Co-Ownership - Severance and Termination

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This article is a topic within the subject Property, Equity and Trusts 2.

Contents

Required Reading

Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008, pp. 658-675 [6.48-6.80].

Severance of a Joint-Tenancy

[1] Joint tenancies can be severed to avoid survivorship (this must be done prior to the co-owner's death). A severed joint-tenancy becomes a tenancy in common.

There are six ways to sever a joint tenancy:

  1. The joint-tenant severs himself unilaterally.
  2. An agreement to sever is reached between all parties.
  3. A mutual intention to bring the joint tenancy to an end is evinced in a course of dealings.
  4. By a court order.
  5. By a homicide committed by one joint tenant against another
  6. On bankruptcy.

Severance by Unilateral Act

[2] unilateral action is only sufficient if the unity of title is destroyed, which means that the interest must be disposed of (eg, transferred or gifted).

This was discussed in Corin v Patton:

  • What is needed is an effective disposition of the interest. A declaration of an intention to sever or some act inconsistent with the continuation of the joint tenancy are not enough when they are unilateral.
  • "as a matter of history and principle, the severance of a joint tenancy can only be brought about by the destruction of one of the so-called four unities...Unilateral action cannot destroy the unity of time, of possession or of interest unless the unity of title is also destroyed, and it can only destroy the unity of title if the title of the party acting unilaterally is transferred or otherwise dealt with or affected in a way which results in a change in the legal or equitable estates in the relevant property. A statement of intention, without more, does not affect the unity of title."

Severance by a unilateral action occurs in 3 different ways:

  1. By alienation to a third-party.
  2. By Alienation to self.
  3. BY a declaration of trust.

Alienation to a Third-Party

[3] If a joint-tenant alienates his interest to a third-party, the unity of time between the third-party and the other joint-tenants is destroyed, and the third-party becomes a tenant in common. This can involve the alienation of the joint tenant’s entire interest or only a part of it.

These principles originate from Wright v Gibbons:[4]

  • Facts: 3 sisters were joint-tenants. Two of them attempted to sever by registering a document where each transfers their interest to the other.
  • Held: the registration of the transfer was effective to bring about severance. They all became tenants in common. A transfer of one's interest severs joint-tenancy.
    • If there there were more than two joint-tenants, than only the severed tenant becomes a tenant in common, with the others continuing to be joint-tenants with regards to their share of the property (ie, the property minus the tenant in common's share).
    • Obviously if there are only two joint-tenants and one severs than they must both become tenant in common since the non-severing party has no one to be joint-tenant with.

Alienation to a third-party can occur both in law (transfer is effective at law once it is registered) and in equity (through a specifically enforceable contract or by means of a gift).

Alienation to Self

A a joint-tenant may transfer his interest to himself in order to sever the joint-tenancy. This is provided for in legislation:

  • Old system land - s 24 of the Conveyancing Act 1919 (NSW).
  • Torrens land - s 97 (1) of the Real Property Act 1900 (NSW).
    • The other joint tenants must be notified by the Registrar General.[5]
    • The Registrar General may require the names and addresses of other joint tenants and a statement by the party seeking to sever that they are unaware of any limitation on the right to sever.[6]

Declaration of Trust

[7] A joint-tenant may declare that they henceforth hold their interest property on trust for designated beneficiaries. Since this alienates the equitable interest in the property to another, it severs the interest in equity.

  • As per the usual requirements regarding trusts and land, a declaration will only be effective if made in writing signed by the person entitled to the property.[8]
  • This mode of severance is a way of circumventing the Torrens requirements of registration which may involve problems of delay in the face of an uncooperative tenant.

Does Grant of a Mortgage or a Lease Sever?

[9] A mortgage of Torrens land by a joint tenant does not by itself sever the joint tenancy.[10]

  • In old system, a property is mortgaged by transferring the fee simple to the mortgagee. Share of the property is thus alienated.
  • In Torrens, this is not the case because legal title is not transferred. Rather, a new mortgage interest is created, in someone who is registered.

A lease granted by a joint tenant does not sever the joint tenancy but rather suspend it.[11]

Severance by Mutual Agreement

[12] A joint tenancy will be severed if the co-owners mutually agree to sever.[13]

  • As per the requirement that an agreement regarding land must be in writing, severance will only be effective at law if the agreement was in writing.[14]
  • Latest authority suggests that an oral agreement will still sever the interests in equity.[15]

Family Arrangements

Severance by mutual agreement over arises in situations where a married couple (who are joint-tenants of a property) separate.

This was discussed in Re Pozzi:[16]

  • Facts: couple separated, made an agreement (registered under the Family Lact Act) that the wife can live in it until so and so happens, at which point they will sell and divide the proceeds. The husband died before it happened.
  • Held: the joint-tenancy was severed from the moment of the agreement (regardless of the conditions being satisfied etc). The half-share passed to the husband's estate.

In Calabrese v Miuccio (No 2),[17] an oral agreement to split proceeds of a joint bank account was held to sever the joint tenancy by mutual agreement (USG notes: agreement not involving land therefore writing isn't required).

These issues were also discussed in Abela v Public Trustee:[18]

Facts: a couple separated and sought to sell the house, dividing the proceeds. It was decided that first the house will be sold, and later on the parties will reach an agreement regarding their relevant proportions of shares in the property (and now the proceeds). The husband died before this happened.

  • Held: the agreement severed the joint-tenancy. In absence of agreement as to shares in which joint tenancy should be split, the parties take equally.

Lastly, a final court order requiring one joint tenant to transfer his interest to the other (or requiring the jointly owned property to be sold and the proceeds equally divided) will effect severance.[19]

Severance by a Course of Dealing

[20] A joint-tenancy can be severed when a course of dealings or conduct between the parties evinces an intention to treat themselves as tenants in common.[21]

  • This requires conduct on behalf of all of the joint-tenants, since it was already explained above how mere conduct or an intention on behalf of one joint-tenant to sever is not sufficient.
  • A common example of such conduct or a course of dealings is when the joint tenants divide the income from the jointly-owned property into separate accounts.

Some other miscellanous rules regarding this method of severance include:

  • Negotiations to sever will not be sufficient if there was no utlimate consensus about sale.[22]
  • If an agreement to sever is not concluded because certain preconditions are not met, it will not constitute a sufficient course of dealing to sever.[23]
  • If an intention that the right of survivorship should continue exists, other things such as occupying separate floors and paying individually for the maintenance and improvement of the premises will not sever.[24]
  • The fact hat joint tenants have treated property as part of partnership assets for taxation purposes does not bring about a severance.[25]

Severance by Homicide

[26] In the case of a joint-tenancy where one joint-tenant kills another, equity intervenes to sever the homicidal joint-tenant's interest (thus making him a tenant in common). This is so that the wrongdoer could not profit by from survivorship (ie, he cannot kill a joint tenant and then get the property through surivorship).[27]

  • At law, the principle of survivorship will continue to operate, so that the wrongdoer will be entitled to the whole interest. However, in equity, a constructive trust will be imposed. This is the ‘forfeiture rule’.
    • If there was only one other joint-tenant (ie, the one who was killed), then the homicidal joint-tenant holds half of the interest on trust for the estate of the deceased joint-tenant.
    • If there were more joint-tenants, the other joint-tenants absorb the interest of the deceased joint-tenant through survivorship. In equity, the interests are held on trust for the relevant proportions. For example:
      • A, B and C are joint-tenants. A kills B. From a legal perspective, A and C are still joint-tenants, but in equity, A severs himself because of the homicide and thus only holds 1/3 as a tenant in common - the rest of what he legally owns is held on trust for C. This is because C claims survivorship over B and absorbs his interest, thus, in equity, holding 2/3 of the property as a tenant in common.

Courts have sought to restrict the operation of the rule in cases of reduced moral culpability on the part of the person responsible for the death.

  • The rule has been held not to apply where the joint tenants have died after a suicide pact on the ground that there was no intention to benefit from the killing.Permanent Trustee Co Ltd v Freedom from Hunger Campaign (1991) 25 NSWLR 140.
  • The rule does not apply in cases of self-defence or extreme provocation.[28]
  • The rule does not does apply to negligent driving of the other joint tenant .[29]

Furthermore, s 5 (2) of the Forfeiture Act 1995 (NSW) confers direct discretion on a court to vary the forfeiture rule if it is satisfied that justice requires the effect of the rule to be modified. However, the court has no discretion where the offender has been convicted of murder.[30]

Severance by Court Order

[31] There are two ways in which a court order may sever a joint-tenancy:

  1. Under the Family Law Act 1975 (Cth) the court has power to make orders in relation to property and hence include an order for severance of a joint tenancy.[32]
  2. By making an order for interest in the property to be transferred to a creditor for the purposes of enforcing a debt/mortgage.[33]

Severance Upon Bankruptcy

[34] An order of court declaring a joint tenant bankrupt will sever the joint tenancy. The bankruptcy of a joint tenant vests the joint tenant’s interest in land in the Official Trustee in Bankruptcy.

  • In law, property does not vest in the trustee until the statutory registration requirements have been met.[35]
  • But in equity, severance occurs on the declaration of bankruptcy.[36]

Termination of Co-Ownership

[37] Co-ownership may be terminated in two ways:

  1. By action of the parties
  2. By an order of sale or partition of the court


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References

Textbook refers to Edgeworth et all, Sackville and Neave's Property Law Cases and Materials, 8th edition, Lexis Nexis, 2008.

  1. Textbook, pp. 658-9 [6.48].
  2. Textbook, pp. 659 - 663 [6.49-6.54].
  3. Textbook, pp. 664-5 [6.55-6.56].
  4. (1949) 78 CLR 313.
  5. Real Property Act 1900 (NSW), s 97 (5).
  6. Real Property Act 1900 (NSW), s 97 (2) (b).
  7. Textbook, p. 665 [6.57].
  8. Conveyancing Act 1919 (NSW), s 23C (1).
  9. Textbook, pp. 665-6 [6.58].
  10. Lyons v Lyons [1967] VR 169.
  11. Frieze v Unger [1960] VR 230.
  12. Textbook, pp. 666-8 [6.59-6.62].
  13. Williams v Hensman (1861) 1 John & H 546.
  14. Lyons v Lyons [1967] VR 169.
  15. Abela v Public Trustee [1983] 1 NSWLR 308.
  16. [1982] Qd R 499.
  17. [1985] 1 Qd R 17.
  18. [1983] 1 NSWLR 308.
  19. Re Johnstone [1973] Qd R 347; Berdal v Burns [1990] WAR 140.
  20. Textbook, p. 668 [6.63-6.64].
  21. Williams v Hensman (1861) 1 John & H 546.
  22. Magill v Magill (1997) NSW ConvR ¶55-795
  23. Abela v Public Trustee [1983] 1 NSWLR 308.
  24. Greenfield v Greenfield (1979) 38 P & C R 570.
  25. Barton v Morris [1985] 1 WLR 1257.
  26. Textbook, pp. 668-9 [6.65-6.68].
  27. Rasminas v Jurewitsch [1968] 2 NSWR 166.
  28. Public Trustee v Evans (1985) 2 NSWLR 188.
  29. Gardner v Moore [1984] AC 584.
  30. Forfeiture Act 1995 (NSW), s 4.
  31. Textbook, pp. 670-1 [6.69].
  32. Family Law Act 1975 (Cth), s 79; s 87.
  33. Mitrovic v Koren [1971] VR 479; Guthrie v ANZ Banking Group; Harris v Walker.
  34. Textbook, p. 671 [6.70].
  35. Bankruptcy Act 1966 (Cth), s 58 (2).
  36. Re Holland: ex Parte Official Trustee in Bankruptcy (1988) 82 ALR 335.
  37. Textbook, p. 671 [6.71].
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