CO-OWNERSHIP OF LAND

Question 1

Legal Estate

Answer 1

The person holding the legal estate (the trustee) is the person who will sell the land to a buyer. Legal title gives the holder the right to deal with the property, but it does not con-vey any of the beneft to the land. The trustee does not have any entitlement to the sale proceeds at all.

Question 2

Equitable (or‘Benefcial’) Interest

Answer 2

Equitable title (or benefcial title) gives the holder (or benef-ciary) the beneft from the estate. This means it is the benef-ciaries who are entitled to the proceeds upon sale and who enjoy the right to occupy.

Question 3

3

The Legal Estate—Joint Tenancy

Answer 3

1. Co-owners will hold the legal estate as ‘joint tenants’. The legal estate must be held on a joint tenancy since a tenancy in common cannot exist at law.
2. Under a joint tenancy, if one of the co-owners dies, their interest in the property **passes to the survivor(s) automatically by virtue of the doctrine of survivorship. **
3. As a joint tenant does not have a distinct share in the co-owned land (all joint tenants are entitled to possess the whole of the land rather than a portion of it), then that share cannot be disposed of on death. The survivor of joint tenants automatically acquires the deceased’s interest.

Question 4

Maximum Number ofTrustees—Four

Answer 4

The legal estate may be held by a maximum of four trustees (and a minimum of one), who must be of sound mind and over the age of 18.

Question 5

The Equitable Interest

Answer 5

1. Co-owners can hold the behind-the-scenes benefcial inter-est as joint tenants or tenants in common.
2. There is no limit on the number of people who may hold a behind-the-scenes benefcial interest in a property.
3. The principle of the joint tenancy in equity is the same as the joint tenancy above. The doctrine of survivorship applies.
4. Typically, married couples or those who have contributed equally to the purchase price of a property will hold as benefcial joint tenants.

Question 6

Tenants in Common

Answer 6

1. Friends who buy an investment property together, or partners in a trade or business, may not want their interest in a proper-ty to vest automatically in their co-owners, and instead might want to have their interest pass to their spouse, family, or to another.
2. In this instance, they will hold the benefcial interest in the property as tenants in common.
3. A tenant in common is entitled to a specifc share of the property which can be disposed of or left by will or on intestacy.

Question 7

When Would a Tenancy in Common Be
Appropriate?

Answer 7

*Clearly intend to hold as tenants in common and do not wish survivorship to apply;
*Contributed in unequal portions to the purchase price; or
*Entered into a commercial transaction where a joint ten-ancy would be inappropriate, for example, the purchase by business partners of business property.

Question 8

Importance of a Will and Declaration ofTrust

Answer 8

The doctrine of survivorship does not apply to the tenancy in common. It is therefore imperative for the tenants in common to be advised to prepare a will and a declaration of trust.

Question 9

Declaration of Trust

Answer 9

A declaration of trust sets out the agreement between co-owners as to how their benefcial interest is to be held. A declaration of trust is conclusive as to the agree-ment between co-owners.

EXAMPLE
Linda and Fred buy a house together and contribute to the purchase price in unequal shares (Linda contributed 30% and Fred contributed 70%). They are advised to enter into a declaration of trust setting out their contributions and agree-ing that, on eventual sale, the proceeds will be split in the proportion of their contribution to the purchase price. They do not take this advice and decide to hold as joint tenants. On sale, the sale proceeds will be divided equally between
them, and so Fred will lose out on his extra purchase contri-bution.

Exam Tip
You may be asked in the exam to give advice on what would be the most appropriate form of co-ownership of the benefcial interest based on certain facts. Look out for any suggestion of contributing to the purchase price in unequal shares or a business relationship, as this
would suggest that a tenancy in common would be the best advice.

Question 10

SEVERANCE OFJOINT TENANCIES IN EQUITY

Answer 10

It is possible to bring the joint tenancy in equity to an end and convert it to a tenancy in common by a mechanism called ‘severance’.
Note: The legal estate must always be held as joint tenants and so severance impacts only on the equitable interest, converting the equitable joint tenancy into an equitable ten-ancy in common.

Question 11

2

Severance byWritten Notice

Answer 11

1. A joint tenant may sever an equitable joint tenancy by giving the other joint tenant(s) notice in writing of a desire to do so.
2. The notice does not need to be in any particular form but it must (i)** show a clear intention** to sever the joint tenancy and (ii) be suffciently served. It will be suffciently served if it is either:
   *Left at the last-known place of abode or business in the UK of the person to be served; or
   *Sent by registered post to the person to be served at their place of abode or business.

Question 12

Severance byTreating a Share as Separate

Answer 12

A party may also sever the joint tenancy by treating their share as separate, for example, by contracting to sell it

Question 13

Severance by Dealing with the Equitable
Interest

Answer 13

A joint tenancy may be severed by a joint tenant’s dealing with the equitable interest, such as disposing of their interest, leasing it, or mortgaging it.
EXAMPLE
Bill, Jim, and Tom own a piece of land together and hold the benefcial interest as joint tenants. Bill sells his equitable interest in the land to Fred. This sale has the efect of sev-ering the joint tenancy as to Bill’s interest, as he has treated his interest as a divisible ‘share’. Note that Bill continues to hold the legal estate as trustee with Jim and Tom following the sale of his benefcial interest.

Question 14

Severance by Mutual Agreement

Answer 14

A joint tenancy may be severed by the joint tenants’ mutual
agreement to sever.

Question 15

2

Severance by Course of Dealings

Answer 15

1. A course of dealings between the parties indicating a shared intent to sever can bring about severance. For example, an oral agreement by one joint tenant to buy the share of the other co-owner can be a sufficient act to effect severance because the parties were thinking of their interest in terms of ‘shares’.
2. Such an act is capable of effecting severance even if the agreement between the parties itself is not enforceable (because an agreement for the sale of land must be in writing).

Question 16

Severance by Forfeiture

Answer 16

It has been suggested that if one joint tenant killed another,
the right to survivorship would not operate, as the perpe-
trator of a crime should not beneft from that crime. This is
known as forfeiture.

Question 18

Severance by Bankruptcy

Answer 18

If a joint tenant is declared bankrupt, this severs the bank-
rupt’s benefcial interest and converts that interest into a
tenancy in common because the bankrupt’s interest is trans-
ferred to the trustee in bankruptcy.

Question 19

3

CREATION OF AJOINT SHARE IN LAND—INTENTION OFTHE PARTIES

Answer 19

1. In determining whether parties have created a joint tenancy in equity as opposed to a tenancy in common in equity, the starting point for any court will be** the intention of the parties.**
2. If the intention cannot be deduced, a court will presume** equity follows the law** and the benefcial interests refect the legal interests in the property unless the court has clear evidence to the contrary before it.
3. As the legal title must be held as joint tenants, this means that equity will presume** a joint tenancy**, too.

Question 20

SELLING JOINTLY OWNED PROPERTY
As jointly owned property is held on a trust of land, the fol-lowing principles apply on a disposal:

Answer 20

1. Overreaching
2. Duty to Consult Benefciaries

Question 21

6

Overreaching

Answer 21

1. Who Is Behind the Scenes?
   A solicitor acting for a buyer of land must always be aware that even if the legal estate is held by one party, there could be behind the scenes co-owners who may have a claim on the property. A buyer could potentially be bound by such in-terests. It is thus imperative to ensure that a buyer takes free of such interests.

b.How Does the BuyerTake Free of Someone with a Behind-the-Scenes Interest?
1. A buyer may take free of a benefciary’s interest under a trust through a legal process called overreaching.
2. Over-reaching automatically transfers all the benefcial interests
from the land to the money that has been paid for the land,regardless of the wishes of the benefciaries.
3. This means the buyer takes the land free of the benefcial interest(s).

4. Overreaching happens automatically if the purchase money is paid to** two or more trustees or a trust **corporation.
5. If the buyer pays the purchase money to a sole legal owner/trustee, the interest of any non-owning beneficiary is not overreached—overreaching requires payment to
   at least two trustees. To avoid this problem, the buyer will need to ensure that a second trustee is appointed so as to overreach the benefcial interest of the non-own-ing party.
6. Alternatively, the buyer may obtain** a written release from the benefciary** of his or her rights as ob-tained, which is generally done by having the non-own-ing party sign the contract prior to exchange.

EXAMPLE
Martin and Daphne bought a house together and they contributed in unequal shares to the purchase price. As a result of this, they held the benefcial interest as tenants in common and a restriction was placed on the register.
Daphne has died and Martin is selling as the sole surviving co-owner. The legal estate can be transferred into Martin’s sole name, as the legal estate was held as joint tenants and, because Daphne has died, title vested in Martin through the doctrine of survivorship. However, the Form A restriction will remain on the proprietorship register.
The buyer from Martin will need to ensure that a second trustee is appointed to overreach the benefcial interest(because it is possible that Daphne’s interest may have vested in someone other than Martin). The appointment of the second trustee can either be by separate trust deed or,more typically in a conveyancing transaction, the second trustee will be appointed by adding an extra clause to that effect in the transfer document.

Question 22

Duty to Consult Benefciaries

Answer 22

A solicitor acting on a sale of trust property where adult benefciaries are involved will need to have regard to the trustees’ duty to consult and take into account the wishes of those benefciaries or a majority of them.

Question 23

SOLVING DISAGREEMENTS BETWEEN CO-OWNERS BY REFERENCE TO
SECTIONS 14 AND 15 OF TRUSTS OF LAND & APPOINTMENT OF TRUSTEES ACT1996
(TLATA 1996)

Answer 23

If co-owners cannot agree how or when to dispose of a prop-erty, sections 14 and 15 of TLATA 1996 may assist them by allowing the courts to intervene

Question 24

Section 14—Application to the Court

Answer 24

Section 14 of TLATA 1996 is widely drawn in allowing a trust-ee or any other person with an interest in property subject to a trust to apply to the courts for an order relating to the trust-ee’s duties, including an order to sell or an order relieving the trustee of the duty to obtain the benefciaries’ consent or to consult with benefciaries regarding the exercise of the trust-ee’s functions or declaring the nature or extent of a person’s interest in property

EXAMPLE
Alexandria and Barrington, two unmarried persons, pur-chased a home together and lived in it for fve years. Al-though Alexandria paid 75% of the purchase price (and later most of the expenses of upkeep), the property was registered in both parties’ names and did not contain any details on each party’s share of ownership. After fve years, the couple has an argument. Barrington wants the house sold and half the proceeds. The normal presumption among co-owners absent an agreement otherwise is that they each have an equal share. Alexandria does not want to sell the home and thinks it would be unfair for Barrington to receive half the proceeds of a sale in any case. Alexandria can apply to the court for an order that she does not have to sell the
home and regarding the extent of her share versus Bar-rington’s share

Question 25

Co-Ownership - Key Points

Answer 25

Question 26

Section 15—Factors for Consideration

Answer 26

Section 15 sets out the factors a court must consider in de-termining an application for an order under section 14. The factors include the following:
*The intentions of the person or persons (if any) who created the trust;
*The purposes for which the property subject to the trust is held;
*The welfare of any minor who occupies or might reasonably be expected to occupy any land subject to the trust as his home; and
*The interests of any secured creditor of any benefciary.

Question 27

2

Division of PropertyWhen Relationships Break Down
-Consider Declaration of Trust

Answer 27

When a court considers the division of property after a relationship breaks down, it will
1. first consider whether there is a declaration of trust. If there is an** express decla-ration of trust**, it will usually be conclusive.

2. Similarly, if the property was transferred to the parties jointly, it will be presumed that a legal and equitable joint tenancy (that is, no distinct interests) was intended, and it will be for the challenger to prove a diferent common intention regarding shares.