Co-Ownership refers to when more than one party owns a specific property. This will mean a trust is created, and therefore governed by the Trusts of Land and Trustee Act, which was heavily discussed in the post on Trust of land.
There can only ever be 4 Trustees in the land, and these will be the legal owners of the land. Therefore, if more than 4 parties wish to purchase the land jointly, some of them will have to hold only the equitable interest, and not their names will not be on the transfer deed. This will make them beneficiaries. Only 4 will be able to be the trustees of the property and hold title to the land.
When co-owning land, parties can either hold it in Joint Tenancy or Tenancy in common. A joint tenancy is where the land is owned by all the parties jointly. Regardless of the contribution they made, they own the whole property jointly, and the rules of survivorship will apply. With a tenancy in common, each party will own a specific amount of property, usually relevant to how much they contributed to the purchase price. They will own their individual shares and will be able to pass their share to whoever they wish, by any means.
Legal title to the property can only ever be held in a joint tenancy- s1.6 LPA. The equitable interest is the one which can either be a joint tenancy or a tenancy in common. It will usually be stated whether it is a joint tenancy, or a tenancy in common. It is possible to start as a joint tenancy and turn it into a tenancy in common. This is called severance.
Severance is where a joint tenancy is severed, which could be for any number of reasons. On severance, they will receive the % of shares in relation to the number of other parties that have an equitable interest, and will be divided equally. It will not matter how much they contributed to the purchase. There are 4 methods which severance can occur:
- Section 36 LPA 1925- Severance in notice. These documents must show immediate severance, which must be served to all other parties with an equitable interest in the land. This document does not have to be signed, but must follow the rules of serving notice under section 196 LPA.
- Severance should be in writing, and sent to the place of abode or business, directly handed to the beneficiaries, or can equally be posed. The general rules of law regarding postage will apply here.
- Alienation- This method is severance through conduct. This is where they give, sell, or mortgage their ‘shares’ in the property. This is governed by section 53 of the LPA which requires the agreement to be in writing, signed by or on behalf of both parties with all terms included. If the owner when bankrupt at any point, their shares would be severed automatically.
- Mutual Agreement- This is where the Co-Owners of the property agree to sever their agreement, or act in a certain way which would imply the severance of their agreement. For example, in the case of Burgess v Rousley, discussion of the sale of shares with the other co-owner can amount to severance, even if it never goes through with the sale.
- Homicide- This method runs with the rule of equity and will not allow any party to inherit any shares through causing death to the other party. Their shares will automatically be severed and they will not be entitled to the deceased shares.
On severance of one party, the other joint tenants will still remain joint tenants, owning the remaining % of their land jointly, unless they all decide to sever.
The case of Jones v Kernott decided that even a change in the relationship between the co-owners would in fact act as sufficient severance.
Rights of Survivorship
This is only applicable to joint tenancy, and one of the main reasoning why people may want to sever. If a joint tenancy exists, on death, your ‘shares’ do not get severed. They are transferred to the other owners of the beneficial interests. It will mean that only one less party will own the whole of the property jointly.
Severance cannot happen after death, for example in a will. This means a declaration leaving shares to 3rd party in a Will won’t be binding.
When the Agreement stays silent
When it is unclear as to whether the agreement hold the equitable estate in either a joint tenancy or a tenancy in common, 4 general tests will apply:
- The 4 Unities test. These will have to be present for any joint tenancy to apply.
- Time- all beneficiary’s interests must begin and end at the same time. The end can change due to severance. These can be either be in the form of a freehold or a leasehold. Their interest will either land forever or for a certain period of time.
- Interest- They will all hold exactly the same interest and the same rights over the property, no beneficiary has any more rights than any other person.
- Title- This means that all parties must have required their title by the same means. For example, all gained their title from the same document e.g. a transfer of land, or an express creation of a trust, or purchase of property.
- Possession- each party must have possession of the whole land.
A Tenancy in common only requires possession in order to be a TIC.
- Was there an express declaration in the transfer?
- The effect of an express declaration is conclusive. If it was stated that it was a Joint tenancy, unless there was severance, it will remain a Joint tenancy. If it was expressly stated to be a Tenancy in common, it will remain a tenancy in common.
- Authority for this is Goodman V Gallant, which was also approved by the House of Lords in the case of Stack v Dowden.
- If the transfer was silent, was there any words of severance?
- By using the world ‘shares’ or any phrases indicating the party’s separate shares, could amount to severance of the land and therefore held to be a TIC.
- If there are none of the above, the presumption from Stack v Dowden will apply. In this case, Lady hale stated that in the majority of the time, equity will follow the law. Therefore, implying that a Joint tenancy will be enforced, because the legal estate is held in that way. The HOL judges then went on to say that this can be rebutted, however it must be under very unusual circumstances. Influence was taken heavily from the creation of a constrictive implied trust.
- It used to be the case that unequal contributions to a purchase price was evidence of a Tenancy in Common- Bull v Bull. The Stack V Dowden presumption overruled this in the case of residential properties. However, in a commercial context, business owners would like their businesses premises to be inherited. Therefore, it is held and in a business setting, co-ownership will be held in tenancy in common- Re Fullers Contract.
In regard to the law on co-ownership, the courts have not been very consistent in applying these rules. They have at times applied the rules on implied trusts of land when deciding that there is a tenancy in common.