In 2015 five friends, Ella (19), Fred (19), Gaby (17), Harry (18) and Isla (19) purchased The
Laurels, to live in whilst at cookery college together. They each contributed £40,000 to the
purchase price except for Gaby who contributed £20,000. The transfer contained a
declaration that the five of them held as “beneficial joint tenants”.
Two years later Ella ran up such huge credit card debts that she was declared bankrupt,
although by June 2018 she was discharged from the bankruptcy.
In 2019 Isla moved abroad and sold her share in The Laurels to Harry for £70,000. Six
months Isla died. Her valid will left everything to her mother.
In the summer of 2020, Harry decided that he wanted to move to a different city to start a
new job as a head chef in a prestigious hotel. In September 2020 Harry left notes for his
housemates in a prominent position in the kitchen saying, “I want the house sold now so I
can take my separate share”.
Sadly, in early October 2020 Harry died in a motorbike crash and, in his valid will, left his
property to his sister Joanne.
Last Christmas Fred and Gaby had a huge argument over Fred’s failure to help with any of
the housework. Shortly afterwards the two of them started discussions over the possibility
of Gaby buying Fred out of his share in The Laurels but, before a firm price had been agreed
or any paperwork prepared, Fred was killed in a paragliding accident. His valid will left all his
property to Ella.
Gaby now feels that the house is unlucky. She would like it to be sold as quickly as possible.
However, Ella says she wants to stay in the house.
Advise Ella, explaining the relevant legal issues:
(a) as to the effect of the above events on the legal estate and equitable interests in
The Laurels,
(b) whether she can be forced to sell the property, and
(c) if the sale goes ahead, whether a buyer would be bound by any trust interests
which may subsist in The Laurels.
Answer –
(a)
- When land is co-owned this gives rise to a statutory trust governed by the Trusts of
Land and Appointment of Trustees Act 1996 (“TLATA”).
- The legal estate can only be held as joint tenants (s1(6) LPA 1925)
- by a maximum of four trustees who are 18 or over (s34(1) LPA 1925).
Gaby is only 17 and so cannot be a trustee and so the legal title will be held by Ella, Fred,
Harry and Isla.
, The equitable interest can be either joint tenants or tenants in common.
- The “Four unities” must be present: these are title, time, interest and possession. Here
they are all present so it can be either a joint tenancy or a tenancy in common.
- Using the next test, they hold as equitable joint tenants because of the express
statement in the transfer to them – (Goodman v Gallant- where the deed in favour
of the co-owners contains an express declaration of how the co-owners
should hold the equitable interest in the land, that declaration is
conclusive). This statement overrides any implied tenancy in common from the fact
that they contributed unequally.
- Not applicable here, but the third test of severance is - does the deed transferring
the land to the co-owners contain words of severance?
- N/A here but, the fourth test is the equitable presumption of severance –
found in partnership property, for lenders, where unequal amounts have
been paid towards the purchase price. See TB pg 66
In case none of the four tests show a severance - ‘equity follows the law’, as the legal estate
has to be held on a joint tenancy.
Severance by alienation – For general reference
- Is done through ‘an act of a joint tenant operating on his own share’ Will apply when
the joint tenant sells, gives or mortgages their equitable interest to a third party .
- Must be signed in writing (s 53(1)(c) LPA)
- Bankruptcy of a co-owner results in an automatic severing of their equitable joint
tenancy and their trustee in bankruptcy becomes the new tenant in common. However,
if they are then discharged from their bankruptcy, can again have an equitable interest
(but remains as one in common)
- Cannot be done through a will
Severance by homicide – For reference
- Severance that occurs when one co-owner kills another. The victim’s equitable interest
in the land passes to the beneficiaries under their will and the murderer takes the
legal estate in the land
Effect of bankruptcy
- In 2017 Ella’s bankruptcy will not have had any effect on the legal title as it can’t be
severed (s 36(2) LPA 1925)
- but the bankruptcy will have caused severance of Ella’s equitable interest by alienation
- On severance of a joint tenancy the resulting ‘share’ is equal, regardless of initial
contributions ((Bedson v Bedson).
so in 2017 Ella, Fred, Harry and Isla held on trust for Ella (1/5 as a tenant in common) and
Fred, Gaby, Harry and Isla (4/5 which they continue to hold as joint tenants).
Effect of Sale of interest
- 2019, when Isla sold her interest to Harry, this had no effect on the legal estate
(severance of the legal joint tenancy is prohibited by (s 36(2) LPA 1925)
- but will have severed the equitable interest by alienation, assuming it was in writing –
the formalities required are that it must be in signed writing (LPA 1925, s 53(1)
(c)). If a sale was not drawn up complying with s 53, a contract to dispose of the
equitable interest will also sever the joint tenancy in equity provided it
