Insights

A Tale of Unequal Halves


05/04/2012

A tale of unequal halves would appear to be a contradiction in terms. However, this is certainly not the case when it comes to the joint ownership of property.

As times are changing and more and more couples are taking the modern day decision to co-habit, the Supreme Court decision in Jones v Kernott 2010 (J v K), which was handed down on 9 November 2011, has had a significant impact not only on married couples, but also co-habitees.

There are two ways in which more than one person can hold land: as joint tenants or as tenants in common. Where land is held as joint tenants, upon death of either of the owners, the deceased’s share in the land automatically passes to the surviving owner. Where the land is owned as tenants in common, upon the death of one of the owners, the deceased’s share passes in accordance with the terms of the deceased’s will or, in the absence of any will, the law of succession.

It is prudent in circumstances where owners wish to own the land as tenants in common to enter in to a declaration of trust. A declaration of trust clearly identifies each party’s beneficial interest in the property.

Prior to the recent Supreme Court decision in J v K, the leading case of Stack v Dowden [2007] identified that the starting point when considering the ownership of property is that the property is owned as joint tenants in both law and equity. This presumption can be displaced provided that there is evidence showing that the parties’ common intention was different to when they purchased the property or later on. Where it can be clearly identified that the parties did not intend for a joint tenancy to be put in place, or their original intention had changed, but it is not possible to ascertain what their actual intention was, it is determined that each party is entitled to a share which the court considers to be “fair” having regard to all of the surrounding circumstances.

The Supreme Court decision in J v K illustrates how beneficial interests in a property held under a joint tenancy can change over a period of time. In the leading case of J v K, a co-habiting couple who were not married, purchased a property as joint tenants in 1985. The entirety of the deposit was provided by Miss Jones (J). In 1993, the relationship between the co habitees broke down and Mr Kernott (K) moved out of the property and ceased payment of all contributions towards the cost of running the property. K went on to purchase a property in his sole name. In 2006, after twelve years of separation, K made the decision to claim his share in the original property purchased with J. K made a successful application to sever the joint tenancy in order to claim a half share in the property. At the time that J and K had purchased the property, no express declaration had been set out with regard to their respective shares in the beneficial interest of the property.

Lord Walker and Lady Hale inferred that K would only be entitled to own 10% of the beneficial interest in the property after he had left the property, following the separation from J, and ceased to make any contribution towards the running costs of the property. The Court reached the decision that it would be “fair” to impute that K was only entitled to a 10% share of the beneficial interest.

This has brought to light the importance of dealing with the practicalities of co habitants and indeed, married couples, who may face separation. It is of course not something that any co-habitees or married couples wish to dwell on, but it is something that should be addressed in order to avoid any potential difficulties in the future.

The case law on this issue is far from being simple. The key rule for both married couples and co-habitees looking to purchase property jointly is to ensure that the intended shares of ownership are clearly set out at the start of the transaction. The intended shares can be clearly identified in a declaration of trust or alternatively in the transfer deed, which is the legal document which conveys the property. It is paramount to ensure that the situation is regularly kept under review, as J v K illustrates a joint tenancy can quite easily be severed at any point in time.

It has not yet been addressed whether any change of the common intention of the parties can exist, if there is an express declaration of trust in place or specific provision has been made in the transfer deed, as to the specific shares owned in the property. That is not to say that the position will not change in the future should further case law arise concerning the issue.

Presently, in order to safeguard your beneficial interest in your property, always ensure that a declaration of trust has been entered into and clearly identifies each party’s respective shares in the property. Do not leave it to chance!

Gordon Dadds