Co-Ownership
Simon Spurgeon
Track/Slide 1
In this lecture we will be looking at co-ownership. In other words when more than one person owns a property. We’ll start by looking at the two different types of co-ownership, a joint tenancy and a tenancy in common, looking at the requirements that are needed for each type and how these types of co-ownership operate at law and in equity. We’ll then move on to look at how we can sever a joint tenancy, from giving notice in writing through to mutual agreement and a course of dealings which indicates that a joint tenancy is severed.
We then need to look at the relationship between the co-owners, which is governed by the Trusts of Land and Appointments of Trustees Act 1996 in relation to selling property and rights of occupation for property. Finally we will look at the situation when one is purchasing a property from co-owners to see what needs to be done to ensure the purchaser gets good title and looking at this in relation to both registered and unregistered land.
Track/Slide 2
Where there is a situation of co-ownership, in other words, there is more than one person owning the property, then the property must be held on a trust. Since the advent of the Trust of Land and Appointment of Trustees Act, which came into force on 1st January 1997, any trust of property which consists of or includes land must be what is termed a trust of land under s1 ss1 of the act. Therefore, whenever more than one person owns a property, and perhaps a common example would be a husband and wife, they own the property on trust. This means that there are in effect two categories of ownership. There’s the legal ownership, the trustees holding the property on trust for the beneficiaries who could be referred to as the equitable owners of a property. In a situation with a husband and wife, in effect the trustees and the beneficiaries are the same people. So the husband and wife would have the legal ownership of the house. They would be the trustees holding the house on trust for themselves as the beneficiaries in equity. What needs to be appreciated at this stage and which we will look at in much more detail in a minute is that the legal ownership must be held as joint tenants whereas the equitable ownership or the beneficial ownership can be held as either a joint tenant or a tenant in common. And we will look at the difference between these two categories in a minute.
Track/Slide 3
Co-owners who hold the property as joint tenants are not treated as having individual shares in the property but rather as owning the whole of a property together. Each co-owner is said to “hold everything yet hold nothing”. In order for a joint tenancy to exist there must be what are called the four unities. These are essential to the joint nature of the ownership a joint tenancy and if any of the four unities are not present it means there can’t be a joint tenancy and the property must be held by default as “tenants in common”. The four unities are the unity of time, title, interest and possession.
For the unity of time to arise the interests of all the co-owners must vest or arise at the same time. So for instance, with our example of a husband and wife, assuming they buy the property together, then the unity of time will exist as they both bought the property at the same time. In comparison, if property was left in a will to A and also to B when B reaches the age of 21, then A and B, when they occupy the property, cannot be occupying as joint tenants as the unity of time would not exist as B’s interest in the property did not vest until he reached 21.
The unity of title requires the co-owners to acquire the title in the same way, in other words from the same document. So going back to our husband and wife example, they would fulfil the criteria for the unity of title as when they bought the property, they would both buy it in the same document of transfer.
The unity of interest requires that the interest of all the co-owners must be identical. In other words it must be the same duration, nature and extent. So for instance, if one tenant owns a freehold to the property and another has a leasehold interest, then the unity of interest would not arise and they would hold the property as tenants in common.
The final unity, the unity of possession, is, as we will see when we look at the requirements for a tenancy in common, the only one of the four unities which applies to both joint tenants and tenants in common. For the unity of possession to arise, each tenant must be entitled to possession of the whole property. In other words, every tenant can occupy every part of the land and there is no division of the land allowed. As Lord Denning explained in the case of Bull v Bull, each tenant is entitled in equity to an undivided share in the house. Until the place is sold, each of them is entitled to the possession of the land and to the use and enjoyment of it in a proper manner.
Track/Slide 4
However, even if the four unities can be established, it does not necessarily follow that there will be a joint tenancy. This is because there may be wording in the transfer or other document of title which indicates that the parties intended to have individual or separate shares in the property, even though the property may not be physically partitioned or divided. For instance, if the property is left in the will as a half-share to A and a quarter-share to B and C, this would indicate that they had individual shares in the property and therefore it would not be possible to hold the property under a joint tenancy.
Examples of these forms of wording can be seen in the case of Payne v Webb. Their property was to be held in equal shares, in Lewen v Doddwhere property was to be held equally, and Peat v Chapman where property was to be divided between various co-owners. In all these cases the courts held that the wording was enough to establish that a joint tenancy was not intended and the property was to be held as a tenancy in common, even though the four unities had been established.
A final thing to look at in relation to joint tenancies is the right of survivorship. Survivorship only applies to joint tenants and is not applicable to tenancies in common. It is also a very important concept. Because joint tenants don’t own individual shares in the property, then they can’t leave their interest in the property in their will and their interest won’t pass under the intestacy rules if they leave no will. Instead, when a joint tenant dies, the remaining joint tenants automatically acquire their interest and we will look at how this operates in practice in a bit more detail later on in the lecture. This is why traditionally it was held that husbands and wives should hold property as joint tenants, whereas other people with perhaps less secure relationships should hold property as tenants in common. As we will see when we look at how you sever a joint tenancy, survivorship is quite often the reason why, in the event of a divorce or separation, the joint tenancy is severed.
Track/Slide 5
As mentioned previously when looking at the four unities requires for a joint tenancy, the unity of possession is the only one of the four unities which is required both for a joint tenancy and a tenancy in common. This is because if the unity of possession did not exist, then there could be no co-ownership at all but rather there would be individual ownership of different parts of the property. As Lord Denning explained in Bull v Bull, which was a case concerning tenants in common, “Each is entitled an equity to an undivided share in the house, the share of each being in proportion to his or her respective contribution” and we’ll look at this point in a minute. Until the place is sold, each ot them is entitled to the possession of the land and to the use and enjoyment of it in a proper manner. Neither can turn out the other, but if one of them should take more than his proper share, the injured party can bring an action for an account. If one of them should go so far as to oust the other, he is guilty of trespass.
As we will see in a minute, whilst the position in law favours the creation of a joint tenancy, equity favours a tenancy in common and there are various equitable resumptions which will lead to the creation of a tenancy in common, unless specifically excluded in the relevant documentation, such as a transfer. Therefore, if there have been unequal contributions to the purchase price, equity will presume a tenancy in common is intended and the tenants will hold the property in proportion to their contributions to the purchase price. Where property is bought on a speculative basis, in other words it is acquired by co-owners for investment purposes rather than as a residential dwelling, for instance, an equity again will presume a tenancy in common is intended unless specifically excluded in the transfer documents.
Where money is advanced on a mortgage by joint mortgagees, again equity will presume a tenancy in common, even if the mortgagees have lent equal amounts of money. The case of Malayan Credit Ltd v Jack Chia – Mph Ltdis authority for the proposition that equity will presume that if commercial premises are held for more than one business purpose, then the presumption is that the co-owners hold the premises as tenants in common. So for instance, if two co-owners acquire a property which they intend to use for their own individual respective businesses, the presumption would be that they own the property as tenants in common in relation to the relevant size of their businesses.
Track/Slide 6
As has already been mentioned at the beginning of the lecture, where there is co-ownership of property, then the property must be held on trust. This means that, in effect, there are two categories, if you like, of ownership. There is the legal ownership held by the trustees and the beneficial or equitable ownership held by the beneficiaries. And this applies even if the trustees and the beneficiaries are the same people, as in our example of a married couple. As we saw on the previous slide, equity favours the creation of a tenancy in common, rather than a joint tenancy. However, the position at law is reversed and since the introduction of the Law of Property Act 1925 it is now only possible for property to be held at law as joint tenants. The reasoning behind this is that it makes the property far easier to deal with if it is held as a joint tenancy rather than as a tenancy in common.
As we will see in a minute, there is a maximum number of 4 trustees allowed under a joint tenancy and the rules of survivorship mean that if a joint tenant was to die, then the remaining joint tenants will in effect take over their share of the property. The statutory authority for all of this is to be found in s 36 ss 2 of the Law of Property Act, which states that “no severance of a joint tenancy of a legal estate, so as to create a tenancy in common in land shall be permissible”. Section 34 ss 1 of the Law of Property Act states that “an undivided share in land shall not be capable of being created”. However, later subsections of s 34 do go on to allow the creation of an undivided share in land behind a trust, in other words it allows for the creation of a tenancy in common in equity. Section 34 ss 2 limits the number of joint tenants to a maximum of 4. If there are more than this, then it is the first 4 people who will hold the property as joint tenants on trust for themselves and the remaining tenants. Whether they hold it on trust for themselves and the remaining tenants as joint tenants or tenants in common in equity will depend on the presence or absence of the four unities.
Track/Slide 7
Even if a joint tenancy is created, it is not set in stone and it is possible to sever the joint tenancy to create tenancies in common. As briefly touched upon, one of the main reasons for severing a joint tenancy is to prevent the operation of a rule of survivorship and will happen when there is a divorce or separation, as in this case the husband or wife would not want their share, in inverted commas, of the property to pass to their estranged spouse on their death and would rather leave it in their will to somebody else. There are various mechanisms by which a joint tenancy can be severed.
Statutory severance takes place under s 36 ss2 of the Law of Property Act and can either be done by giving notice in writing to all the other joint tenants, or “by doing such other acts or things which are effectual to sever the joint tenancy”.
The leading case in relation to severance other than by giving written notice is that of Williams v Hensman where three methods of severance at common law were laid down. A joint tenancy may be severed in three ways. In the first place “an act of any one of the persons interested operating upon his own share may create a severance as to that share”. Secondly a joint tenancy may be severed by mutual agreement and in the third place there may be severance by any course of dealing sufficient to intimate that the interests of all, when mutually treated as constituting a tenancy in common. Another important thing to realise about severance of a joint tenancy is that, on severance, the joint tenancy will be converted into a tenancy in common and each tenant in common will own equal shares in a property regardless of their contributions to the purchase price, as was established in Goodman v Gallant. Again, this is one of the reasons why in equity there is a presumption that unequal contributions to the purchase price of a property will lead to a tenancy in common. Otherwise, if a joint tenancy is created, then even if the joint tenancy is severed, both co-owners will end up with equal shares in the property, regardless of their initial contributions to the purchase price.
Track/Slide 8
Before going on to look in detail at how severance can take place, it is worth just spending a few moments looking at the effect of severance on some examples. If we assume that A, B, C and D purchase property as co-owners, then in the top left-hand diagram they hold it as joint tenants in law which, as we see, they have to, but also joint tenants in equity. If A was to sever his joint tenancy, then the position would be as in the diagram in the top right-hand corner of the slide. A, B, C and D would still hold the property as joint tenants in law. They would hold it for themselves on trust in equity, the difference here being A, having severed his joint tenancy, would be a tenant in common with a one quarter share in the property. B, C and D would remain as joint tenants with a three quarter share in the property. If A was to later die, the position would be as at the second line of the slide. Assuming there had been no severance of the joint tenancy, then B, C and D would remain as joint tenants in law and also as joint tenants in equity. Because they’d held the property as joint tenants in equity initially, on A’s death B, C and D would in effect take over A’s share of the property. However, if there had been a severance of a joint tenancy before A died, the position would be significantly different. Again B, C and D would hold the property at law as joint tenants. However the difference is because A had severed the joint tenancy before his death and had become a tenant in common, he would then be in a position to leave his one quarter share in the property to whoever he wanted to, in our example, X. This would mean that on A’s death, B, C and D would hold the property on trust for themselves as joint tenants with a three quarter share and for X as a tenant in common with a one quarter share.
Track/Slide 9
In this slide we will assume that B is going to sell their share of the property to C. Assuming that there had been no severance and B, C and D held the property on trust for themselves as joint tenants, then on B selling his share to C, the position would be that B, C and D would still remain as joint tenants at law. This is because, as you’ll remember, it is not possible to sever a joint tenancy at law. However, in equity, in relation to the beneficial ownership, because B has severed his joint tenancy in equity, he will have a one third share in the property, which, if he sells it to C, will become C’s one third share in the property. However, C and D will also have a two thirds share in the property as joint tenants. It is important to note here that C will have two distinct types of ownership, if you like, in equity. He will have a one third share in the property as a tenant in common, which he’s purchased from B, but he will also have a stake in the two thirds joint tenants’ interest in the property with D. It is important to note that it is not possible for C to combine these two forms of ownership in equity. Again, assuming that A had severed his joint tenancy before he died and left his one quarter share in the property to X, then if B sells his share of the property to C, the situation would be that B, C and D would remain as the legal owners of the property, holding it on trust as joint tenants. But the beneficial ownership in equity will be held one quarter share for X as tenants in common, one quarter share for C as a tenant in common, having purchased B’s share in the property, and C and D would again hold a half-share in the property as joint tenants.