Transcript Severance and Ending Coownership Cameron Stewart Thanks to Jim Helman and Shae McCrystal – errors are mine (c) Cameron Stewart 2009

Severance and Ending Coownership
Cameron Stewart
Thanks to Jim Helman and Shae
McCrystal – errors are mine
(c) Cameron Stewart 2009
Severance of Joint Tenancy
• A joint tenant can change the nature of their
co-ownership from joint tenancy to tenancy in
common. This will not terminate the coownership, (unless the method used to
change the nature of the ownership involves
divesting of the interests) it will simply change
the nature of the co-ownership from joint
tenancy to tenancy in common.
(c) Cameron Stewart 2009
Unilateral Severance of Joint Tenancy
• The unilateral severance of the joint tenancy deprives the other co-owners
of the right of survivorship to the portion of the land that is severed, but
equally the severing co-owner loses the right of survivorship with respect
to a portion of the land now belonging to the other joint tenants.
• There is no duty not to sever- co-owners are not fiduciaries
• In Public Trustee of the ACT v Hall [2003] ACTCA 27, a surviving co-tenant
(Hall) tried to argue that a unilateral severance undertaken by his former
wife in respect of their co-owned property was ineffective because she
had severed the joint tenancy in breach of her obligations to him as cojoint tenant. In effect, Hall argued that joint tenants were in a fiduciary
relationship and if one co-tenant tried to sever the co tenancy without
notice or consultation, they would be severing in breach of that
relationship. The ACT Court of Appeal unanimously rejected that
argument citing long established principles that joint tenants are not in a
fiduciary relationship and are entitled to unilaterally pursue their own
interests by severing the joint tenancy without giving notice to, or getting
permission from, their co-owner.
(c) Cameron Stewart 2009
Ways to sever
• One joint tenant alienates his or her share
inter vivos, with or without the consent of the
other joint tenants.
• They can do this by transferring their interest
to a third person, to themselves, by declaring
a trust over their interest or by transferring
the interest to a trustee to hold on trust for
someone else or themselves.
(c) Cameron Stewart 2009
Ways to sever
• Old System Land - s 30 of the Conveyancing Act 1919
(NSW) states that where a person causes the unilateral
severance of a joint tenancy in old system land, notice
of the unilateral severance must be given to the other
co-tenants as soon as practicable, although a failure to
do so will not invalidate the severance.
• Torrens Land – s 97 of the Real Property Act 1900
(NSW) requires the Registrar General to notify the
other joint tenants of the lodgement of a dealing that
may sever the joint tenancy.
(c) Cameron Stewart 2009
Ways to sever – alienation to self
• A simple way of unilaterally severing a joint tenancy is to alienate
the land to yourself. The CA s 24 empowers a person to assume
property to himself or herself.
•
In order to make this effective to sever the joint tenancy, it must
comply with the legal requirements and equity WILL NOT perfect an
incomplete severance.
• Old System Land – To alienate the land to oneself under old system
land, the severing joint tenant had to use a valid deed.
• Torrens – To alienate land to oneself, the severing joint tenant must
register a transfer of the interest to themselves.
(c) Cameron Stewart 2009
Ways to sever – transfer and
settlement of trust
• Corin v Patton (1990) 92 ALR 1: Mr and Mrs Patton were joint
tenants of Torrens title land, and Mrs Patton became seriously ill.
Anticipating her own death she decided she wanted to benefit her
children. She attempted to transfer her interest as joint tenant to
her brother, Mr Corin, to hold the interest as trustee for the benefit
of Mrs Patton. If this was effective it would sever the joint tenancy
enabling her to pass her beneficial share of the property through
her will. Unfortunately there was no transfer registered before Mrs
Patton died, and so the issue was whether the transfer to her
brother as trustee for herself was effective in equity to sever the
joint tenancy. The High Court found that the gift was ineffective
because, while Mrs P had signed a transfer form, she had not taken
any steps to obtain the certificate of title that was held by an
unregistered mortgagee. Thus, on Mrs Patton’s death the survivor,
Mr Patton, took the whole interest.
• Rule in Milroy v Lord
(c) Cameron Stewart 2009
Severance – grant of mortgage over
share
• A legal mortgage by the joint tenant under general law constitutes
alienation because the mortgage transfers the legal title to the
mortgagee. This has the effect of breaking the co-ownership because
the mortgagee becomes the owner. On the other hand, a Torrens
mortgage does not constitute alienation, because a mortgage of
Torrens title land operates as a charge only and not as a transfer of the
interest mortgaged.
• Interestingly, if the mortgaging joint tenant dies before the other, the
charge ceases to be effective because the interest over which the
mortgage was granted has ceased to exist (right of survivorship –
surviving JT takes all);
• Alternatively - If the non mortgaging JT dies, the mortgage then applies
to the whole of the interest owned by the surviving joint tenant. Ie –
the whole estate will then be encumbered by the mortgage.
(c) Cameron Stewart 2009
Severance – grant of mortgage over
share
• In Lyons v Lyons [1967] VR 169 the Court considered a claim
by the executors of the estate of William Lyons that they were
entitled to an interest as tenant in common with Hazel Lyons
as a result of a severance of the joint tenancy by the conduct
of the applicant and her late husband or by agreement or by
William granting a mortgage over his estate and interest in the
land to Adelaide Gray.
• After considering the issues, the Court held that where land is
held under the Victorian equivalent of the Real Property Act a
joint tenancy is not severed by a mortgage given by one of the
joint tenants and the mortgagee’s security in the land lapses if
the mortgagor dies before the surviving joint tenant.
(c) Cameron Stewart 2009
Severance – grant of mortgage over
share
•
•
•
•
Guthrie v ANZ Banking Group Ltd (1991) 23 NSWLR 672 – Mr and Mrs Guthrie were joint
tenants in a fee simple of Torrens Land. Mr Guthrie gave a guarantee over the
indebtedness of a company he was involved in, and to secure the guarantee, he gave the
ANZ Bank a mortgage over his portion of the property. Subsequently, the Guthries
marriage broke down, and in the divorce proceedings it was determined that Mr Guthrie
would ‘release’ his share of the property to Mrs Guthrie so that she would become the
sole owner. The question for the court was whether or not the charge over Mr Guthries
share in the joint tenancy survived the release of his share to Mrs Guthrie:
Where judgment is given against one of two joint tenants and afterwards that one
releases to the other before execution such release shall not bar the creditor’s execution,
whereas if the releasing joint tenant had died before the execution the survivor holds the
land discharged of any execution. The reason for the distinction is that in the former case
the releasee derives title from the release…. (per Meagher J at 680)
So the answer is – yes it did – a mortgage will travel with an inter vivos release to the
other joint tenant.
In his judgment, Justice Priestley notes that this outcome was necessary to ensure that a
joint tenant would not have a simple mechanism to frustrate creditors – giving someone a
statutory charge and defeating it simply by surrendering their share of the property to
their joint tenant.
(c) Cameron Stewart 2009
Severance – lease
• Whereas English authority favours the view that a
lease granted by one joint tenant constitutes
alienation, Australian authority tends to favour the
view that a lease suspends rather than severs the
joint tenancy. Here, the joint tenancy revives upon
the ending of the lease: Lyons v Lyons
• Obiter – Wright v Gibbons (1949) 78 CLR 313 per
Dixon J at 330: “One joint tenant for an estate in fee
simple may grant a lease of his equal share and
during the lease the jointure is suspended and there
is a temporary severance”.
(c) Cameron Stewart 2009
Ways to sever – agreement
• Where all of the parties to a joint tenancy agree between
themselves to sever the joint tenancy, equity will enforce the
agreement although it is ineffective to sever the joint tenancy at
law. In contract terms, each joint tenant agrees to give up their right
of survivorship in consideration for agreement of the others to give
up theirs – thus all parties have provided consideration for the
agreement. Agreement to sever a joint tenancy can appear in a
formal document, an informal document or an oral agreement. The
elements of specific performance do not have to be present. As
long as equity can distil an intention to sever from the parties
agreement, it will enforce the severance.
• The necessary intention to sever from an agreement can be found
in agreed terms that demonstrate that the parties were treating the
property as if it had distinct and divided shares – which is
inconsistent with a continued right of survivorship.
(c) Cameron Stewart 2009
Ways to sever – agreement
• Gould v Kemp (1834) 39 ER 959 – A and B were
joint tenants. B purported to dispose of B’s
interest in the estate under B’s will (which would
be ineffective to sever the joint tenancy).
However before B died, A and B entered into and
agreement that A would, after B died, honour the
terms of B’s will. This would be an agreement
between the parties that demonstrates that they
agreed to treat the property as if it had distinct
shares.
(c) Cameron Stewart 2009
Ways to sever – sale to each joint
tenant
• Wright v Gibbons (1949) 78 CLR 313 three sisters, Olinda Gibbons,
Ethel Rose Gibbons and Bessie Melba Gibbons were registered as
joint tenants in land at Hobart. By a Memorandum of Transfer Ethel
Rose Gibbons transferred to Olinda Gibbons her one- third share
and Olinda Gibbons transferred to Ethel Rose Gibbons her one-third
share in the land.
• Upon registration the Certificate of Title was endorsed to show that
the three owners were registered as tenants in common in equal
shares. Bessie Melba Gibbons who survived both Olinda and Ethel
Rose, approached the Court for a declaration that the
Memorandum of Transfer did not sever the joint tenancy and that
she became solely entitled to the land as proprietor.
• The matter came before the High Court on appeal and the Court
held that the Transfer did effect a severance of the joint tenancy
and that Olinda, Ethel Rose and Bessie Melba were tenants in
common upon registration of the Transfer.
(c) Cameron Stewart 2009
Severance by conduct
• Course of conduct – If you can’t show an actual
agreement about severance, you may be able to
show a course of conduct which demonstrates
that all parties were acting on a commonly held
belief or assumption that they had distinct shares
in the property and therefore they were tenants
in common. You have to show a course of
conduct engaged in by all of the joint tenants that
intimates that ‘the interests of all were mutually
treated as constituting a tenancy in common’.
(c) Cameron Stewart 2009
Severance by conduct
• Butt gives the following examples:
• Continuously dividing the income from jointly owned property;
• Division of the proceeds of the sale of the property between the coowners (before settlement has terminated the jt)
• The creation of ‘mutual wills’ which devise the interests in the
jointly held property in an agreed manner – ie all co-owners make
wills at the same time, leaving the property to the same people.
While you have nothing to pass in your will if you are not the final
survivor, equity will enforce the agreement evidenced by the
mutual wills if the final survivor changes his will after benefiting
from the survivorship
(c) Cameron Stewart 2009
Severance by conduct
• Williams v Hensman (1861) 70 ER 862, Sarah Creak
died leaving £4,000.00 to her trustee to fund a legacy
of £200.00 per year for a Mrs Hensman and providing
for the principal sum to be divided between Mrs
Hensman and eight children on her death.
• The question for determination by the Court was
whether the joint tenancy created by the gift in the
Will had been severed by the various events that
occurred following the death. Vice-Chancellor Sir W.
Page Wood found that parties had entered into deeds
and arranges their affairs in ways which were not
reconcilable with a joint tenancy:
(c) Cameron Stewart 2009
Severance by conduct
• Vice-Chancellor Sir W. Page Wood:
....there may be a severance by any course of dealing
sufficient to intimate that the interests of all were
mutually treated as constituting a tenancy in common.
When the severance depends on an inference of this
kind without any express act of severance, it will not
suffice to rely on an intention, with respect to the
particular share, declared only behind the backs of the
other persons interested. You must find in this class of
cases a course of dealing by which the shares of all the
parties to the contest have been effected, as happened
in the cases of Wilson v Bell and Jackson v Jackson.
(c) Cameron Stewart 2009
Severance by conduct
• Burgess v Rawnsley [1975] 1 Ch 429 a property was
purchased by a Mr Honick and a Mrs Rawnsley. While
the property was purchased by Mr Honick in his name,
the purchase price was paid by Mr Honick and Mrs
Rawnsley equally. The house consisted of 2 flats, an
upstairs flat and a downstairs flat, with Mr Honick
occupying the downstairs flat. It was Mrs Rawnsley’s
intention that she would occupy the upper flat. Shortly
after the Contract was signed Mr Honick instructed his
solicitor to have the property conveyed into the joint
names of himself and Mrs Rawnsley and this occurred.
(c) Cameron Stewart 2009
Severance by conduct
• At this point the legal estate and the beneficial
interests were both held as joint tenants. The
following summary of the facts is set out in the
judgment of Lord Denning, M R:
... In July 1968, being disappointed in his hopes of
marriage, Mr Honick wanted Mrs Rawnsley to sell him
her share in the house. He came to an agreement with
her, as he thought, to buy it for £750. He went to his
solicitor and said to him “Mrs Rawnsley is not going to
marry me, but she has agreed to take £750 for her
interest.” He handed the conveyance to the solicitor
for him to draw up the necessary document.
(c) Cameron Stewart 2009
Severance by conduct
The solicitor thereupon wrote to Mrs Rawnsley on July 1, 1968, this letter:
Dear Mrs. Rawnsley.
re 36 Queens Road, Waltham Cross.
Mr. Honick called to see us today stating that you are agreeable to convey to him
your interest in this property for the sum of £750. Will you please confirm that this
is so and we will then finalise the matter and ask you to call upon us to collect
those moneys and to sign the final deed.
Next day, however, Mrs Rawnsley went to the solicitors and said she was not willing to
sell. She was not satisfied with £750 but wanted £1,000. Mr Honick told his
daughter that Mrs Rawnsley was going “to ask a thousand which he was not going
to pay.
A few days later Mr Honick went to the solicitor and told him to leave things as they
were. He asked for the conveyance back and got it. From that time onwards things
went on as before, with Mr Honick in his house alone, and she in hers; but both
visited one another, being quite friendly. He paid all the rates and outgoings of his
house. This went on for three more years until he died on October 26, 1971.
(c) Cameron Stewart 2009
Severance by conduct
• Considering the law and earlier cases at some length,
Lord Denning came to the following conclusion:
• ... I think there was evidence that Mr Honick and Mrs
Rawnsley did come to an agreement that he would buy
her share for £750. That agreement was not in writing
and it was not specifically enforceable. Yet it was
sufficient to effect a severance. Even if there was not
any firm agreement but only a course of dealing, it
clearly evinced an intention by both parties that the
property should henceforth be held in common and
not jointly.
(c) Cameron Stewart 2009
Severance by court order
• A court has no inherent jurisdiction to adjust property
rights, but it may effect a severance as a result of a court
order that affects the property: clearest example is
• eg Family Law Act 1975 (Cth); Property Relationships Act
1984 (NSW). These orders are generally made in the
context of a breakdown in family relationships and the
courts exercise statutory power to adjust property rights.
• If one party dies before a court order can be given legal
effect through a transfer, equity will compel the finalisation
of the court orders as equity will not permit a court order
to be frustrated.
(c) Cameron Stewart 2009
Severance by operation of law
• Under the Bankruptcy Act 1966 (Cth), the
property of a bankrupt person vests in the
trustee-in-bankruptcy, and if the bankrupt
person holds property as a joint tenant, the
transfer of the bankrupt’s notional share to
the trustee-in-bankruptcy, automatically
severs the joint tenancy and converts the coownership to tenancy in common.
(c) Cameron Stewart 2009
Severance by merger
• Severance also occurs where one of the joint
tenants acquires a further estate in the land
different from the existing estate. This breaks
the unity of interest. ie A and B are joint
tenants of a life estate. If A subsequently
acquires the fee simple remainder of the
estate, then A’s life estate merges with the fee
simple remainder and there is no unity of
interest between A and B.
(c) Cameron Stewart 2009
Severance by unlawful killing
• If a joint tenant unlawfully kills another, the
perpetrator cannot benefit as a survivor. This
is an aspect of a broader principle that a
person may not benefit from their crime.
Thus if A and B hold property as joint tenants,
and A kills B, then A holds legal title as
survivor, subject to a constructive trust in
favour of him/herself and B’s estate as tenants
in common
(c) Cameron Stewart 2009
Severance by unlawful killing
• Permanent Trustee Co Ltd v Freedom From
Hunger Campaign (1991) 25 NSWLR 140 that
“the public policy rule was said not to
disqualify the killer from benefiting from the
victim’s property unless the killing was done
with the intent to bring about a benefit”.
(c) Cameron Stewart 2009
Severance by unlawful killing
• Troja v Troja (1994) 33 NSWLR 269, held that
irrespective of the mitigating factors, a person who kills
another should not benefit from that crime. In this
case a wife who killed her husband while in a state of
depression brought on by the husband's conduct could
not benefit from the joint tenancy she held with her
husband.
• In response to this strict line taken by the courts the
NSW Forfeiture Act 1995 was enacted. The legislation
gives the Supreme Court power to modify the effect of
the forfeiture rule following unlawful killing if “justice”
so requires, but murder (as opposed to manslaughter)
is excluded from the operation of the Act.
(c) Cameron Stewart 2009
Effect of severance on co-ownership
• Where there is more one joint tenant, severance by one joint tenant will
not affect the joint tenancy of the remaining joint tenants. Instead the
severing joint tenant will hold with the remaining joint tenants as a tenant
in common.
• Let's look at some examples:
X and Y are joint tenants of land, and X transfers her interest to Z
The effect is that Z and Y become tenants in common of half shares
A, B and C hold as joint tenants and A transfers her share to D
The effect is that D holds a one-third share as tenant in common with B
and C, and B and C hold the two-thirds share as between themselves as
joint tenants. Thus the survivor of B and C would take the whole of the
two-thirds share, but B and C would be unaffected by D's death, and D
would be unaffected by the death of B or C.
(c) Cameron Stewart 2009
Effect of severance on co-ownership
• A, B and C hold as joint tenants. A transfers her
interest to B and B transfers her interest to A. C does
not participate.
• The effect of the first conveyance (from A to B) is that B
held a one-third share as tenant in common, and B and
C held the remaining two-thirds share as joint tenants.
The effect of the second conveyance - B conveying to A
the interest that B held as a joint tenant with C - was to
sever the joint tenancy between B and C. Thus A, B and
C held equal shares as tenants in common. These were
the facts of Wright v Gibbons (1949) 78 CLR 313.
(c) Cameron Stewart 2009
Bringing Co-Ownership to an End
Co-ownership may be terminated in any one of the following ways:
• All but one of the joint tenants has died (or has been murdered by
another co-owner), possibly leaving the surviving co-owner with
the entire estate;
• One of the co-owners may buy or otherwise acquire the interests of
all of the other co-owners;
• All of the co-owners may transfer the property to a single thirdparty;
• All of the co-owners agree to divide the property into their
respective shares; or
• If the co-owners cannot agree to divide the property into their
respective shares, there is a statutory procedure for court ordered
sale or physical partition of the land involving the creation of
separate titles to the land. (Conveyancing Act 1919 NSW s 66G).
(c) Cameron Stewart 2009
Partition
• Section 66G(1) which provides:
Where any property (other than chattels) is held
in co-ownership the court may, on the application
of any one or more of the co-owners, appoint
trustees of the property and vest the same in
such trustees, subject to incumbrances affecting
the entirety, but free from incumbrances
affecting any undivided shares, to be held by
them on the statutory trust for sale or on the
statutory trust for partition.
(c) Cameron Stewart 2009
Partition
• The scheme provides that the court may appoint trustees over the
property, and the property in the estate will vest in the trustees for
the purposes of partition or sale of the property. In the vast
majority of cases the court will make an order for partition or sale
on application by a co-owner unless there is some reason in law or
equity that suggests that the sale is inappropriate (interest of a
third party would be prejudiced; applicants conduct raises an
estoppel etc). However the court will not refuse to order partition
or sale just because one co-owner does not want it to happen or
argues that it will cause them hardship or be unfair.
• The presumption under the legislation is in favour of the sale of the
property (and a co-owner may be given a chance to buy it) over
partition because partition involves physically dividing the land and
creating new titles – a process that may be inconvenient or
decrease the value of the land overall.
(c) Cameron Stewart 2009
Partition
• It is important to note subsection (1A). This provides
for proceedings to stay on foot even if the co-owner
who has commenced the proceedings dies during the
course of the proceedings. The section is expressed to
apply “despite, in the case of a joint tenancy, the rule
of survivorship.”
• Trustees for sale appointed by the Court have certain
obligations:
• To sell at the best price possible, usually after
obtaining a valuation.
• To sell the property expeditiously, given the
obligation to obtain the best price
(c) Cameron Stewart 2009