What are the ways in which land may be held jointly?
Perhaps the majority of real property sales today are to people buying jointly, whether as: husband and wife; unmarried couples; business associates or joint-venture partners. Nevertheless joint ownership remains one of the most complex areas of the law of property.
All jointly owned property is held on trust – even in the common case where “trustees” and “beneficial owners” are the same people. Precisely how these trusts are arranged will determine whether an individual share can pass under a will and how the monetary proceeds will be divided if the property is sold.
As a starting point it is important to distinguish the “legal estate” (the names on the deeds) from the equitable (beneficial) interests in a property. A person may be beneficially interested in a property even though he or she is not mentioned anywhere in the deeds. Equally a “legal owner” may be a nominee who has no beneficial interest in the property whatsoever.
The extent of a person’s beneficial interest will depend on a number of factors including the express or implied intentions of the parties and the proportions which each joint owner has contributed towards the original purchase price. Improvements subsequently made to the property or other expenditure incurred by one joint owner may also be taken into account in calculating the extent of his or her individual share.
Except in the rare case where there is a “strict settlement” under the Settled Land Act 1925 all jointly owned property is deemed, by the Law of Property Act 1925 (LPA), to be held on a statutory “trust for sale”. This means that an individual beneficial interest does not relate to the property as such, but theoretically to the future monetary proceeds after it has been sold. This is a fiction counterbalanced by the “power to postpone sale” which section 25 of the LPA gives to the trustees for sale. However, because a trust for sale is strictly speaking a “trust to sell”, any joint owner may ask the court to force a sale by making an application under section 30 of the LPA.
To complicate matters further, there are two ways in which property can be held jointly: as “joint tenants” or as “tenants-in-common”.
- A “joint tenancy” arises when each party has an identical interest in the whole of the property and every part of it.
- A “tenancy-in-common” is traditionally defined as “undivided shares” in the property.
Death of a joint owner
But what happens on the death of one of the joint owners? The “right of survivorship” is a characteristic of joint tenancies. The interest of a deceased joint tenant is automatically extinguished on his or her death and it cannot pass under the deceased’s will or intestacy. Instead, the property remains vested in the surviving joint tenant or tenants. When only one is left, the “trust” falls away and the survivor can deal with the property as the sole legal and beneficial owner.
By contrast there is no right of survivorship for tenants-in-common. When one dies, his undivided share will pass down according to his will or according to the rules of intestacy. Here again the differences between legal estates and equitable interests are thrown into relief.
Trustees can hold a legal estate only as joint tenants – notwithstanding that if they are beneficiaries also they may hold the beneficial interests as tenants-in-common. Thus, on the death of one of the trustees, the legal estate will always pass to the surviving trustees – but subject to the same trusts as before.
Equitable interests
Equitable interests can subsist either as joint tenancies or as tenancies in common. How this works can be illustrated as follows:
Suppose X,Y, and Z buy a property worth £100,000. X contributes £20,000 towards the purchase price; Y pays £30,000; and Z pays £50,000.
X,Y and Z now hold the title to the property on trust for themselves (as tenants-in-common) in the shares: 20%; 30%; and 50%.
If X dies first, the legal estate will automatically vest in Y and Z (the surviving trustees). But X’s 20% equity in the property will pass to others under his will or intestacy.
This system simplifies property transactions because prospective purchasers will normally be concerned only with ownership of the legal estate and not with the monetary interests which may lie behind it. Section 27 of the LPA protects a purchaser from such equities if the purchase money is paid to (and a receipt is obtained from) at least two trustees. And when unregistered land is sold by the sole survivor of joint tenants, the Law of Property (Joint Tenants) Act 1964 will protect the purchaser if the conveyance states that the vendor sells as “beneficial owner” and is solely and beneficially entitled. But this does not apply if a “memorandum of severance” has been endorsed on an earlier conveyance or if a bankruptcy petition had been presented or a bankruptcy order had been made.
Purchasers must beware of certain equitable interests: most notably those belonging to persons in actual physical occupation of the property.
Joint or common?
When the deeds are silent, it may be unclear whether the owners are beneficial joint tenants or tenants-in-common. It is then necessary to look at the surrounding circumstances of the transaction to establish what the parties had intended.
Where there is a simple conveyance to husband and wife it is probable that they would be regarded as joint tenants, both in law and in equity. But where there is a business partnership, or if the purchase price was contributed in unequal proportions, equity will presume a tenancy-in-common.
A beneficial joint tenancy can be converted into a tenancy-in-common by “severance”. This can happen at any time during the lifetime of the joint tenants, when one of the joint tenants gives “notice of severance” to the others under section 36(2) of the LPA. Severance may also arise by implication if one joint owner assigns or mortgages his interest to a third person. The same applies if a joint tenant becomes bankrupt because his interest will then pass to his trustee in bankruptcy. Problems with joint ownership usually occur when one party dies, or if their relationship breaks down.
In Re Palmer, a deceased debtor, ex parte Palmer Estate Trustees [4] EGCS 52 the question arose whether a beneficial joint tenancy had been severed (ie become a tenancy-in-common) before a husband’s death. If the answer was “Yes”, the deceased’s share would then go to his creditors. If the answer was “No”, the property would then belong to his widow absolutely. Mr Palmer had practised as a solicitor. On his death his executor presented a petition for an “insolvency administration order” under section 421 of the Insolvency Act 1986 and the Administration of Insolvent Estates of Deceased Persons Order 1986 (SI 1986 No 1999).
His creditors argued that the administration order had severed the joint tenancy with retrospective effect, so that his share of the property should be treated as part of his estate and used to pay his debts. This argument failed.
Mr Palmer did not die a bankrupt. His interest in the jointly owned property could subsist only while he was alive. On his death his widow became the sole owner as the surviving joint tenant. There was nothing from his former interest in the property which could go to his creditors.
Valuation problems
The break up of a relationship led to litigation in Huntingford v Hobbs [2] EGCS 38. How were the proceeds of a jointly owned property to be divided?
Mrs Hobbs had contributed £38,860 in 1986 towards the cost of a property, then worth £63,250. The remaining £25,000 was raised on a mortgage – under which her partner, Mr Huntingford, had agreed with Mrs Hobbs to make all the repayments. The transfer document was in a standard form and stated that the survivor could give a valid receipt for capital money arising from a disposition of the property. There was no other declaration of a trust. Their relationship broke down, two years later, when the property was worth £95,000. Mr Huntingford wanted the property sold so that he could take out his share. He applied to the court under section 30 of the LPA.
The Court of Appeal held that, in the absence of any express declaration of a trust, the valuation of each share had to be resolved not by applying the broad principles of justice but by applying the principles which governed the creation or operation of resulting, implied or constructive trusts.
Mr Huntingford was to be treated as having contributed £25,000 on mortgage. Therefore, the property should be owned by them beneficially in shares which were proportionate to their respective contributions. This gave 61% to Mrs Hobbs and 39% to Mr Huntingford.
The court also ordered that, following the redemption of the mortgage, £25,000 should be paid to Mrs Hobbs (to compensate her for the mortgage) – and £2,000 to Mr Huntingford (to compensate him for a conservatory, for which he had paid. The balance was then to be split in shares of 61% and 39%.
Valuing individual shares can be harder if property prices have dropped between the date of purchase and the date when the property is sold. There may then be little or no money left to distribute after the mortgage has been paid off.
This situation arose in Cheese v Thomas [3] EGCS 149. Cheese contributed £43,000 towards a property which was bought in the sole name of his great-nephew, Thomas. The balance of £40,000 was raised by Thomas on a mortgage. After a few months matters became sour. But worse: the house had lost one-third of its value in a falling property market.
Justice demanded that the gross sale price (£55,000) should be split between Cheese and Thomas in the proportions 43:40. This, theoretically, gave £28,000 to Cheese and £26,700 to Thomas. But as the net proceeds (after redemption of the mortgage) amounted only to £17,667, the Court of Appeal ordered Thomas to top this up with a further £11,033 so as to repay Cheese a fair share of his contribution towards the purchase price.
Another issue may be the appropriate date for valuing a beneficial interest. The Court of Appeal considered this in Turton v Turton [7] 2 All ER 641. In January 1972 an unmarried couple purchased a property as “beneficial joint tenants”. Three years later the appellant, Carol Turton, moved out leaving the respondent, Edward Turton, in sole occupation of the property.
It was not until 1983 that the appellant sought a court order to force a sale of the property. The judge granted this, but ordered that the appellant’s share should be valued at the date of the couple’s separation in 1975, when the property was worth only £10,000. The appellant appealed against the judge’s decision, saying that the proper date for valuing each beneficial share was when the property was actually sold. The value of the property had then reached £30,000.
The Court of Appeal agreed with the appellant, saying that where there had been an express declaration of trust each beneficial share had to be valued on the date the proceeds of the trust were realised (ie when the beneficial interests were converted into cash).
The risks of a dispute and the costs of litigation can be reduced if the relevant trusts (and interest of each party) are declared at the outset. This is particularly important when the buyers are unmarried or engaged couples. Professional advisers must explain to prospective buyers the differences between joint tenancies and tenancies-in-common, so that their clients can make an informed choice as to which is most appropriate to their circumstances.
