Introduction
This advice will address the legal position of Beth and Carol concerning their property, Mansion House. The property was initially purchased by five friends as beneficial joint tenants. A series of events has occurred which may have changed the ownership structure. This advice will first determine the current beneficial ownership of Mansion House by examining each event chronologically to see if the joint tenancy has been severed. Secondly, it will advise on the likelihood of the property being sold, following an application by Auto Finance plc, a creditor of one of the co-owners. The legal framework for this advice is primarily the Law of Property Act 1925 (LPA 1925) and the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996).
(a) Who is entitled to claim ownership rights in the property?
The initial position in 2015 is clear. Amber, Beth, Carol, Dick, and Edmund purchased Mansion House, contributing equally. They hold the legal title as joint tenants, as there can be no tenancy in common of a legal estate (LPA 1925, s.1(6)). The facts state they also held the beneficial interest as joint tenants. A joint tenancy is defined by the four unities of possession, interest, title, and time (Gray and Gray, 2011). Its main feature is the right of survivorship, where the interest of a deceased joint tenant automatically passes to the surviving joint tenants. However, a joint tenancy can be converted into a tenancy in common through an act of severance. A tenant in common holds a distinct, though undivided, share in the property which can be passed on through a will. We must consider whether any of the following events has severed the joint tenancy.
Amber’s Letter in 2016
Amber sent a letter stating her intention to remain in New York permanently and asking for her "share" of the money when the house was sold. For severance to occur by written notice, under section 36(2) of the LPA 1925, the notice must be in writing and show an immediate and binding intention to sever the joint tenancy. The request in Amber's letter to "send the money for my share" demonstrates a clear intention to treat her interest as a distinct share, separate from the others. This is similar to the facts in Re Draper's Conveyance [1969], where a summons demanding the sale of a property and distribution of the proceeds was held to be a valid notice of severance.
The effectiveness of the notice also depends on proper service. Section 196(3) of the LPA 1925 states that a notice is considered served if it is left at the person’s last known place of abode or business. As the letter was addressed to Mansion House, where the other joint tenants lived, this requirement appears to be met. The fact that Carol picked up the unopened letter and threw it away, mistaking it for junk mail, does not invalidate the severance. The case of Kinch v Bullard [1999] established that severance is effective once the notice is delivered to the property. The recipient does not need to have read it. Therefore, Amber’s action is very likely to have severed her share. She would become a tenant in common with a 1/5 share in equity. The remaining four (Beth, Carol, Dick, and Edmund) would continue to be joint tenants of the other 4/5 of the beneficial interest.
Edmund’s Mortgage in 2017
In 2017, Edmund mortgaged his share in the property to Auto Finance plc. An act of a joint tenant "operating upon his own share" is a recognised method of severance at common law, as outlined in Williams v Hensman (1861). A mortgage is one such act. By creating a charge over his interest, Edmund acted as if he had a distinct share, which is inconsistent with the nature of a joint tenancy. This was confirmed in First National Securities v Hegerty [1985], where a husband mortgaging the matrimonial home without his wife's knowledge severed the joint tenancy.
Therefore, Edmund’s mortgage of his share would have severed his interest, making him a tenant in common of a 1/5 share. At this point in 2017, the beneficial ownership would be: Amber as a tenant in common (1/5), Edmund as a tenant in common (1/5), and Beth, Carol and Dick remaining as joint tenants of the remaining 3/5 share.
Dick’s Death in 2018
Dick died in 2018, leaving all his property to his nephew, Freddie. At the time of his death, Dick was a joint tenant with Beth and Carol of a 3/5 share. A key feature of a joint tenancy is the right of survivorship (jus accrescendi). This means that on the death of a joint tenant, their interest does not form part of their estate to be passed by will. Instead, it automatically passes to the surviving joint tenants. As a result, Dick's interest was extinguished upon his death and his share was absorbed by the surviving joint tenants, Beth and Carol. Freddie cannot inherit any interest in Mansion House.
Following Dick's death, the beneficial interests are: Amber as a tenant in common (1/5), Edmund as a tenant in common (1/5), and Beth and Carol as joint tenants of the remaining 3/5 share.
Beth’s Discussion with Carol in 2019
Beth's discussions with Carol about buying her share might have caused severance by mutual agreement or a course of dealing, two further methods from Williams v Hensman. For severance by mutual agreement, all the relevant joint tenants must agree to sever. Here, the only remaining joint tenants are Beth and Carol, so an agreement between them would be sufficient. In Burgess v Rawnsley [1975], it was suggested that an informal agreement, even if not legally enforceable, could demonstrate the necessary common intention to sever.
However, the facts state that while they "informally agreed on a price", Carol needed to consult her accountant and solicitor, and subsequently "changed her mind". This appears to be more like an 'agreement in principle' subject to further checks, rather than a final agreement. The law distinguishes between concluded agreements and ongoing negotiations (Gore & Snell v Carpenter (1990)). As Carol pulled out, it is unlikely a court would find a binding mutual agreement to sever. Similarly, a single, failed negotiation would not be sufficient to establish a "course of dealing" that shows the parties were treating their interests as separate shares. Therefore, it is probable that Beth has not severed her joint tenancy with Carol.
Summary of Current Ownership
Based on this analysis, the current beneficial owners of Mansion House are:
- Amber: Tenant in common with a 1/5 share.
- Edmund: Tenant in common with a 1/5 share.
- Beth and Carol: Joint tenants of a 3/5 share.
The legal title remains held by the surviving original trustees (Amber, Beth, Carol, and Edmund) on trust for the beneficial owners.
(b) The likelihood of sale
Auto Finance plc is seeking to have Mansion House sold because Edmund has defaulted on his mortgage repayments. As a secured creditor of a beneficiary, Auto Finance can apply to the court for an order of sale under section 14 of TOLATA 1996. The court has a wide discretion when considering such an application. It must consider the non-exhaustive list of factors set out in section 15 of TOLATA 1996.
The relevant section 15 factors here are:
- The intentions of the persons who created the trust.
- The purposes for which the property is held.
- The welfare of any minor who occupies the property as their home.
- The interests of any secured creditor of any beneficiary.
The original purpose of the trust was to provide a home for the five working friends. That purpose has now largely ceased, as Amber lives in New York, Dick has passed away, and Edmund has monetised his share. However, the property is still a home for Beth and Carol, and Beth now has a baby, which brings the welfare of a minor under s.15(1)(c) into play. This is a significant factor.
The court must balance this against the interests of the secured creditor, Auto Finance plc (s.15(1)(d)). Case law before the introduction of TOLATA often favoured the creditor, with the principle being that a creditor should not be kept out of their money. This approach has largely continued under TOLATA. In cases like Bank of Ireland v Bell [2001] and First National Bank plc v Achampong [2003], the courts have held that while all s.15 factors must be weighed, the creditor's desire to be paid is a very powerful factor, and an order for sale will usually be made unless there are exceptional circumstances.
The situation here is not one of bankruptcy, so the stricter regime under the Insolvency Act 1986 does not apply. This gives the court more flexibility. Beth’s wish to remain in the property with her baby is a compelling reason to resist a sale. The court will consider her welfare and the baby's need for a home. However, it is unlikely that this will be enough to prevent a sale indefinitely. The courts have to balance the rights of the co-owners to a home against the creditor's right to realise their security.
In Edwards v Lloyds TSB [2004], a sale was postponed for five years, but that involved unusual circumstances. More commonly, if a sale is postponed due to the presence of children, it is for a much shorter period (e.g., several months to a year) to allow the resident to find alternative accommodation.
Therefore, the advice to Beth and Carol is that it is highly likely that Auto Finance plc will succeed inobtaining an order for sale. The court will almost certainly take Beth's situation as a single mother with a baby into account. However, this is more likely to result in a postponement of the sale, perhaps for 6 to 12 months, rather than an outright refusal. This would give Beth time to arrange her affairs and find a new home for herself and her child. Beth and Carol cannot expect to be able to prevent the sale of Mansion House permanently.
References
Bank of Ireland v Bell [2001] 2 FLR 809.
Burgess v Rawnsley [1975] Ch 429.
Edwards v Lloyds TSB [2004] EWHC 1119 (Ch).
First National Bank plc v Achampong [2003] EWCA Civ 487.
First National Securities v Hegerty [1985] QB 850.
Gore & Snell v Carpenter (1990) 60 P & CR 456.
Gray, K. and Gray, S. (2011) Land Law. 7th edn. Oxford: Oxford University Press.
Kinch v Bullard [1999] 1 WLR 423.
Re Draper's Conveyance [1969] 1 Ch 486.
Williams v Hensman (1861) 1 J&H 546.
Legislation
Insolvency Act 1986.
Law of Property Act 1925.
Trusts of Land and Appointment of Trustees Act 1996.
