Co ownership of land

Co-ownership

Co - Ownership

Intro:

The law of co-ownership operates whenever two or more people enjoy the rights of ownership of property at the same time, either freehold or leasehold. The law of co-ownership is to be found in the 1925 legislation (LPA 1925), common law, and TLATA 1996.

The law of co-ownership can be broken down into various components:

< First, the nature of co-ownership and types of co-ownership.

< Secondly, there is the statutory machinery that regulates the use and enjoyment of co-owned land.

< Thirdly, there are those statutory and common law rules governing the creation of co-ownership.

< Fourthly, there is the impact of co-ownership on third parties.

< Fifthly, there are matters relating to the termination of co-ownership.

I.) Nature & Types of Co–Ownership:

Concurrent co-ownership of property describes the simultaneous enjoyment of land by two or more persons i.e. enjoyment of the rights of ownership by two or more persons at the same time. Co-ownership since 1 January 1926 will either be by way of a “joint tenancy” or a “tenancy in common”.

1. Joint Tenancy:

In a joint tenancy, each co-owner is treated as being entitled to the whole of that land. There are no distinct “shares”,and no single co-owner can claim any greater right over any part of the land than other. As far as the rest of the world is concerned, the land is treated as if it is owned by one person only and all the joint tenants share in that one ownership. In practical terms, this means that, when land is subject to a joint tenancy, there is only one formal title to it, and that tile is owned jointly by all the joint tenants.

Moreover, if the land is registered, there will be but one title registered at HM Land Registry, with each co-owner registered as proprietor of that title in the proprietorship section of the register. If the land is unregistered, there will be but one set of title deeds, specifying the four owners.

j The Right of Survivorship:

By virtue of this principle, if one joint tenant dies, his interest drops out of the joint tenancy and the remainder continue to enjoy their rights over the whole land. The important practical point is, however, that when a joint tenant dies, no formal conveyance or written document is needed to reflect the new status quo. This means that a joint tenancy can either be very useful i.e. where it avoids the need for formal documentation when a co-owner dies, or very unfair i.e. where a co-owner dies and is unable to leave an interest in the property to his family.

j The Four Unities:

Before a joint tenancy can exist, the four unities must be present:

a.) Possession – means that each joint tenant is entitled to physical possession of the whole of the land. There can be no physical division of the land and no restriction on any joint tenant’s use of each and every part of it. This includes the right to participate fully in the fruits of possession, such as receipt of rents and profits derived from the land.

b.) Interest – means that each joint tenant’s interest in the property must be of the same extent, nature and duration. Thus, all must be joint tenants of the freehold, or of the leasehold.

c.) Title – means that “as a matter of law”, all joint tenants must have derived their title from the same document, even if there is more than one piece of paper. Antoniades v. Villers: HOL held that the two joint tenants derived their title from the same document, even though there were two pieces of paper.

d.) Time – means that the interest of each joint tenant must arise at the same time e.g. if a woman purchases a house in 1997 and, in 1999, on marriage, grants an equal share in the house to her husband, this cannot be a joint tenancy. It would be otherwise if the entire house was reconveyed into the joint names.

2. Tenancy in Common :

When two or more people own land under a tenancy in common, it is often said that they have an “undivided share in land”, e.g. one half, one fifth etc, even though the land at present is undivided and treated as a single unit. The land is still undivided, and the tenant in common owns a quantifiable share in it, which can be realised if and when the property is sold.

Thus, there is “unity of possession”, but none of the other unities. Likewise, the right of survivorship does not apply to a tenancy in common, so that a co-owner may leave his share to a relative on death. It is for this reason that a tenancy in common if often preferred when the co-owners are not closely related by family or business ties.

II.) The Effect of LPA 1925 & TLATA 1996:

1. Before 1^st January 1926:

Before 1^st January 1926, it was possible for a joint tenancy and a tenancy in common to exist in both the legal an equitable estates in land. While this caused no great hardship for a purchaser investigating the one title held by the joint tenant legal owners, if the land was co-owned under a tenancy in common, the complexity of the transaction increased as the number of tenants in common increased.

2. On or After 1^st January 1926:

In the changes brought after 1^st January 1926, first, according to S.1(6) LPA 1925, a tenancy in common of the legal title to land cannot exist. This also meant that a joint tenancy of a legal title is “unseverable”, as per S.36(2) LPA 1925, because it is impossible to turn it into a legal tenancy in common.

Secondly, the persons to whom the legal title is conveyed are trustees of the legal title for the persons interested in the land under a statutorily imposed trust of land, as per S.34, S.36 LPA 1925. Thus, in every case of co-ownership, legal title to the land is held by joint tenant trustees on trusts of land, as per S.4, S.5 TLATA 1996 e.g. the conveyance to A, B, C, and D operated as a conveyance to them as joint tenants (irrespective of the words used), they will hold this land as trustees on the statutorily imposed trust of land for the “real” owners. In this case, the “real owners”are, in fact, A, B, C, and D themselves, also known as the equitable owners.

Thirdly, the equitable title may be either a joint tenancy or tenancy in common as dependent on the words used to create co-ownership.

Fourthly, according to S.34, S.36 LPA 1925, the number of legal joint tenant trustees is limited to four. The number of co-owners in equity is not limited, be they joint tenants or tenants in common. If the land is, in fact, conveyed to more than four people, it is the first four named in conveyance who become the joint tenant trustees of the land, with all five, six, etc, owning in equity as either joint tenants or tenants in common.

3. The Equitable Interest:

The important issue is to determine the nature of the co-ownership in equity for therein lies the substantive interest. The following are offered as guidelines only an their influence will vary from case to case:

· If the unities of interest, title or time are absent, a joint tenancy in equity cannot exist.

· If the original conveyance to the co-owners stipulates that they are “joint tenants” or “tenants in common” of the beneficial or equitable interest, this is normally conclusive as to the nature of their co-ownership in equity.

· If words of severance are used, than a tenancy in common will exist in equity. Thus, a description of the share of each owner, or the creation of unequal interests in different o-owners will mean that a tenancy in common exists.

· In the absence of an express declaration of the type of ownership or words of severance, and if all the four unities are present, there is a presumption that “equity follows the law”.This can rebutted when the counter argument is that the right of survivorship would be inappropriate, e.g business relationships.

Statutory changes:

- TIC can not be in a legal estate, all must be JT.

- JT owners are trustees for the equitable owners.

- These people are mostly the same but that is not necessary in equity.

- JT limited to 4, but TIC in equity are unlimited.

III.) Trust of Land:

According to S.34, S.36 LPA 1925 and Pt I TLATA 1996, the trustees will hold the land for the persons interested in it an, subject to any express terms of the trust and statute, with the powers of an absolute owner.

The most important point is that the trustees are under no duty to sell the land, as was the case prior to TLATA 1996 when the LPA imposed a trust on the land known as a “trust for sale”.The following are the specific attributes of the unseverable legal joint tenancy under the new trust of land established by the TLATA 1996:

a.) The trustees (legal owners) are under a duty to hold the land for the persons intended in it (often themselves). S.6 TLATA gives these trustees the powers of an absolute owner in relation to the land. However, the trustees may delegate “any of their functions” to a beneficiary of full age, as per S.9, and the court may intervene by way of an order under S.14. Note here, however, that not everything done by a trustee will be a “function relating to” the trust. So in “Brackley v. Notting Hill Housing Trust (2001)”, the giving of notice by one joint tenant trustee of a lease (thereby terminating the lease) was not such a function, at least in the case of a periodic tenancy;

b.) If the trustees do sell the land, the trustees hold the proceeds of the sale on trust for equitable owners, as the equitable owners’ interests are overreached and take effect in the purchase money.

c.) Prior to the 1996 Act, the trust of land was actually a trust for sale. But S.3 TLATA abolishes the doctrine of conversion for all new trusts of land and most old ones. Now, it is certain that the interests of the equitable owners behind the statutorily imposed trust of land are interests in that land i.e. proprietary rights for all purposes.

d.) Although the trustees of land now have no duty to sell, they do have a power to do so. All legal owners must formally join in a conveyance if the land is sold and for dealing with disputes between trustees. This mechanism is found in S.14 TLATA and involves an application to the court.

e.) Laskar v. Laskar(2008): the powers in TLATA 1996 are more powerful and mostly used when the issue is non-residential e.g investments.

f.) The ability to deal with the land lies with the legal owners, However, if the trustees are completely unconnected with the equitable interest (City of London building v. Flegg: H and W held on trust for themselves and parents), problems can occur. Three factors need be noted here:

· A sale by all the trustees, providing they are two or more in number will overreach the interests of the equitable owners (s.2(1)(ii) and 27 of LPA 1925).

· If there is only one trustees of the land, the interests of the equitable owners cannot be overreached. Consequently, whether the equitable interests can bind a purchaser will depend on the law of registered or unregistered conveyancing. Williams and Glyn bank v BolANd

· If the trust is created by a “disposition”,the exercise of the trustee’s power of sale (among others) can be made subject to an express requirement that the consent of the beneficiaries be obtained. This is an attempt to ensure that a sale does not take place contrary to their wishes, as per S.10 TLATA.

IV.) Advantages of the 1925 & 1996 Legislative Reforms:

Prior to 1^st January 1926, any person wishing to purchase co-owned land would have to investigate the title of ever single tenant in common. Not only was this time consuming, but the objection of just one tenant in common might prevent the land from being sold. By abolishing tenancies in common at law, the LPA 1925 has ensured that there is but one title to investigate: the legal joint tenancy. Moreover, the number of legal joint tenants is limited to a maximum of four so that a purchaser need only concern himself with obtaining the consent of these people.

If there are two or more trustees of land and the purchaser obtains the consent of all to a sale, the purchaser may safely ignore all the equitable owners. This is the magic of statutory overreaching.

Although a tenancy in common cannot exist at law, the co-ownership in equity may take this form. The equitable owners are theoretically secure that their interests, however, held, will take effect in any money received for the property should it be sold or mortgaged. Moreover, the existence of a trust means that the equitable owners have powerful proprietary remedies in the event of default by the trustees.

The existence of a power of sale under the trust of land prevents co-owned becoming inalienable should there be a dispute between the co-owners, application can be made to the court under S.14 TLATA for an order for sale and, if granted, the equitable interests will take effect in the purchase money. This is entirely consistent with the general aim of the 1925 reforms which was to ensure the free alienability of co-owned land and offering protection for the purchaser against any adverse equitable interests.

V.) Disadvantages of the Trust of Land:

In the purchaser protection through the overreaching machinery, many of the disadvantages of the current mechanism, even after the 1996 amendments, focus on the equitable co-owner.

1. Disputes as to Sale:

An immediate difficulty of utilising the trust is that there may well be disputes between the trustees as to whether the property should be sold or retained for occupation. This problem becomes more acute if the consent of the equitable owners is also required before a sale can take place. The difficulty is not as pressing as it was prior to the 1996 Act –there is now no duty to sell, only a power – but the potential remains for dispute and litigation. Should the co-owners’ relationship break down, or one of the co-owners go bankrupt, the other co-owner may wish to sell the property to realise its capital value or may be forced to do so to satisfy creditors.

To deal with such disputes, S.14 provides that any trustees of land, or any equitable owner may apply for an order concerning the property. When considering the application, the following are examples of factors considered by the court which fall within S.15 TLATA:

a.) Whether the property is needed or the maintenance of a matrimonial home e.g. “Jones v. Challenger”.

b.) Whether the property is required in order to provide accommodation for the lives of the co-owners, or that of the survivor e.g. “Harris v. Harris (1996)” and “Chun v. Ho (2001)”.

c.) Whether the property is needed for the provision of a family home for the children of a relationship that has broken down e.g. “Williams v. Williams”.

d.) Whether the property is required to continue a business for which the land was purchased e.g.“Bedson v. Bedson”.

e.) Where the person seeking a sale may be estopped from obtaining an order for sale by their conduct, this having been relied upon to detriment by other co-owners e.g. “Re Buchanan – Wollaston’s Conveyance” and “Chun v. Ho”, Holman v.howes(2007).

f.) Whether there has been any misconduct by the person applying for sale, or his legal advisers, as in“Halifax Mortgage Services v. Muirhead (1998)”, where sale was refused because the claimant’s solicitor had wrongly altered relevant documents.

g.) The general circumstances of the beneficiaries of the trust, including age, health, suitability of premises (Edwards v. Royal bank of Scotland)

h.) The general desire not to keep a creditor out of its money: “Bank of Ireland v. Bell (2001)”, although this is not always paramount e.g. “Mortgage Corp v. Shaire (2001)”.

2. When is it Likely that a Court will Order Sale?

Before the 996 Act, co-owned land was subject to a trust for sale, with a duty to sell. Thus, in any dispute as to sale, the default position was that a sale must take place. So in “Banker’s Trust v. Namdar (1997)”, a sale was ordered under S.30 LPA, Peter Gibson LJ thought that it was unfortunate that TLATE 1996 was not applicable (this case was before the Act). In “TSB v. Marshall (1998)”, the county judge used pre – TLATA principles to assess an application under S.14, 15. For example, a court is still likely to order a sale when only the co-owners are in dispute and there are no extrinsic factors e.g. no children, as this supports the alienability of the co-owned land. This was followed in First National Bank v. Achampang(2003). Likewise in Putnam & sons v. Taylor(2009), a sale was ordered on the application of the claimant a creditor. Conversely, no sale is likely if there are children living in the property (Edwards v. Lloyds TSB) and the co-owner wanting a sale is not in desperate financial straits.

A sale is likely if the land was purchased as an investment, rather than a home, or if it would be inequitable to deny a co-owner their share of the capital value of the land.

Clearly, if the non – trustee equitable owners’ consent is required before a sale takes place e.g. where such requirement is required by the conveyance to the trustees, a court will be careful before it dispenses with such consent. Likewise in “Dear v. Robinson (2001)”, where the wishes of the beneficiaries were critical especially as a postponement of sale was also in accordance with the original intention of the creator of the trust. Moreover, even if the equitable owners’ consent is not a requirement of a sale or mortgage by the trustees, their wishes are relevant, as per S.11 TLATA, although it is unlikely that they will be pivotal.

In registered land, an equitable owner will be able to place a restriction on the title of the co-owned land. If a restriction has been entered, this will ensure that no dealings take place unless the conditions specified in the restriction are fulfilled e.g. that there are indeed two trustees of the land i.e. overreaching or that the consents of the equitable owners (if required) are, in fact, obtained.

3. The Special Case of Bankruptcy:

The list of factors in S.15 TLATA do not apply when an application is made by the trustee in bankruptcy of a person interested in co-owned land. In that case, S.335A Insolvency Act 1986 provides the list of relevant factors. S.335A is inserted by Sched 3 TLATA.

If one of the person interested in the co-owned land is made bankrupt whether they are legal or equitable owner, his assets vest in a “trustee in bankruptcy”. This is simply the name given to the person who administers the bankrupt’s assets with a view to paying off the creditors. In a co-ownership, therefore, a trustee in bankruptcy will step into the shoes of a legal or equitable owner and will want to sell the co-owned property to realise some of the bankrupt’s assets. If a sale is opposed, the trustee in bankruptcy will apply to the court for an order for sale under S.14.

Re Citro, tells us that where there are exceptional circumstances a court may need to take those into account and delay the sale. However in this case children and the wife and their current circumstances were not held to be exceptional but in Re Holliday, children and spouses conditions were taken as exceptional circumstances. Courts look into the matters such as interest of creditors spouse children and other circumstances but not the needs of bankrupt person (Everitt v. Budhram).

On hearing an application for sale by a trustee in bankruptcy, the court must consider a number of factors, such as the interests of the bankrupt’s creditors, the needs of the spouse and all other circumstances. However, if the application is made more than a year after the bankruptcy, the court is extremely likely to order a sale of the property in order to satisfy the creditors, but, up to then, the matter could go either way. So, in “Harrington v. Bennet (2000)”, an application for sale by the trustee in bankruptcy more than one year after the bankruptcy was granted.

The effect of 335A was discussed in Dean v. Scott, it was that exceptional circumstances will only outweigh interest of creditors it might include mental or medical conditions but courts need to decide on case to case basis. Re Citro is a powerful authority which is used to indentify exceptional circumstances.

It is open to a mortgagee who cannot get a sale themselves under S.14 to make a co-owner bankrupt. This will mean becoming an “ordinary” creditor losing its priority over the property – but it is likely to generate a sale under the more powerful bankruptcy rules. It is not an abuse of the process and will not be prevented by the court, as made clear in “Alliance& Leicester v. Slayford (2001)”.

HRA 1998 had an impact on this part of the law (Barca v. Mears), This case illustrates that courts now have to rethink on the art8 issues relating to postponement of sale. They interpreted that automatic order of sale after one year in these type of cases could contravene Art8. However balance needs to be struck between creditors and Art.8. In Donohoe v. Ingram, the court said that the test within s335A needs to be reinterpreted to make it convention complaint. And in Nichlos v. Lane court found no incompatibility between Art.8 and s335A. Further more in Everitt v. Budhram HRA issue was not raised. Thus the conclusion is that the interpretation of s335A should be lightened and the concerns raised in Barca could have an impact that now the exceptional circumstances which meant nearly never could exist in many cases.

4. When Overreaching Occurs:

If a purchaser buys co-owned land from two or more legal trustee owners, then the interests of the equitable owners are overreached. Overreaching can occur against the wishes of the equitable owners: they lose their rights to occupy the land, although they do receive their shares of the purchase money. S.11 TLATA imposes a duty to consult and pay attention to such wishes, not to follow them slavishly, and the duty does not affect the overreaching effect of conveyances.

5. If Consents are Required:

If the disposition originally conveying the land to the co-owners makes the trustees’ powers dependent on obtaining the prior consent of the equitable owners (a envisaged by S.10 TLATA), there is a potential conflict with the ability of the trustees to sell the land and overreach the equitable interests. The new Act is not entirely clear on this point. Moreover, it should also be remembered that trustees can apply under S.14 TLATA for removal of a consent requirement just as equitable owners can apply for one to be imposed.

With these qualifications in mind, the TLATA appears to envisage the following results. In registered land, there is every chance that the consent requirement will be entered on the registered in form of a restriction. However in Coleman v. Bryant, court was not prepared to enter restriction requiring consent of beneficiaries just before sale because it will destroy the concept of overreaching. If by some chance, no restriction is entered, the marginally better view is that the purchaser obtains a good title to land, the equitable interests are overreached, and the equitable owners are left to sue the trustees for breach of trust. Finally, a consent requirement granted by reason of an order of the court under S.14 of necessity will be registered as a restriction consequent on the court order.

In unregistered land, there is no mechanism to register it under LCA 1972. However, S.16 TLATA(which applies only to unregistered land) says that if the purchaser did not actually know that the land was being conveyed in breach of consent requirement, then overreaching remains effective. This means that the position in registered and unregistered land is broadly similar in effect.

6. If Consents are Not Initially Required:

Two possibilities arise, even when a consent requirement is not required by the original disposition. First, an equitable owner may not apply under S.14 for a court order that the trustees seek his consent before a sale. Secondly, if the co-owned land is registered land, an equitable owner may place a caution (or a unilateral notice under LRA 2002) against dealings on the title, ensuring that the Registrar will alert him. If that happens, the equitable owner may apply to the court under S.14 or an order postponing sale or requiring other conditions to be met.

7. When Overreaching does not Occur:

The usual reason why overreaching does not occur is that there is only one trustee of the property e.g. “Williams & Glyn’s Bank v. Boland”. In fact, in the absence of overreaching, the normal rules of registered or unregistered land take over i.e. overriding, minor interests or notice doctrine.

However, in both registered and unregistered land, a purchaser may be able to plea that the equitable owner has expressly or impliedly consented to the sale taking place with the consequence that the purchaser gains priority over their interest. In order to give the purchaser this relief, the court must be satisfied that the expressed or implied consent is real: it does not exist simply through knowledge of the proposed sale or mortgage e.g. “Skipton Building Society v. Clayton (1993)”. So, for example, if the equitable owner signs a consent form postponing her interest, we need to be sure that (in the absence of undue influence) the consent was real. Likewise, the lover may have acted so in relation to the mortgage, e.g. attending the bank, that her consent can be implied and is beyond doubt. On the other hand, it is up to the bank to seek consent, not for the equitable owner to offer it.

Overreaching will not work where there is a fraudulent scheme (HSBC v. Dyche)

8. The Position of the Equitable Owners: Problems & Proposals:

There will always be some legal owners who decide to sell without telling the equitable owners. What happens then?

The first question is always whether overreaching has occurred or not. If not and the purchaser is bound, the equitable owner remain entitled to use the land, save only that a purchaser could apply to have the land sold under S.14 TLATA.

If overreaching has occurred, the equitable owners’ interests take effect in the purchase money. If, therefore, the legal owners have absconded or are unable to pay, the equitable owners will have only the normal remedies for breach of trust e.g. a personal action, a tracing claim.

Thus, as a way of limiting the effect of overreaching on an “unwilling equitable owner”, the Law Commission once suggested three alternative reforms (Report No. 188):

a.) That overreaching should not be possible unless one of the trustees is a solicitor or licensed conveyancer. Such a person might offer protection to an equitable owner.

This is a poor solution, as it would make conveyancing more expensive, as well as requiring an“outsider” to become involved in personal affairs.

b.) That overreaching should not be possible if the equitable owner had registered their equitable interest.

Unfortunately, however, this solution presupposes that equitable owners are prepared to register, even if they know they must register e.g. will a housewife register her interest “against” her husband’s land? Especially as this might be regarded as a hostile act. These, equitable rights are, at present, capable o being overriding interests which bind without the need for registration.

c.) That overreaching should not be possible without the consent of all the equitable owners who are of full age and in possession of the property.

What this solution does is to destroy the entire overreaching mechanism of LPA. The whole point behind the abolition of legal tenancy in common, the institution of the joint tenant trusteeship and the concept of overreaching is precisely that a purchaser should be able to buy co-owned land without having to search for every legal and equitable owner and obtain their consent.

9. The Position of the Equitable Owners: The Problem in Perspective

What is to be done since all the above proposals fail to deal swiftly with the problem?

If there is one trustee for sale, overreaching cannot occur so the purchaser will be bound by the equitable owner’s interest, save the relatively remote possibility of a sale against their wishes after a purchaser’s application under S.14. Even then, the equitable owner would be paid the full value of their share.

If there are two trustees for sale, overreaching can occur, but, in most residential cases, the two trustees will also be the only two equitable owners: e.g. husband and wife. Again, there is no problem, because either party can object to a sale in their capacity as legal owner.

So, then, it is only where there are two trustees for sale and different equitable owners that the problem will really occur. Such was the case in “Flegg”, where the property was held by the married couple on trust for themselves and one set of parents. How often does this occur? This is an exceptional factual scenario and not a normal one. Should the law be changed only to meet such “hard cases”?Moreover, with the arrival of TLATA, equitable owners in the above scenario may apply, under S.14, for an order preventing sale, and the court will exercise its discretion to see which interest shall prevail.

10. The Question of Possession:

There was no doubt that the legal owners had a right to occupy the land. Unfortunately, for non – legal owners, in theory, they only had an interest in the proceeds of sale of the land, not the land itself, and consequently could be denied possession. The situation has now been regularised by TLATA and it effectively declares that the equitable owners shall be regarded as having rights in the land, as per S.3 TLATA, it also provides in S.12 that an equitable owner has a right to occupy the land if this was the purpose for which the trust came into existence.

11. The Payment of Rent:

S.13 TLATA provides that compensation should be paid by one co-owner occupying the land to the other if certain conditions specified in S.13 are met. Note, however, that this will not be automatic. In“Chun v. Ho (2001)”,the co-owner was not required to pay rent to the non-occupying co-owner because the latter had had the benefit of the large amount of money that the occupying co-owner had contributed to the purchase price.