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Foundations of landlord and tenant law – part 2

Often people want to own property together. For example:

• A husband and wife may own their house jointly
• Business partners may own the lease for their shop premises together
• Brothers and sisters may be left a property jointly when their parents die
• Several friends may rent a property together on an assured shorthold tenancy

There are many other circumstances. However if you have lots of people owning the same thing it can get a bit tricky if they want to do different things with it. And what happens if one of the owners can’t be found and the others want to sell? This used to be a big problem. These are all matters which were dealt with so elegantly by the Law of Property Act 1925 – quite one of the most important property statutes in English law.

Legal and beneficial ownership

The heart and soul of joint ownership of property is the dividing up the ownership of property between (1) legal ownership and (2) the use and enjoyment of it. These are known by lawyers as the legal and beneficial interests in land. This is one of those all important legal concepts which have been developing over the centuries. It started way back in the middle ages in order to overcome some of the procedural difficulties at that time in transferring land from one person to another.

Fiddling with the Fransiscan formalities

For example, one early use was to provide grants to the Fransiscans (or friars), a religious order started by St Francis of Assissi (pictured left). Friars were forbidden by the rules of their religious organisation, to own land. However, there was nothing to stop someone putting the land or property in the name of, say a group of lawyers, as an early kind of charitable trust, for their benefit. This device came to be used in many different ways through the centuries, for example to avoid the rather strange rules in the middle ages forbidding property being passed by will, and later to enable the great landed estates to be kept in the family.

What we do now

The way this device is used by the Law of Property act (amended by the Trusts of Land and Appointment of Trustees Act 1996)  to deal with the joint ownership of land is as follows.

• When land is owned by more than one person, then unless there is some deed (legal document) to the contrary, they automatically own the ‘legal interest’ of the land on trust for themselves as beneficiaries

• Only four people can hold the legal interest to land. If there are more than four named on the deed (e.g. conveyance or tenancy agreement), the first four will be the legal owners, and will hold it on trust for themselves and the others.

• Minors (i.e. children under 18) cannot own a ‘legal estate in land’, although they can be (and often are) a beneficiary

• The legal owners of land will hold it as ‘joint tenants’. This is a type of ownership where all the owners own the land in the same way equally, and when one of the owners dies, their share of it passes to the other legal owners. So if the owners are Alan, Barbara and Colin, and Colin dies, the land will then, automatically, just be owned by Alan and Barbara. If Barbara then dies, the land will belong just to Alan.

• The beneficial ownership can be owned in more complicated ways. So for example the beneficial ownership can be held in a way (described by lawyers as ‘tenants in common’) allowing them to sell their part (or interest) in the land separately, or leave it to someone in their will.

• So lets say Alan, Barbara and Colin have a deed of trust drawn up at the time they buy their property, saying that it is held by them for themselves as tenants in common, with Alan having a 50% interest, and Barbara and Colin 25% each. If Barbara and Colin both leave their share to their children, Diana and Edward respectively, after their death Alan will only be entitled to 50% of the proceeds of sale if he sells the property. He will have to divide the other 50% between Diana and Edward.

• The legal owners of land will automatically own it on what is called a ‘trust for land’. (It used to be called a trust for sale but this was amended by the 1996 act).

• Two legal owners can sell the land. Even if there are actually more than two. This overcomes the problem people often had before the passing of the 1925 act, where one of joint owners could not be found meaning that the land could not be sold. Provided the purchaser is not conniving with the trustees to defraud the beneficiaries, he will in most cases be able to buy the land, free from any claims the beneficiaries may have. Provided at least two of the legal owners sign the conveyance / deed of transfer.

• After sale the beneficiaries ‘interest’ will pass to the proceeds of sale. So the beneficiaries will not lose out. For example depending on the circumstances the sale, the money can be divided between them, or invested to give them an income, or used to buy another property.

• If there is a dispute about whether to sell or not the person who wants to sell, can apply to the court for a court order for sale. Whether he gets it or not will depend on the Judge’s view of the situation and what he thinks would be right for the beneficiaries.

So trust law is inextricably mingled with land law, and if you own your property jointly with your spouse, you own it under a trust. Most joint ownerships are straightforward situations where there is no separate trust deed, meaning that both the legal and beneficial interests are held as joint tenants. This is convenient as it means that if, say, the husband dies, the wife then gets the whole of the property automatically. The same situation applies with tenancies. If Fred and Mary have both signed an assured shorthold tenancy as joint tenants, and then Mary dies, Fred will be the sole tenant. Next time I am going to look at a bit of legal history.

Photo credits – St Francis of Assisi from Wikimedia Commons