Tuesday, 25 October 2011

English Land Law - No.2 - Types of fee simple: settlements and co-ownership

This post is the second in a series on what is, to me, the fascinating subject of English land law though it is, all too often, a subject detested by law students!   The principal problem seems to be that the subject cannot be entirely divorced from its historical development.

The first post in the series looked at Estates and Tenure.  This post considers three matters: (1) the types of fee simple which can arise; (2) settlements of land and (3) co-ownership.  There are many twists and turns in the law and a considerable number of practical pitfalls.  This post looks at these matters in outline only. 

1) Types of fee simple -  the fee simple absolute is the type of fee simple most often encountered.  After 1925, the only possible legal estates in land are the fee simple absolute in possession and a term of years absolute.  See Law of Property Act 1925 s.1.  

Certain other lesser forms of fee simple are possible: (a) the
Determinable fee simple and (b) Fee simple upon condition.  These cannot be legal estates and so must exist, in equity, behind a trust.  In modern law, they are forms of "equitable interest."

A determinable fee simple is a fee simple which will automatically end if some specified but uncertain event occurs.  For example, a fee simple absolute owner (A) conveys land to B for as long as St. Paul's Cathedral shall stand.

A fee simple on condition arises where land is transferred but a condition is attached which could end the estate.  For example,  A transfers land to B on condition that he continues to practise as a barrister.

It is the wording which decides which form exists but different consequences arise.  The distinction between the two has been referred to as "little short of disgraceful to our jurisprudence" - Lord Porter MR in Re King's Will Trusts 1892.

These types of fee simple may now exist only as beneficial interests behind a trust.  They are not encountered very often in practice.

2) Settlements - The word "settlement" is used for an arrangement whereby property (land or other property) is given to particular persons in succession.  Historically, this was a natural desire in those who had acquired land and wealth and complex settlements were developed as well as a practice of resettling the land during each generation.  However, after the Settled Land Act 1882, the idea of keeping land in a family was effectively gone for ever.  This was because the Act enabled to so-called "Tenant for Life" to deal with the land (including a power of sale) during his lifetime.

Coming to more recent times, it has been common for a husband (as was typically the case) to give his house - (strictly speaking, the legal interest in the house) - to his wife for life and then to his son.  Such arrangements have usuually arisen from home-made wills but, until 1997, could have difficult consequences.

Historically, settlements came to be created either as Strict Settlements or as Trusts for Sale.

The Strict Settlement was subject to the complex Settled Land Act 1925 which need not detain us further here.  In modern times, mainly for tax reasons, strict settlements were rarely created but, as mentioned above, could arise under badly-drafted home made wills.  Since the coming into force of the Trusts of Land and Appointment of Trustees Act 1996  (TOLATA) on 1st January 1997 it is no longer possible to create new settlements subject to the Settled Land Act 1925 - see TOLATA section 2.

Whatever could be achieved by a strict settlement subject to the Settled Land Act 1925 could also have been achieved by using a trust for sale.  This required the land to be transferred to trustees on trust for sale for the beneficiaries who could, of course, be the same persons as the trustees.  The trustees had a "power" to defer the sale indefinitely.  An example might be a conveyance of land to T1 and T2 in fee simple absolute in possession on trust for sale for B for life and then to C in fee simple absolute.

The trust of sale mechanism has, since the Trusts of Land and Appointment of Trustees Act 1996 become a Trust of Land (section 1).   If today it was desired to create a settlement, then a trust of land would be created.

3) Co-ownership - It frequently arises that two or more persons wish to own land together.  The most common situations are husband and wife or civil partners or cohabitees purchasing a home together and arrangements relating to property acquired for business purposes.  Two methods are available to achieve co-ownership: the Joint Tenancy and the Tenancy in Common.

Where there is a joint tenancy, each joint tenant can be said to own the entire estate.  He or she does not own any distinct share.  If one joint tenant dies, his or her interest does not pass under the will (or intestacy) but accrues to the remaining joint tenants (sometimes still referred to as the "jus accrescendi")..

Where there is a tenancy in common, each tenant in common will own a particular share - e.g. equal shares or 75% to 25% etc.  Here, each tenant in common is free to deal with his or her share.  For example, if one tenant in common dies then his or her share will pass to others under the will (or intestacy).

The choice between joint tenancy and tenant-in-common requires considerable thought.  It can have significant consequences and appropriate legal advice should always be obtained.

Before 1926, a legal estate could be held either under joint tenancy or tenancy in common.   Joint tenancy of a legal estate continues to be possible.  However, after 1925, tenancy in common of a legal estate is not permitted.   Therefore, in co-ownership arrangements, the legal estate in the land must be held as joint tenants on trust for, as the case may be, the beneficiaries either as joint tenants or as tenants in common (in whatever shares are specified).

Since the Trusts of Land and Appointment of Trustees Act 1996 the appropriate trust is a "trust of land" and not a trust for sale.  "Trust of Land" is defined by TOLATA section 1. and the term covers any form of trust where the trust property includes land:-

Meaning of “trust of land”.

(1) In this Act - (a) “trust of land” means (subject to subsection (3)) any trust of property which consists of or includes land, and (b)“trustees of land” means trustees of a trust of land.

(2) The reference in subsection (1)(a) to a trust - (a) is to any description of trust (whether express, implied, resulting or constructive), including a trust for sale and a bare trust, and (b) includes a trust created, or arising, before the commencement of this Act.

There are various ways in which a joint tenancy can be converted into a tenancy in common and these include a "notice of severance" served upon the other joint tenants.

Note:  In recent times, there has been considerable litigation and, in particular, in connection with shares in a home.  In relation to unamarried cohabitees, the Law Commission made recommendations but these have not been implemented.  At the time of writing, an appeal has been heard by the Supreme Court in Kernott v Jones [2010] EWCA Civ 578 but judgment remains to be handed down.  Kernott v Jones is a cautionary tale for cohabitees and emphasizes the need for sound legal advice.

Conveyancing- the imposition of a trust for sale (pre 1997) and now a trust of land (after 1996) is essentially conveyancing machinery enabling a purchaser to obtain the land free of any beneficial interests in the land.  The purchaser only has to be bothered with the legal title and provided that he pays the purchase money to at least two trustees (or to a Trust Corporation) he will obtain the legal title free of any rights which the beneficiaries may have had.  Their rights have been OVERREACHED and then attach to the purchase money.

Obsolete forms of co-ownership:  For completeness, we may note coparcenary and tenancy by entireties.   Coparcenary could arise on an intestacy before 1926 where, instead of a male heir, the surviving issue were daughters.  They took jointly as coparceners.  This is not possible since the 1925 legislation altered the way in which property devolves on an intestacy.  A tenancy by entirety arose where, before the Married Women's Property Act 1882, land was transferred to a husband and wife.  The law effectively regarded them as a single person who, it may be added, was the husband !!  After 1882, such tenancies were converted into joint tenancies and the Law of Property Act 1925 completed that process for any remaining tenancies by entirety.

(Note:  This post does not constitute legal advice.  In all cases, legal advice should be sought from qualified practising lawyers specialising in land law). 


A recent case on severance of joint tenancy is Quigley v Masterson [2011] EWHC 2529 (Ch) - discussed in this Law Society Gazette article.


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