SHOULDN’T THIS JOINT TENANCY BE SEVERED ?

01/08/2011

Luke Barnes cautions against overlooking the importance of severing the  joint tenancy. When this is not done, a death during proceedings can have dramatic and unforeseen consequences.

It is a fair bet that most family/private client practitioners will have advised their client to consider severing the beneficial joint tenancy of co-owned property. Most typically, the issue will arise following relationship breakdown. It is not likely that the client would wish to see their ex-partner take the property under the right of survivorship upon the death of the former. However, frequently neither party will take deliberate steps to sever the joint tenancy during the currency of ancillary relief proceedings. After all, the court has wide powers to redistribute assets under Part II of the Matrimonial Causes Act 1973 (MCA 1973) and will rarely devote time to investigating the spouses’ beneficial interests in the former matrimonial home.

Still less will an ancillary relief order be influenced by the issue of whether the spouses are beneficial joint tenants or tenants in common in equal shares (as the automatic result of severance – Goodman v Gallant [1986]). However, in those circumstances, the sudden death of one party risks producing dramatic, unforeseen consequences.

Case example

In B v B (unreported, in which the author appeared for the wife in both sets of proceedings) the parties married and had three children. Decree absolute was pronounced and an ancillary relief application issued, followed by protracted proceedings. The ancillary relief final hearing took place in early 2010, at the conclusion of which the district judge reserved judgment and directed counsel to file written submissions.

A few days after counsel’s submissions were filed, the husband died suddenly, as a consequence of which the suit abated without a final order being made. On the intestacy, the three children stood to inherit the estate. The issue was whether the wife became the sole equitable owner of the former matrimonial home under the right of survivorship, taking it outside the husband’s estate.

The personal representatives of the late husband issued a claim in the Chancery Division (later transferred to the Chancery List at Central London County Court) seeking a declaration that the joint tenancy was severed before the death of the husband and that the wife therefore held the property on trust for herself and the deceased’s personal representatives (the claimants) in equal shares and that there would be an order for sale, equal division of the net proceeds and accounts and inquiries.

The wife asserted that the joint tenancy was not severed and alternatively, she would seek provision from the estate under s2 of the Inheritance (Provision for Family and Dependants) Act 1975 (I(PFD)A 1975). Directions were made for the issue of severance to be decided as a preliminary issue.

At trial the claimants contended that severance had come about by, firstly, a course of dealing indicating that the former spouses’ interests were being treated as a tenancy in common rather than as a joint tenancy and, secondly, by written notice pursuant to s 36(2) of the Law of Property Act 1925 (LPA 1925). A third possible contention, severance by mutual agreement, was not pursued.

The claimants relied solely on documentation produced during the ancillary relief proceedings ie Forms E, written submissions and position statements. In the Forms E, each spouse valued their interest in the (mortgage-free) family home as one-half of the net equity. It was common ground in the position statements and submissions that each party was beneficially entitled to one half of the proceeds of sale. No negotiations had taken place during the ancillary relief proceedings.

Both parties had sought a sale of the property and equal division of the net proceeds within the ancillary relief proceedings. The wife had also sought periodical payments and a pension sharing order. The late husband had relied on a schedule of assets at the ancillary relief final hearing in which the property featured in the column headed “joint”, and sought the equal division of the proceeds of sale on the basis of lump sum orders, rather than by operation of law.

Law of Property Act 1925 (as amended)

Section 36 of the LPA 1925 provides in relation to joint tenancies:

“(2) ... where a legal estate (not being settled land) is vested in joint tenants beneficially, and any tenant desires to sever the joint tenancy in equity, he shall give to the other joint tenants a notice in writing of such desire or do such other acts or things as would, in the case of personal estate, have been effectual to sever the tenancy in equity, and thereupon the land shall be held in trust on terms which would have been requisite for giving effect to the beneficial interests if there had been an actual severance.”

Case law

There are numerous relevant authorities, which are very briefly summarised as follows:

Burgess v Rawnsley [1975]

H and R bought a house in 1967 as joint tenants. They never married or cohabited. R agreed to sell her share in the house to H for £750 but subsequently refused to sell. H died in 1971. Held: the beneficial joint tenancy had been severed by R’s oral agreement to sell her share to H.

Harris v Goddard [1983] 1 WLR 1203, CA

The prayer in the petition sought inter alia “that such order may be made by way of transfer of property and/ or settlement or property and / or variation of settlement in respect of the former matrimonial home ... and otherwise as may be just”.

It was held that:

• the prayer in the petition did no more than invite the court to consider at some future time whether to exercise its jurisdiction under s24 of the MCA 1973; and
• when a notice is served pursuant to LPA 1925, s36(2) it takes effect forthwith, so a notice to sever must evince an intention to bring about the wanted result immediately. A notice expressing a desire to bring about the wanted result at some time in the future is not a notice in writing within s36(2).

In contrast, In re Draper’s Conveyance [1969] was said to be an example of how starting legal proceedings can sever a joint tenancy. The wife issued a summons under s17 of the Married Women’s Property Act 1882 seeking an order that a house in the spouses’ joint names be sold and the proceeds of sale distributed in accordance with their respective interests. Her affidavit stated in part “ ... I humbly ask that the said property may be sold and that the proceeds of sale thereof may be distributed equally; alternatively that the respondent pay me one half of the value of the said property with vacant possession...”

Gore and Snell v Carpenter (1990)

Held: negotiations aiming to reach terms of settlement to be recorded in an order for ancillary relief did not sever the relevant joint tenancies in the absence of a concluded agreement, even where there was an agreement in principle to transfer one of the jointly owned properties to each spouse, subject to agreement on issues relating to possible capital gains tax liability. Nor was there a course of dealing. Negotiations are not the same thing as a course of dealing. A course of dealing is where over the years the parties have dealt with their interests in the property on the footing that they are interests in common and are not joint.

McDowell v Hirshfield Lipson & Rumney and Smith [1992]

Held: a course of dealing does not suffice to sever a joint tenancy, unless both parties clearly evinced an intention to hold the property thenceforth in common and not jointly. Negotiations in which each spouse suggested a sale and division of the proceeds did not suffice.

Hunter v Babbage [1994]

An agreement was reached in December 1989 and a consent order drawn up to the effect that the property was to be sold forthwith and the proceeds of sale divided in an agreed proportion. H died on 5 April 1990. Held: this agreement severed the joint tenancy.

Edwards v Hastings [1996]

Prior to divorce H and W agreed to sell the house and divide the proceeds 75:25. After divorce, they were advised to sever the joint tenancy, but decided it should continue until sale. W died before sale.

Held: The judge was wrong to find that, by defining shares which they would eventually take, they divided those shares and ended the joint tenancy. There was no rule of law that agreement to share the proceeds of a future sale had the effect of severing the joint tenancy. The parties’ intention was what mattered. The property vested in H as sole beneficial owner.

Wallbank and Wallbank v Price [2007]

Held: a handwritten document signed by the wife amounted to an agreement to sever the joint tenancy. Obiter at [51] it is a contradiction in terms to describe one of two joint tenants as owning a beneficial half-share in the property.

B v B - judgment

The wife succeeded on the preliminary issue. The district judge ruled that the matters relied on by the claimants amounted to counsel’s submissions on behalf of their respective clients that the starting point for the divorce court in exercising its matrimonial jurisdiction should be that each party had an equal share in the property.

There was no evidence that either party or their legal advisors turned their minds to the question of severance and there was no reason within the context of the ancillary relief application why they should have done so, as it was irrelevant to that application. Whether the deceased should have been advised to serve a notice of severance was another matter.

There was not a sufficient course of dealing to amount to severance. There were no negotiations prior to the final hearing, nor was there a written agreement which evinced an intention by one to release that party’s interest in the Property to the other. The district judge was not satisfied, as a matter of law, that any reference by one of two joint tenants to owning a beneficial half share in the property was evidence of an intention to sever the joint tenancy. There must be a clear intention to sever by the parties.

As to notice of severance, LPA 1925, s36(2) requires a joint tenant to desire to sever a joint tenancy. In this case there was no evidence that either spouse had any desire to sever the joint tenancy or that they even considered the same. Even if they had, written submissions made by counsel in ancillary relief proceedings without instructions to sever a joint tenancy did not have that effect.

The wife obtained a declaration that she was the sole beneficial owner of the property and an order the claimants pay her costs, which greatly reduced the deceased’s estate and, accordingly, the children’s inheritance.

Practice points

• A failure to sever a joint tenancy during ancillary relief proceedings can cause dramatic and unexpected consequences. The client should always be advised of the possibility of severing and the risk of not doing so.

• Either side can sever any time by serving a notice of severance. The authorities show how risky it would be to rely on documents produced during the proceedings as evincing an intention to sever.

• A request for the court to make a property adjustment order is unlikely to amount to a severance, but a written request for sale and division according to the parties’ beneficial interests may be held to do so.

• Even a concluded agreement to sell and divide the proceeds does not necessarily result in severance, where the parties’ intention is not to that effect.

• Form E: careful thought should be given to filling in the sections on the family home and order sought. For example, the legal interests in co-owned property are by definition joint, while the beneficial interests could be held jointly or in common.

• Similar issues may arise in the context of cohabitants’ disputes under the Trusts of Land and Appointment of Trustees Act 1996, with one difference being that the court has no discretion to adjust property rights in such cases, so that distribution of the proceeds of sale will necessarily be according to the beneficial interests in the property (subject to any equitable accounting).

• Where property has passed under the right of survivorship, it is nonetheless possible for family (including spouses and former spouses) and dependants to apply for provision under s2 of the I(PFD)A 1975 and to seek an order under s9 that the deceased’s severable share of the property, at the value thereof immediately before his death, shall, to such extent as appears to the court to be just, be treated as part of the estate.

Cases

Burgess v Rawnsley [1975] 1 Ch. 429, CA

Harris v Goddard [1983] 1 WLR 1203, CA

In re Draper’s Conveyance [1969] 1 Ch. 486

Gore and Snell v Carpenter (1990) 60 P&CR 456, Ch D

McDowell v Hirshfield Lipson & Rumney and Smith [1992] 2 FLR 126, QBD

Hunter v Babbage [1994] 2 FLR 806, Ch D

Edwards v Hastings [1996] NPC 87, CA

Wallbank and Wallbank v Price [2007] EWHC 3001, Ch D, [2008] 2 FLR 501

This article first appeared in Family Law Journal no. 108, July / August 2011 – a Legalease Ltd publication.