Co-ownership law and equity

Question

In 2015, four work colleagues, Iza, Jacek, Kasia and Leon, bought a large freehold house, 3 Tower Mansions, to live in while they all worked in Manchester. The transfer stated that it was made “to Iza, Jacek, Kasia and Leon as beneficial joint tenants”. The purchase price was £200,000 and they had agreed to purchase the property as joint tenants, despite contributing unequal amounts to the purchase price. Leon, who had recently received a large inheritance, provided the largest contribution of £100,000.  The transfer was duly registered at the Land Registry with the four friends registered as legal and beneficial joint tenants.

In 2018, Iza bought a house of her own with her boyfriend. She raised the deposit required to buy this house by selling her interest in 3 Tower Mansions to Leon for £30,000 and completed all the necessary paperwork at that time.

Last year, Leon was made redundant from his job in Manchester, but immediately found another post in London. He sent an unsigned note to Jacek and Kasia telling them that he wanted to sell the 3 Tower Mansions immediately to release his share as he wanted to buy a flat in London.  Leon sent the note to 3 Tower Mansions by registered post. Kasia opened the note but threw it away without showing it to Jacek.

Earlier this year, Jacek died in a skiing accident. His will, drafted some years previously, left everything to Iza.

Leon has now come to seek your advice. His employers want to transfer him to their Manchester office where a vacancy has arisen. He wants to return to live at 3 Tower Mansions but Kasia (with Iza’s agreement) now has her three brothers living in the spare rooms to help pay the bills and Kasia and Iza have both told Leon that he cannot move back in.  Leon says if Kasia won’t let him move back to 3 Tower Mansions he wants his £130,000 back so he can buy his own place to live.

Advise Leon.

Intoduction

To advise Leon, the share of his, of Kasia’s, and of Iza’s in both law and equity must first be ascertained. The four people held 3 Tower Mansions (3TMansions) as joint tenants (JTs) in law. The first issue is as Leon contributed 50% of the purchase price, whether 3TMansions was held on trust for the four people as JTs or tenants in common (TiCs) in equity. The principle is that an express declaration of trust is conclusive (Goodman v Gallant[1986]). Here, all four people agreed to purchase 3TMansions as joint tenants (JTs). There was also a transfer document, which was written evidence explicitly indicating that they were beneficial JTs and it was likely signed by all four people. S.53(1)(b) Law of Property Act (LPA) 1925 was satisfied. There was a valid declaration of trust. Moreover, they were registered as beneficial JTs at the Land Registry. Therefore, the unequal financial contribution by Leon was irrelevant. The four people were TiCs in equity, together they owned the entire beneficial interest of the 3TMansions.

The second issue is whether Iza selling her interest to Leon was an act of severance. Iza selling her equitable interest to Leon was an act to operate on her own share, which was an “informal” act of severance that severed Iza’s equitable joint tenancy (Williams v Hensman[1861]). However, as legal joint tenancy is not severable, Iza remained to be a JT in law and a trustee of 3TMansions. After the arrangement, Jacek, Kasia and Leon held 75% beneficial interest of 3TMansions as JTs. And at the same time, Leon held 25% beneficial interest as a TiC.

The next issue is whether Leon’s unsigned note sent by registered post constituted a formal severance by writing under s.36(2) LPA 1925, which depended on if the following two requirements were met: 1)notice is received or deemed to be received by all other JTs, 2)notice expresses a clear intention to sever immediately. Firstly, as the note was sent by registered post to residential address of Kasia and Jacek, and the note was “not returned as undelivered mail”. Under s.196(4) LPA 1925, it was regarded as “have been received” by the recipients. However, only Kasia saw the note but Jacek did not. This issue was considered in Kinch v Bullard[1999], which held that a letter destroyed after successful delivery, even by the hands of the sender, remains to be an “effective delivery of notice for the purposes of s.36(2) LPA 1925. Applied, Leon’s note was likely “effectively delivered. Secondly, the unequivocal intention to sever immediately. Unlike mutual agreement, when unilateral notice is concerned, the courts hold a much higher standard for “clear intention to immediately sever”. In Harris v Goddard[1983], even a formal application to the court for redistributing shares that is “already made”, for it was capable of withdrawal, was considered an insufficiently clear intent to “sever immediately”. Only conducts such as a “request for sale” made to the court together with a “sworn affidavit” are considered sufficient (Re Draper’s[1969]). Applied, despite Leon expressed his desire to “immediately sell and release his share”, his unsigned note was nothing more than an “invitation to negotiation”. It was informal, revocable, and it probably was not intended to have any legal effect. Due to the absence of a clear intention to sever immediately, severance of JT did not take place.

As to what happened to Jacek’s legal and beneficial interest in 3TMansions when he died, firstly, JT cannot be severed by will (Re Caines[1978]). Therefore, Jacek’s interest held on trust as JT was not part of his estate. When Jacek died, according to the doctrine of survivorship, Jacek’s legal interest of 3TMansions was devolved upon Iza, Kasia and Leon, and Jacek’s beneficial interest was devolved upon Kasia and Leon. At that point, in equity, Kasia and Leon together held 75% beneficial interest as JTs, and Leon held 25% beneficial interest as TiC.

Leon, as an owner of 3TMansions in law and in equity, has the right of occupation. Therefore, s.12 Trusts of Land and Appointment of Trustees Act (TOLATA) 1996 which applies only to beneficiaries without legal title is irrelevant, and Leon cannot be denied the right to occupy on the basis of “unavailability” under s.12(1)(b), that there is not a room for him. Moreover, provided by s.13 TOLATA 1996, Leon, as a legal owner, cannot be “unreasonably” excluded by other trustees (Iza and Kasia) against his will.

Since Leon wants to either move back to 3TMansions or get “his £130,000”, the issue of charging rent is not considered. If Kasia rejects both proposals, then Leon can apply to the court for orders to request compensation for the exclusion, declare the size of his beneficial interest, to settle dispute about his right to occupy the land, and for sale under s.14 TOLATA 1996. Firstly, since the exclusion period is short and Kasia’s brothers paid the expenses of the house, compensation is unlikely (Stack v Dowden[2007]). Secondly, as to the size of Leon’s interest. The money he has contributed is likely irrelevant. Leon’s beneficial interest should be (interest: JT with Kasia= 75%/2=37.5%) + (interest: TiC= 25%) = 62.5%. Thirdly, whether an order for sale would be given depend on the factors set out in s.15 TOLATA 1996. The relevant ones are “intentions of the persons who created the trust” and “purposes for which the property subject to the trust is held”. Applied, it is clear that 3TMansions was intended to be a dwelling place for the four colleagues but not for Kasia’s brothers. As now that three of the four colleagues are not residing there, the purpose of the property has failed (Jones v Challenger[1961]). Moreover, the court would also consider the wishes of the “majority based on the size of interest”, which is Leon’s wish. Hence, an order for sale under s.14 is quite likely. However, the amount he would get from the sale would be the proceeds of sale x 62.5%.