Co-Ownership
CHAPTER 16 Interests in land may be fragmented under the doctrine of estates. Where this occurs, different types of estates and interests are created over a single piece of land. For example, the owner of land may hold a fee simple reversion in the land whilst a third party retains a leasehold interest. Fragmentation under the doctrine of estates is based upon time: freehold estates exist indefinitely, whilst non-freehold estates must exist for a specified period of time. Interests in land may also be fragmented according to the jurisdiction in which they are enforced. Hence, an estate in land may be legal in nature or, where it is not recognised by the common law, it may be equitable in nature. Fragmentation of estates and interests must be distinguished from co-ownership. Co-ownership is not concerned with different types of estates and interests but rather with ownership of a single estate or interest by two or more persons. The focus of co-ownership is upon mutual ownership. Land cannot be regarded as co-owned just because a range of people claim different interests over the same land. A co-ownership relationship will only arise where two or more people claim ownership to the same interest in land. Each co-owner may hold an identical share in the estate or an aliquot part of the estate representing the amount of money they have individually contributed to the property. The fact that two or more persons own a single piece of land does not mean that the interest is no longer defined by the right to exclude. The interest is still property in the sense that the rest of the world can be excluded: each co-owner is not considered to be ‘the rest of the world’ but, rather, individual owners. Private property is defined by the right to exclude, and the power to exclude is conferred upon the owner, whether the owner be one, two or more persons. Hence, each co-owner acquires an individual in rem right in the land which is enforceable against all persons except other co-owners. The law concerning the rights and obligations of co-owners has become an increasingly important issue in a society where mutual ownership is thriving. Obviously, where the ownership of an interest in land is vested in a number of people, conflicts can arise concerning the proper management of the property. The principles existing under co-ownership law concern the status of the co-owner relationship and the character of the rights and duties owed by all co-owners of land. The determination of what form of co-ownership exists and whether it remains in existence is extremely important, because this can greatly affect the outcome of a co-owner dispute. The fundamental feature of all co-owner relationships is the joint right of each co-owner to possess the land. Where this right does not exist, the relationship cannot be truly defined as a co-ownership. Hence, the rights of several beneficiaries under a trust to the ownership of land cannot be described in terms of a co-owner relationship, because the beneficiaries are not entitled to an immediate right of possession. Once it is established that a mutual right of possession exists in a number of persons, the important issue to determine will be what form of co-owner relationship exists. There are two fundamental types of co-ownership: the joint tenancy and the tenancy in common. A joint tenancy can only exist where the rights and interests held by each co-owner are identical and satisfy what are known as the ‘four unities’. Where the four unities cannot be proven, but a joint right to possession exists, the co-ownership will generally constitute a tenancy in common. A joint tenancy is a form of co-ownership where each co-owner holds a part of the entire estate but not a separate, proportionate share. Each joint tenant is seised of the whole of the land, but cannot be regarded as holding an independent share. Hence, one joint tenant holds the whole estate jointly with the remaining joint tenants, but individually holds nothing except the right to jointly use, possess and enjoy the land subject to the like rights of the other joint tenant(s). The position has been aptly summarised by Latham CJ in the High Court decision of Wright v Gibbons (1949) 78 CLR 313 (pp 320–35): The interests of each joint tenant in the land held are always the same in respect of possession, interest, title and time. No distinction can be drawn between the interest of any one tenant and that of any other tenant… Logical as may seem the deduction that joint tenants have not interests which in contemplation of law are sufficiently distinct to assure mutually to one another, there are many considerations which show that, to say the least, the consequence cannot be called an unqualified truth… For purposes of alienation each is conceived as entitled to dispose of an aliquot share. As a general rule, a joint tenant cannot deal with the land in a manner binding upon the other joint tenants. For example, one joint tenant cannot, without the consent of the others, enter into a binding agreement to sell the whole of the land or mortgage the entire estate which will be binding upon the remaining joint tenants. A joint tenancy will not simply arise where two or more persons purchase land together. In order to establish a joint tenancy, two vital characteristics must be proven: it must be established that the four unities exist and the right of survivorship must apply. The essence of a joint tenancy is similarity and unity between all interest holders. Hence, where a joint tenancy exists, the interest of each joint tenant should be indistinguishable. Where each interest is in accordance with the four unities, the similarity in ownership is absolute. If the interest of a co-owner does not display an accordance with one or more of the unity requirements, the relationship cannot be properly described as a joint tenancy because each interest is not absolutely identical. The four unities are unity of possession, interest, title and time. (a) Unity of possession Unity of possession is a feature common to both a joint tenancy and a tenancy in common, as it is a basic requirement for all co-owner relationships. Unity of possession exists where each and every co-owner is entitled to possess the land. Possession in this sense does not refer to exclusive possession of a particular part of the land but, rather, a general right along with all other co-owners to occupy, use and enjoy the entirety of the land. Unity of possession confers an entitlement upon all co-owners to mutually use and possess the land. For example, if A, B and C hold a joint tenancy over land and A purports to lease her interest in the land over to X, there can be no co-ownership relationship between A, B and C. A retains a reversion interest in the land, for the duration of the lease and during this time she does not have any right to possess the land, as this has been conferred to X. Hence, no unity of possession exists between A, B and C. (b) Unity of interest The interest of each of the joint tenants must be identical in nature, extent and duration before a co-owner relationship can be properly characterised as a joint tenancy Unity of interest requires each co-owner to be jointly seised of exactly the same estate, acquired at exactly the same time. For example, if X, the fee simple owner of land, transfers an estate to A for the duration of his life and to B for 10 years, A and B do not take the land as joint tenants. This is because separate estates have been individually conferred upon A and B: A holds a life estate autre vie and B holds a leasehold estate. In this situation, no valid co-ownership will exist because it is not a case where two people hold an interest in the same land but, rather, where two separate estates have been conferred upon different parties. Furthermore, X could not pass a valid lease to B where she has already passed a life estate to A; X has no possession to confer to B. In order to satisfy unity of interest, it must also be proven that the interests of each joint tenant are identical in quantity. If one co-owner is given a two thirds interest in land whilst the remaining co-owner is given a one third interest, no joint tenancy can exist, even if the type of estate given is the same. However, the fact that one co-owner holds an additional future estate as well as the interest under the co-ownership does not mean that unity of interest does not exist. The interest which is relevant is that which is the subject of the actual co-ownership. Hence, if X and Y both hold an interest in land for the life of Z, the relationship may be a joint tenancy, even if X also retains the fee simple remainder. (c) Unity of title All parties must derive their interests from the same title, the same document, or the same act in order for a joint tenancy to exist. Where one co-owner acquired his interest by way of a different instrument or document, no joint tenancy can exist, because there is no unity of title and the co-owner relationship must constitute a tenancy in common. The rationale for this requirement is that interests acquired by different acts are not truly identical in nature. For example, if X conveys her fee simple estate to A and B jointly, a co-ownership relationship between A and B exists. If A then conveys her interest over to C, so that B and C own the property jointly, the co-ownership relationship between B and C cannot constitute a joint tenancy, because B acquired her interest pursuant to a different instrument: hence, there is no unity of title. Furthermore, the act of one co-owner in transferring her interest in the land over to a third party may constitute a severance of the joint tenancy. The methods by which a joint tenancy may be severed will be further examined in para 16.5. (d) Unity of time Finally, a co-owner relationship can only constitute a joint tenancy where the interests of each joint tenant have vested at exactly the same time and by virtue of the same event. This requirement often overlaps with unity of title because, where interests have not been conferred pursuant to the same act, they will generally not have been conferred at the same time. Unity of time requires interests to have been granted and to vest at the same time; if one co-owner receives the same interest from the same document as the other co-owners, but the vesting of that interest is conditional upon the happening of an event, then no joint tenancy can exist, because there is no unity of time between the interests. For example, X conveys fee simple remainder interests in land to A and B upon the occasion of them graduating in law. A and B graduate in law in 1996 and 1997 respectively. X dies in 1998 and the interests of A and B are vested in possession. A and B co-own the land but not as joint tenants because there is no unity of time. The condition imposed upon the remainder estates held by A and B was inherently variable and, consequently, made it extremely unlikely that the interests of A and B would vest simultaneously. A joint tenancy could only have arisen if A and B graduated at the same time. One exception to this rule are limitations contained in a conveyance to uses in order to give effect to the grantor. For example, X conveys a fee simple to Y upon trust for A and B for life and after their deaths upon trust to such of their children who attain the age of 21 years, in fee simple. Although the interests of the children of A and B may vest at different times, they will not infringe the unity of time requirement.1 The other fundamental feature of all joint tenancies is the right of survivorship or the jus accrescendi. The right of survivorship is a natural characteristic of all joint tenancies, and any co-owner relationship where it is excluded or otherwise exempted cannot constitute a joint tenancy. The right of survivorship is essentially a principle of inheritance and, stated simply, entitles the interests of the remaining joint tenants to expand equally where one joint tenant dies. When one joint tenant dies, his interest is extinguished completely and will not pass on to his estate. Upon the extinguishment of the joint tenant’s interest, the corresponding interests of the surviving joint tenants are enlarged. The fact that the deceased joint tenant has devised her estate is irrelevant; the interest of a joint tenant is no more capable of devolution by will than it is capable of devolving upon an intestacy. Furthermore, as a will cannot take effect until the death of a joint tenant, it will be too late to sever the joint tenancy. The right of survivorship will automatically apply to all joint tenancies unless it can be established that the joint tenancy has been severed prior to the death of a joint tenant (see discussion on severance at para 16.5). The operation of the right of survivorship stems from the inherent character of the joint tenancy. Each joint tenant is seised of the entire estate, and consequently, each is subject to the like seisin of the other. For example, A, B and C are joint tenants of a fee simple estate and A subsequently dies. By her will, A devises her portion in the land to X. As the co-owner relationship remained a joint tenancy up until the death of A, the right of survivorship means that B and C will become seised of the entire estate and X will receive no interest. A, B and C were seised of the entire estate together and, upon A’s death, B and C remain seised of the entire estate. Upon B’s subsequent death, C will be seised of the entire estate and, as no mutual ownership continues, the joint tenancy will cease. If A had legally alienated her aliquot share in the land to X prior to her death, the joint tenancy between A, B and C would have been severed and the co-ownership relationship between X, B and C would constitute a tenancy in common as unity of title does not exist. Where the deaths of two joint tenants occur in circumstances which render the order of death uncertain, legislation in Victoria resolves this difficulty by presuming the deaths to have occurred in the order of seniority, and accordingly, the younger shall be deemed to have survived the elder.2 Due to the general uncertainty surrounding death, the right of survivorship confers no special privilege on any particular co-owner. Each joint tenant owes reciprocal obligations and is entitled to reciprocal benefits, where they happen to accrue. This dual benefit/burden can only be assumed by a living person. Hence, as a corporation cannot die in a natural sense, under common law a corporation is incapable of being a joint tenant, either with another corporation or with a natural person. Nevertheless, given the difficulty of such a prohibition in an increasingly corporatised world, statutory provisions now ensure the right of a corporation to acquire and hold any real or personal property in a joint tenancy in the same manner as it were an individual.3 Where the land subject to the co-ownership is Torrens title land, the Torrens legislation further regulates the functioning of the joint tenancy. In Victoria, New South Wales, Western Australia, South Australia and the ACT, the Torrens legislation sets out that where two or more persons are registered on the title as joint proprietors, they are deemed to be entitled to the land as joint tenants.4 The wording of s 30(2) of the Victorian legislation is: Two or more persons who are registered as joint proprietors of land shall be deemed to be entitled thereto as joint tenants… The functioning of these deeming provisions is somewhat unclear because of the words ‘persons who are registered as joint proprietors’. It is not clear whether this refers to persons already registered expressly as joint tenants, or to persons who are entitled to be registered as joint tenants because of compliance with the four unities and the right of survivorship principles, or whether it simply deems all co-ownership relationships which are registered to constitute joint tenancies. In order to resolve this uncertainty, the land titles office in most states requires co-owners to specifically state the character of their co-ownership upon the land transfer documents. The Torrens legislation in most states also endorses application of the right of survivorship to joint tenancies. In Victoria, s 50 of the Transfer of Land Act 1958 provides that, upon the death of any person registered with any other person as joint proprietor of any land, the Registrar, on the application of the survivor and proof to the satisfaction of the Registrar of the death, shall register the applicant as the proprietor thereof and, thereupon, such survivor shall become the transferee of such land and be the registered proprietor.5 If a co-owner relationship does not satisfy the requirements for the creation of a joint tenancy, then it will constitute what is known as a ‘tenancy in common’. A tenancy in common is a form of co-ownership which confers a proportionate share of the estate upon each co-owner and, unlike the joint tenancy, does not require unity and conformity between each co-owner’s interest, although unity of interest or title may fortuitously exist. As a co-owner, each tenant is entitled to possession of the whole of the land as well as holding a share in the undivided land. Entitlement to an undivided share of the land is the foundation of the tenancy in common. Legislation in New South Wales, Queensland and the Australian Capital Territory sets out that any disposition of a beneficial interest in property, whether with or without the legal estate, to two or more persons will be deemed to operate as a tenancy in common.6 A tenancy in common usually arises because the co-owner relationship does not constitute a joint tenancy because one or more of the four unities are not present: (b) Example 2—A conveys a fee simple in land to B and C jointly, making the interest of C conditional upon him attaining the age of 25. The relationship is a tenancy in common because there is no unity of interest. (c) Example 3—A conveys land to B for life, remainder to C and D when they turn 21. In 1996, B attains the age of 21; in 1997 C attains the age of 21; and, in 1998, B dies. The relationship is a tenancy in common because the contingent remainder interests of C and D vested at different times. The interest of B vested in title in 1996 and the interest of C vested in 1997 and, consequently, there is no unity of time. (d) Example 4—B and C are joint tenants. B conveys his interest to D, severing the joint tenancy with C. The new owners of the land are C and D. The relationship between C and D is a tenancy in common because there is no unity of title or time. As each tenant in common holds a distinct, undivided share of the land, they are able to deal with their undivided shares as they wish. Hence, a tenant in common may alienate his undivided share inter vivos or bequest it or encumber it in any way provided it does not interfere with the rights of the remaining tenants in common. Importantly, the right of survivorship does not apply to a tenancy in common, so that upon the death of one tenant in common, the interests of the remaining tenant(s) will not be enlarged. Whilst the two dominant forms of co-owner relationships are the joint tenancy and the tenancy in common, other miscellaneous forms of mutual ownership have existed. An historical example is coparcenary. Coparcenary is a form of mutual ownership stemming from the common law inheritance rules. Where there was no male heir but numerous female heirs, the female heirs would inherent the land as coparceners, that is, as co-owners. Coparcenary resembled both the the tenancy in common and the joint tenancy relationships because, on the one hand, the interests of each coparcener could vary in shape and form, but on the other, where one coparcener released an interest, the interests of the remaining coparceners could be correspondingly enlarged. The existence of coparcenary diminished significantly with the abolition of the old common law ‘descent to the heir’ rules.7 It is a bit of a misnomer to talk of the creation of co-owner relationships when a relationship of some sort must automatically arise wherever land has been transferred to two joint owners. The real concern underlying the so called ‘creation’ of co-owner relationships is the differing presumptions which exist under law and in equity where there is no express or implied intention set out in the transfer documentation. Where no express intention exists and it is possible for the co-owner relationship to assume either form, it is necessary to resort to jurisdictional presumptions. Different principles exist under common law and in equity. In the absence of any evidence to the contrary, the common law favours the presumption of a joint tenancy. The rationale for this is steeped in history. The old common law courts generally felt that a joint tenancy would be easier to manage because, under such a relationship, title eventually and usually passed on to a single owner. This made conveyancing and the investigation of title by purchasers easier and, importantly, it enabled a swifter and more efficient collection of feudal dues. Whilst the basis for this rationale has long since passed, the common law has retained the presumption—although the significant ramifications of a joint tenancy have encouraged the common law to modify the application of this presumption through a stringent approach to the interpretation of ‘words of severance’. Where the wording of a transfer indicates, even to the slightest extent, an intention to confer an undivided share to each joint owner, the common law presumption will be rebutted. Furthermore, in some rare instances, the courts have been prepared to recognise the creation of a tenancy in common, despite an absence of words of severance, where it is deemed expedient and therefore appropriate.8 Words of severance are words that are used by the creator of a co-owner relationship which imply an intention to confer a distinct share in the land to each co-owner and therefore create a tenancy in common. The words do not have to state this intention expressly; any words indicating an intention to confer proportionate interests upon joint owners will be sufficient. Hence, words including: ‘in equal shares’, ‘share and share alike’ and ‘amongst or respectively’ would all constitute words of severance. The position has been well stated by Hatherley LC in Robertson v Fraser (1871) 6 Ch A 696: On the facts of Robertson v Fraser, a codicil to a will set out that a third party was to be appointed as a further beneficiary to a residuary estate so that the third party ‘may participate’ in the bequest with the other, two beneficiaries. The question for the court was whether or not the word ‘participate’ constituted a word of severance, rebutting the common law presumption of a joint tenancy. If it did, the relationship could constitute a tenancy in common, entitling the next of kin to gain a one-third share of the estate.
CO-OWNERSHIP
16.1 Introduction
16.2 Types of co-ownership
16.2.1 Joint tenancy
16.2.2 The four unities
16.2.3 The right of survivorship: jus accrescendi
16.2.4 Joint tenancy and Torrens legislation
16.2.5 Tenancy in common
16.2.6 Other forms of co-ownership: coparcenary
16.3 Methods of creating a co-owner relationship
16.3.1 Common law approach
16.3.1.1 Words of severance