Co-Ownership Unraveled: Understanding Legal and Equitable Interests in Mayfield House

Introduction

The issues raised in this problem question relate to the share of ownership in the Mayfield House for Katie and Philip after Max’s death. The facts indicate that Mayfield House was purchased in the joint names of Max, Katie and Philip. There are three principal issues raised and addressed in this essay: the first relates to the type of ownership in the property, whether joint ownership or tenancy in common; the second relates to severance of shares in the property; and third relates to the resistance to sale of the property by the surviving co-owners after Max’s estate moves for sale of the property.

The law related to joint ownership in property is governed both by the common law and statutory law. The latter is principally contained in the Law of Property Act 1925 (LPA 1925) and the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996), both of which are applicable in this scenario. LPA 1925, Section 1 (6) allows co-ownership of legal title through a joint tenancy. Under Section 1 of TOLATA 1996, the principle of co-ownership is provided, where it is stated that as where two or more people own land concurrently, a trust of land is created. In other words, when land is co-owned, it is held on trust, which separates the legal and equitable ownership in the land. Thus, the rights of ownership are divided between the legal owners, who are also the trustees, and any beneficial owners. Severance of interest is also impacted by this because in a joint ownership, legal estate cannot be held in tenancy in common or severed but the beneficial interests can be held in tenancy in common and severed.

In this situation, where there are three joint owners, the application of TOLATA 1996 means that the owners own the legal estate on trust for themselves as beneficiaries. This interest can be owned as joint tenants or as tenants in common. The distinction between joint tenants and tenants in common is important because it determines whether the principle of just acrescendi, that is, the survivorship rule applies, or whether each tenant would have a definitive share in the property as tenants in common. How the ownership in property is treated after the death of one of the owners would depend on whether the owners hold the property as joint owners or tenants in common. Therefore, the first question that is considered here is the nature of ownership of the three parties in Mayfield House.

There are two types of beneficial ownership, which are, joint tenancy and tenancy in common. A joint tenancy allows the trustees to hold the legal estate as joint tenants under Section 1 (6) or LPA 1925. Joint tenancy is defined as joint ownership of property involving the four unities of title, interest, possession and time. Where the four unities are present, there is a joint tenancy ownership between the parties. While the tenancy in common also has some of the features like joint tenancy, such as, the rights of possession, sharing of interest in the land, and derivation of title from the same document, there is a fundamental difference between the two. A joint tenancy leads to all the joint tenants owning the whole of the property and tenancy in common leads to each tenant in common owning a share in the property. This is significant to the application of the rule of survivorship (in case of joint tenancy) or severance (in case of tenancy in common). In other words, of the property is characterised as a joint ownership, then the owners hold the interest in the property together, with the applicability of the rule of survivorship, and if the property is characterised as tenancy in common, then the owners hold their individual shares in the interest in the property and no applicability of the rule of survivorship. As Katie is Max’s widow, and had an expectation that she would inherit his share in the property, the nature of their ownership becomes relevant. On the other hand, Philip has no such relationship with Max, in which case, there is no expectation of inheritance. However, the ownership for all three of them needs to be defined in order to understand whether both Katie and Philip will receive Max’s share (as survivors in joint tenancy) or whether they are tenants in common in which case, a different principle will apply to deal with Max’s interest in the property.

Judith-Anne MacKenzie, Textbook on Land Law (16th Edition Oxford University Press 2016) 297.
AG Securities v Vaughan [1990] 1 A.C. 417
Ibid

The right to survivorship or the principle of jus accrescendi applies to joint tenancy on the death of one of the joint tenant so that the death of one of the joint tenants would lead to the vesting of the share of the deceased in the survivors. Therefore, in a joint tenancy, the share of the deceased does not devolve under the will or intestacy. An exception to this rule is where one joint owner severs the joint ownership unequivocally immediately, thus becoming a tenant in common. On this event, the interest of this owner will not vest in the survivors under the rule of survivorship. Joint tenancy can be severed, and the rule of survivorship avoided where the joint tenant acting on his own share, does some unequivocal act, such as, sale of interest to a third party; or gifting of equitable interest to another. The LPA 1925, Section 36 (2) allows the alienation of share by such unilateral act, provided that such act is final and irrevocable. In such situations, the legal ownership in the property remains unchanged, but equitable ownership is changed. In tenancy in common, the owners have their individual shares in the property and the rule of survivorship is not applicable. The question here is what type of ownership is applicable to the current situation.

Under TOLATA 1996, Sections 1, the beneficiaries of the trust hold the property as beneficial joint tenants or as beneficial tenants in common. There is a presumption of joint tenancy under the principle that equity follows the law. However, the presumption of joint tenancy can be rebutted if there is an express declaration of trust, or the conduct of the parties indicates that they intend to divide the interest into shares; if there is no express declaration at the time of the acquiring of the property as to how the parties intend to hold the beneficial interest, then there are implications for the nature of the ownership. The intention of the parties at the time of the purchase of the property can be a key factor in determination of the nature of the beneficial interest in the property. In Burgess v Rawnsley, the question of the nature of ownership arose in the absence of any express declaration at the time of the purchase of property. It was held that whatever be the intentions of the parties at the time of the purchase of the property, if later course of dealings indicated that they intended to hold the property as tenants in common, then that shall be the nature of the ownership.

A tenancy in common can be inferred where the parties have contributed in different proportions to the purchase price and the parties are not married partners or cohabitees. In Malayan Credit Ltd v Jack Chia-MPH Ltd, the court held unequal contribution to the purchase of the property can lead to the presumption of tenancy in common. In Laskar v Laskar, where a mother and daughter bought a house together in their joint names, but had bought the property as an investment and not a family home, the court held that they were to hold beneficial interest in aligned with the share in the purchase contribution. The daughter was not considered to be entitled to a 50 percent share in the beneficial ownership as she had only contributed 4 percent to the purchase amount. In Adekunle v Ritchie, where a mother and son bought a home in their joint names but did not make any express declaration as to the beneficial interest in the property, the court held that the presumption that the joint owners hold beneficial interest as per Stack v Dowden, did not apply in this case and therefore the rule of survivorship is not applicable. In Fowler v Barron, where the parties were cohabitees who had bought a house in joint names, the presumption of beneficial interest in the property as joint owners did apply even where the parties had contributed in different shares to the property because the court considered the parties’ course of conduct for the ascertainment of the intentions of the parties. What can be understood from the discussion on these cases is that the presumption of beneficial interest (if the parties are joint owners) can be rebutted and tenancy in common presumed if the whole course of the conduct of the parties gives rise to their intention to hold the property as tenants in common. In one case, the court has held that the course of dealing must be as per the mutual understanding of all joint owners and an independent intention to treat a joint tenancy as being severed is insufficient evidence to give effect to a severance.

First National Securities Ltd v Hegerty [1985] QB 850.
Harris v Goddard [1983] 1 WLR 1203, CA.
Alexander Braun, ‘Will-Substitutes in England and Wales’ in Alexander Braun and Anne Rothel (eds), Passing Wealth on Death: Will-Substitutes in Comparative Perspective (Bloomsbury Publishing 2016.).
Stack v Dowden [2007] 2 AC 432; Jones v Kernott [2012] 1 AC 776.
Goodman v. Gallant, [1986] Fam 106.
Burgess v Rawnsley [1975] Ch. 429.
Ibid.
Malayan Credit Ltd v Jack Chia-MPH Ltd [1986] AC 549

Where the owners of the property are not in a married relationship or in a relationship like parent and child, then the question of the contribution to the purchase of the property may become significant to deciding their beneficial ownership. Different levels of contribution to the purchase of the property may give rise to a presumption that the owners hold the property as tenants in common. In such a situation, the owners would have distinct shares in the property, which may be equal or unequal depending on their contributions. While the ownership of the legal estate in the property is recorded in their joint names, it is not necessarily reflective of the equitable or beneficial interests in the property.

In the absence of the express declaration of beneficial interests, the parties may rely on the trusts, resulting or express, to determine the beneficial interest in the property. In Westdeutsche Landesbank Girozentrale v Islington London Borough Council, Lord Browne-Wilkinson explained the circumstances leading to resulting trust, which are where one voluntarily pays to another or contributes to the purchase a property, the purchase price is held on trust, except where there is a counter presumption; and where a party transfers the property to another but where the entire beneficial interest in the property is not exhausted by the transfer. The purpose of the resulting is to give effect to the presumed intention of the trustee.

In the present problem scenario, the property is in joint names but, three parties have made contribution to the purchase of the property. There is a mortgage of £200,000, the payments towards which have been paid by Max and Katie except for a period of twelve months, when Max paid the monthly repayments on account of Katie being on maternity leave. In the current case, the property is in joint names. Max had paid in part for purchase a property during the tie Katie was on maternity leave. Payments made by Max do not signify an intention to gift the interest to Katie and therefore a resulting trust may not arise. A constructive trust arises when there is an expressed common intention leading to a beneficial interest, and the claimant acts on reliance of such expression to their detriment. Max, Katie and Philip made unequal contributions to the purchase of the property with Max and Katie contributing £80,000 and Philip contributing £40,000 for the purchase of the property. Max also took a loan on the security of his interest in Mayfield House, which shows his intention to treat his share of the property as separate and distinct from the others. Even if there is a joint tenancy and an equitable beneficial ownership, severance of joint tenancy takes place if one of the joint owners mortgages his interest in the property to secure a loan against it, and this leads to the conversion of nature of ownership into tenancy at common. Therefore, based on the lack of express declaration of beneficial interest, and taking into consideration the whole course of dealings between the parties, it can be presumed that the ownership is of the nature of tenancy in common.

Laskar v Laskar 1 WLR 2695 [2008].
Ibid.
Adekunle v Ritchie [2007] BPIR 1117.
Fowler v Barron [2008] 2 FLR 831.
Davis v Smith [2011] EWCA Civ 1603.
Stack v Dowden [2007] 2 AC 432.
Malayan Credit Ltd v Jack Chia-MPH Ltd [1986] AC 549
Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12.
Ibid.
Ibid.

The question arises as to the individual share in the property of the three owners: Max, Katie, and Philip. Tenants in common do not have a common interest in the property, rather they own different shares of the property and they can transfer their interest under a will or intestate. Moreover, the rule of survivorship does not apply to tenants in common. If one owner dies, then the distribution of their interest in the property has to be done as per the will and in absence of a will as per the rules on intestacy. In the current case, if Max is taken to be a tenant in common, then the interest he owns in the property does not devolve on the surviving owner. However, as he dies intestate, Katie being his wife is entitled to his beneficial interest in the property if she survives him by 28 days. In order to determine the quantum of interest between Katie and Philip, it will involve the court in the consideration of the beneficial interest of the parties as well as their respective shares in the interest. Capehorn v Harris may be considered here. In this case, the court held that there is a two stage process for establishing that a non-legal owner has an interest in the property which is legal ownership of another person. The first step is to infer from conduct of the parties that there is an agreement for a non-legal owner to have an interest but, such an agreement cannot be imputed by the court. The second step is to impute the quantum of interest that the person has by having regard to all the circumstances in the case. The quantum of interest approach taken in Capehorn v Harris is similar to the approach taken in Jones v Kernott. In the latter case, it has been held that if the court is not able to deduce exact extent of shares that are intended, it will have to fall back on what is reasonable and just. Therefore, the court may decide the extent of interest of both parties based on what is fair in the case; in this case, it may be fair to decide the interest in terms of the contribution made by the parties to the purchase price. Max and Katie made a contribution of two thirds of the price of the property and the remaining one third was made by Philip. This may be the extent of their beneficial interest in the property as well.

The final issue relates to the possible sale of the property by Max’s estate, which has already expressed this intention to sell that property. This issue arises because Katie received a letter from the solicitor informing her that Mayfield House had been placed on the market for sale. Section 15 of LPA 1925 is applicable; it provides that court can have regard to the purpose of the trust, intentions of those who created the trust, and any welfare of any associated minors. In Re Buchanan-Wollaston’s Conveyance, the court found that the intention behind the conveyance of a promenade in joint names to four individuals was to ensure that the value of the adjacent properties was not eroded; therefore, sale by one joint owner could not be allowed. The purpose of the trust should be seen as at the time when the sale is being made and not at an earlier time; thus when a property is purchased as a matrimonial home but the marriage comes to an end, the purpose comes to an end and the property can be sold under Section 14 of TOLATA 1996. Thus, in Jones v Jones, the purpose was held to have not come to an end where the property was bought by the father and son for the son to have a home. Where the interest of minors is associated with the property, then again the court may not allow sale of property even if the purpose for which the trust was created has come to an end. In Rawlings v Rawlings, the court had made this observation although in that case minors were not involved. Similarly, in Williams v Williams, the court refused to allow a sale of a property after the breakdown of the marriage of the parties as there were four minor children who lived in the property with their mother. In Bank of Ireland Mortgages Ltd v Bell, the court has held that under Section 15 (1) (c) TOLATA 1996, the closer the child is to majority, the lesser weight would the welfare of the child apply for the court to make a determination on the sale of the property. In this situation, Max and Katie have two children, and their interest will be considered by the court before making an order of sale as the children live on the property with their mother.

Lloyds Bank v Rosset [1990] UKHL 1.
First National Securities Ltd v Hegerty [1985] QB 850.
Administration of Estates Act 1925, Section 46 (2A).
Capehorn v Harris [2015] EWCA Civ 955.
Ibid.
Jones v Kernott [2012] 1 AC 776.
Ibid

Katie is advised that she can claim Max’s interest in the property as his next of kin after his death because Max died intestate. Therefore, two-thirds of the interest in the property will be given to Katie. One third interest can be claimed by Philip as he contributed to this extent to the purchase of the property. With respect to the last issue, that is the sale of the property, this can be opposed by Katie because there are minor children who are associated with the property and impacted by the sale. Discover additional insights on Land Law Principles and Legal Concepts by navigating to our other resources hub.

Chris Bevan, Land Law (OUP 2018) 195.
Re Buchanan-Wollaston’s Conveyance [1939] Ch. 738.
Jones v Challenger [1961] 1 QB 176.
Jones v Jones (FW) [1977] 1 WLR 438.
Section 15 (1) (c) TOLATA 1996.
Rawlings v Rawlings [1964] P398.
Williams v Williams [1976] Ch 278, CA.
Bank of Ireland Mortgages Ltd v Bell [2001] 2 FLR 809.

Cases

Adekunle v Ritchie [2007] BPIR 1117

AG Securities v Vaughan [1990] 1 A.C. 417

Bank of Ireland Mortgages Ltd v Bell [2001] 2 FLR 809

Burgess v Rawnsley [1975] Ch. 429

Capehorn v Harris [2015] EWCA Civ 955

Davis v Smith [2011] EWCA Civ 1603

First National Securities Ltd v Hegerty [1985] QB 850

Fowler v Barron [2008] 2 FLR 831

Goodman v. Gallant, [1986] Fam 106

Harris v Goddard [1983] 1 WLR 1203, CA

Jones v Challenger [1961] 1 QB 176

Jones v Kernott [2012] 1 AC 776

Jones v Jones (FW) [1977] 1 WLR 438

Laskar v Laskar 1 WLR 2695 [2008]

Lloyds Bank v Rosset [1990] UKHL 1

Malayan Credit Ltd v Jack Chia-MPH Ltd [1986] AC 549

Rawlings v Rawlings [1964] P398

Re Buchanan-Wollaston’s Conveyance [1939] Ch. 738

Stack v Dowden [2007] 2 AC 432

Westdeutsche Landesbank Girozentrale v Islington LBC [1996] UKHL 12

Williams v Williams [1976] Ch 278, CA

Books

Bevan C, Land Law (OUP 2018).

Braun A, ‘Will-Substitutes in England and Wales’ in Alexander Braun and Anne Rothel (eds), Passing Wealth on Death: Will-Substitutes in Comparative Perspective (Bloomsbury Publishing 2016.).

MacKenzie JA, Textbook on Land Law (16th Edition Oxford University Press 2016).

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