In the coming months we will be publishing a series of 'module reviews', providing a brief outline of our first-year modules at Newcastle University to help students get a basic understanding of each topic. In the month of November, we will be looking at land law, which is another one of the seven required modules to obtain a qualifying law degree.
Moving into this second article in our land law series, we will be looking at co-ownership, including the types, how to identify them and how to end a co-ownership agreement. Co-ownership as a principle relates to when two or more people enjoy rights of ownership of land at the same time and can occur in both leasehold (rent) and freehold (purchase) agreements.
DISCLAIMER: all information in these module reviews are taken from our own notes and research so please do not cite this in your work.
Types of Co-Ownership
There are two types of co-ownership: joint tenancy, where all owners own the land together as if it was a single person, and tenancy in common, where each owner holds a % share in the land.
Firstly looking at a joint tenancy, each owner is entitled to the land equally as there are no splits or shares, it is viewed as one unit. There will be one title on the register and the co-owners will be listed as proprietors (or if the land is unregistered there will be one set of title deeds specifying four owners). There are four requirements for a joint tenancy to be present:
Each tenant must enjoy the right to possession simultaneously
Interest of the tenants must be identical in duration, extent and nature (e.g. leasehold or freehold)
All tenants must have equal title to the property created by the same act/transaction
The interests of the tenants must vest at the same time and for the same period
There is also a significant benefit to a joint tenancy: the right of survivorship. This means that if one tenant were to die, the surviving tenants would simply absorb the interests in the property automatically. This takes precedence over any attempt at transfer (for instance leaving property in a will) and therefore means the interest can never be passed on, avoiding potential tax implications from inheritance tax.
On the contrary, you may have a tenancy in common where each owner holds an individual share in land but the land remains a single unit. Shares may be quantified, both equally or unequally, and each owner may do as they please with their share in the land as the right of survivorship doesn't apply (e.g. transfer it, leave it in a will etc...).
The curtain principle means that the type of ownership is not listed on the register however it can be made clear which type of ownership is intended through filling out a TR1 form. Type of ownership may also be identified from the register if there are two or more people on the title as a restriction must be entered (section 44 (Obligatory Restrictions) LRA 2002) to ensure overreaching happens. If there is no express statement however or less than two people on the title, a presumption is made that the land is held in a joint tenancy as 'equity follows the law' but this can be rebutted by parties.
Legal and Equitable Ownership and Trusts
It is also important to note the difference in legal and equitable ownership when looking at co-owners.
The legal title relates to whose name is on the title in documentation, who may also be regarded the 'trustee'. Under section 1(6) of the Law of Property Act (LPA) 1925, 'a legal estate is not capable of existing in an undivided share of land' meaning co-owners may only hold the legal title to property as joint tenants and under section 36(2) this tenancy cannot be severed (more on this later!). There may only be 4 names on the legal title, as noted in section 34(2) LPA 1925; more than 4 people may purchase a property however these people will only be able to hold an equitable title.
The equitable title, also referred to as a beneficiary, relates to who puts money into the purchase. It is in the equitable title that you may be a tenant in common or joint tenant, dependant on what is best for you.
When a situation of co-ownership arises, so will a trust as the legal owner will become a trustee for any beneficiaries. There a two types of trust: resulting (when someone contributes to the purchase price) and constructive (looks at intentions of parties - should have common intention). Trustees have 'all the powers of an absolute owner' however must have regard to the interests of beneficiaries and must act within the law and equitably.
Severance
The doctrine of severance allows joint tenants to become tenants in common in equity later on by splitting the land into shares, either in its entirety or splitting one share off (for instance if only one person wants to severe the tenancy and the other owners wish to remain in a joint tenancy). When a tenancy is severed, the shares will always be proportionate to the number of tenants, regardless of how much money was paid initially.
There are 5 possible ways to sever a joint tenancy, through both statutes and common law. Statutory severance may be achieved through a notice in writing as laid out in section 36(2) LPA 1925 - no particular form of writing is required however it should demonstrate the intention to sever immediately and unconditionally. There must be evidence the notice has been delivered (s196 LPA 1925) however it does not necessarily have to be read; provided the notice is 'left at the last known place of abode or business in the UK of the person to be served' or, if posted, not returned through the post office undelivered, the notice will have been served. Some key cases to look at for statutory severance are: Re-88 Berkeley Road, NW9 (1971), Kinch v Bullard (1999), Harris v Goddard (1983) and Re Draper's Conveyance (1969).
There are three common law methods to sever a joint tenancy. The first is an act of alienation where a joint tenant completes.a legally enforceable act as if they have an individual share, for instance by selling their share to a third party. Secondly, mutual agreement, where all joint tenants agree to sever their tenancy, will sever the agreement. There is no specific form this should take and it does not have to enforceable under law, the court will merely look at the intention to sever. Finally, severance may occur through mutual conduct, where there is a chain of activities suggesting the parties no longer intend to have a joint tenancy despite no agreement to sever.
The final way for a tenancy to be severed is through the act of killing, as if one tenant kills another he will be unable to benefit from the right of survivorship.
Sale of Property
If a property is sold by the legal owners and the equitable interests are unknown, overreaching (paying two trustees or a trust corporation) must take place to ensure the purchasers take the interest of any beneficiaries. Following this, the purchaser will become the new legal owner of the property and there are unlikely to be any complications. Overreaching does not need to take place however if a property is sold by a sole surviving beneficial joint tenant as there are no interests to overreach.
Under section 11 Trusts of Land and Appointment of Trustees Act (TOLATA) 1996, the legal owners have a duty to consult with the equitable owners before sale, however sometimes disagreements arise. In this situation, section 14 TOLATA allows anyone with an interest in the land subject to the trust to apply to the court for resolution. The court will then consider the criteria in section 15 to create a suitable order to solve the dispute.
I hope you have found this helpful and although it does not go into significant detail it has provided with you a good starting point to understand co-ownership. As always if you have any questions or feedback please don't hesitate to get in touch and we will do our best to help you!
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