Potter House: Legal Ownership and Equitable Interest - Case Study Example

Potter House: Legal Ownership and Equitable Interest In 1989, A (then aged 28), B (then aged 16), C (then aged 24) and D (then aged 24) jointly purchased Potter House and the title of the house was conveyed to them as 'beneficial joint tenants'. Before we go into detail on the meaning of beneficial joint tenants, we must take note that at the time of the purchase B was 16 years old and Section 1(6) Law of Property Act 1925 states that the minimum age required in order to be registered as the legal owner of a property is 18. Since B was only 16 years old when the property is purchased, the property may be held on trust. As such, until B reaches the age of majority i.e. 18 years old, his property is held on trust by the other owners. Although B is not the legal owner of the property but B has the beneficial right to the property i.e. the right to enjoy the benefits of the property, to live and to use the property. B also has the right to share in the proceeds if the property is sold. The ownership of the property is divided into 2 components; legal title and beneficial ownership. The legal title can be ascertained by reference to the land register (assuming that the title registration has been effected) and those persons who hold the legal title are the trustees of the land. In this case, A, C and D are the trustees of the Potter House. The trustees are given wide powers i.e. to sell, to lease, or to mortgage the land. Under the law, the trustees are not allowed to benefit from the exercise of their powers in their capacity as trustees. The benefits of the home must be deflected to the beneficiaries. These rules apply even if the trustees and the beneficiaries are the same people. The House of Lords has accepted that a trust should be implied in all cases of co-ownership - Williams & Glyn's Bank v Boland [1981] AC 487, 503, per Lord Wilberforce. Under the English law, since 1925, joint tenancy has been the only form of co-ownership. Whereas there are two types of ownership for the beneficial ownership of the property i.e. 'beneficial joint tenants' or 'tenants in common'. From the facts of the case, it is clear that A, B, C and D has indicated to hold the property as beneficial joint tenants. In this case, each owner jointly own the entire property and technically the property is held by the owner in trust for himself. The owners do not have separate shares of the property each (unlike the case of property held under the title of tenants in common) and neither of the owners have a separate share in the property which they can sell or leave in a will. The consequence of having such a title to a property is that upon death of one party his interest passes automatically to the surviving owner and this means that the property cannot be transferred to another person by the deceased owner through a will or on intestacy, as it does not form part of the deceased's estate. When B, in 2000, aged 27, moved out from the house to a new job in Kent, he demanded from C and D immediate payment for his share in the Potter House. B later died and left all his property by will to his mother, X. As explained above, B owns the house jointly with A, C and D and each of them has no separate share to the Potter House. It is not possible for joint tenants to sever their legal ownership in the estate and convert them into tenancy in common. Severance of joint tenancy into tenancy in common can only be done with respect to the beneficial ownership. A person whose interest is severed will have his share quantified in accordance to the numbers of the joint tenants immediately prior to the severance taking place. In this case, A, B, C and D each has 25% of the interest in the Potter House. They cannot claim a larger share by making reference to the contributions that they may have made to the property - Goodman v Gallant [1986] Fam 106. From the facts of the case, there has been no severance made on the beneficial interest and as such upon B's death his share of the interest in the Potter House is automatically transferred to A, C and D (the survivors). When C, in 2005, left the Potter House to live with his girlfriend and sold his interest in Potter House to D. This act may be considered as an act of severance1 as alienation (in whole or in part) of the joint tenant's interest (e.g. sale, lease or mortgage) may affect severance2. Following the case of Goodman v Gallant3, A and D would thereafter hold as beneficial tenants in common in two equal shares. The fact that D had purchased C's interest in the Potter House does not increase D's share in the Potter House because D was bound by the terms of the trust to which he was a party4. Last week, both A and D was simultaneously killed as they were walking to work when a wall collapsed on top of them. Both A and D had, in their will, left their property to the Y charity and D's aunty, Z, respectively. A and D now, pursuant to the severance of the title as explained above, hold as beneficial tenants in common in two equal shares of the Potter House and as such, upon their death, their shares of the Potter House form part of their estate and will be treated in accordance with their will. Y charity and Z are now the co-owners of the house. Y charity and Z would need to register their names as the registered proprietors (having legal interest in the property) in the land register. Y charity and Z are now the trustees of the property. The trustees powers are regulated under the Trusts of Land and Appointment of Trustees Act 1996 ("TLATA") in which amongst other there is no longer a duty on the trustees to sell the land, there is simply a power to do so if desired. TLATA (section 11) further provides that the trustees are under the duty (as far as practicable) to consult with the beneficiaries in the exercise of their functions. With respect to the beneficial ownership of the property, Y charity and Z will need to agree on the type of the beneficial ownership that they would share i.e. whether as joint tenants or as tenancy in common. The document of title need to expressly declare who is to hold both the legal title and the beneficial interests so that this is conclusive in the absence of fraud or mistake5. Sources: 1. http://webjcli.ncl.ac.uk/1997/issue1/jones1.html (date: 7 April 2008) 2. http://www.bailii.org/ew/other/EWLC/2007/307.html (date: 7 April 2008) 3. http://www.desktoplawyer.co.uk (date: 7 April 2008) 4. http://www.crin.org/docs/England_and_Wales.doc (date: 7 April 2008) 5. Modern Land Law by Martin Dixon, 2005, RoutledgeCavendish. 6. http://www.law.cf.ac.uk/researchpapers/papers/1.pdf (date: 7 April 2008) Read More