest might arise. You might advise your buyer clients, for example, that they should hold as tenants in common in unequal shares because one of them has contributed more money to the purchase price than the other. However, the party contributing less money might want to hold as joint tenants which means they would be equally entitled to the sale proceeds if the property is sold and thus might recover more money than they have actually contributed.
  If both parties cannot agree on how the beneficial interest is to be held, a conflict of interest may arise.

Question 25

What is the importance of a Declaration of Trust in relation to co-ownership advice?

Answer 25

A declaration of trust is a document which sets out the circumstances of the purchase of a property by the co-owners and sets out how the sale proceeds should be divided between them as and when the property is sold or transferred. This document deals with the behind-the-scenes beneficial interest in the property and is not a matter of public record. It effectively sets out the private arrangements between the holders of the beneficial interest. This means that you will not send the declaration of trust to HMLR when you do your registration post completion.
When co-owners are given advice as to how the beneficial interest should be held, the conveyancer should also advise the co-owners to have a declaration of trust prepared.

Question 26

What form could also be used instead of a declaration of trust? Where else could the declaration take place?

Answer 26

Form JO (or made in the transfer deed itself TR1)