Diane Latter, property policy advisor at the Law Society, discusses the new practice note on joint ownership.
Origins of the joint ownership practice note
The Law Society and Land Registry issued a practice note about joint ownership on 14 January 2013. This article sets out the background to the production of that note.
There are many aspects to this issue and a note that attempted to cover all of them would probably be better suited to an academic paper or a book. The scope of the jointly issued practice note is limited to the parties' position at the point of acquisition of the property. Although many solicitors would say that they always address this issue with joint owners, it is clear from recent judgments of the higher courts that this has not always been the case.
It is hoped that the note may highlight recent case law and remind solicitors to encourage joint buyers to actively consider the issue of joint ownership before they buy.
Background
The joint ownership of property in England and Wales is not straightforward; it involves a combination of property law, trust law and family law. The House of Lords and the Supreme Court have heard cases on this issue over the last few years but the decisions they have issued are not always straightforward to apply in practice.
It has, for many years, been the practice of solicitors generally to address the issue of joint ownership where two or more parties are buying a property. The Conveyancing Handbook has always contained information about advising joint buyers. The Law Society Conveyancing Protocol says that solicitors should 'advise generally as to shared or joint ownership if there is more than one buyer' (Stage A step 4).
Where there are two or more purchasers, the parties may own the property in equal or unequal shares. There are several ways in which the parties can declare their beneficial interests in a property, but they are not required to do so.
The House of Lords' decision in Stack v Dowden [2007] UKHL 17 involved a situation where a property had been purchased and registered in the names of joint parties in 1993, but no express declaration of their beneficial interests had been made. The leading judgment in the case was given by Baroness Hale who, while pleased that Land Registry had included a Declaration of Trust panel in the Transfer Form TR1 in 1998, urged Land Registry to further review its practice in this area.
Baroness Hale advocated making both completion of the Declaration of Trust panel and execution of the Transfer by the buyers compulsory where there was more than one Trustee. The view was that, if such steps were taken, costly disputes and litigation about the nature and/or extent of joint owners' beneficial interests would be reduced.
At the time of the decision in Stack v Dowden, Land Registry was preparing a consultation document on proposed amendments to the Land Registration Rules 2003. As the proposed amendments to the 2003 Rules included prescribing revised forms of transfer, it was decided to discuss the possibility of making it compulsory to complete declarations of trust in those forms in the consultation paper.
Following analysis of the consultation responses, the Stack v Dowden Working Party was established to consider the issues raised and make further recommendations. The Working Party comprised members of Land Registry, academics, and representatives from the Council for the Licensed Conveyancers and the Law Society.
Form JO and changes to Land Registry forms
The Working Party recommended that Land Registry should pursue the matter by amending the Land Registration Rules 2003 to make it compulsory for prospective joint owners to complete the Declaration of Trust panel and to execute the Transfer. This was to be the case unless a new Land Registry Form JO (joint owners) was also completed and lodged with the application for registration.
The new Form JO was designed to address the practical difficulties solicitors could face in obtaining execution of the Transfer by each transferee within the necessary timescales, or in circumstances where they might be reluctant to let a Transfer that was already executed by the transferor, out of their possession. Form JO was to be prescribed as an alternative means for joint owners to declare interests or to provide details of a separate Declaration of Trust, rather than setting this out in the Transfer.
The Working Party also recommended a number of amendments to the Declaration of Trust panels in:
- the Transfer Forms
- clause LR14 in the prescribed lease clauses
- the trust information panel in Form FR1
These proposed amendments had two different purposes:
- to highlight the requirement that was to be introduced into the Land Registration Rules 2003 for joint owners, lessees or applicants to complete the relevant trust panel, and in the case of a Transfer, to execute the Transfer or lodge a completed Form JO, as well as clearly stating that, except in exceptional circumstances the application would be rejected by Land Registry if these requirements were not fulfilled
- to amend the explanatory information alongside the Declaration of Trust panels in Transfers, clause LR14 and the trust information panel in Form FR1 to set out the circumstances in which the Registrar would enter a Form A restriction by default, if necessary, when registering joint proprietors in order to comply with the duty under Section 44(1) of the Land Registration Act 2002 to secure overreaching
Red tape
Land Registry planned to implement the Working Party's recommendations for the amendment of the Rules, subject to the outcome of a further public consultation in 2011. However, before Land Registry could do so, the government announced their proposed 'war on red tape' and a three year moratorium exempting micro and start up businesses from new domestic regulation.
Land Registry concluded that the proposed amendments that would have implemented Baroness Hale's recommendations in Stack v Dowden, together with the Working Party's additional proposals, would fall within the scope of the moratorium. They thought it would have been extremely difficult to exempt micro and start-up businesses from the revised rules.
Land Registry therefore felt they had no option but to postpone the proposed implementation of the recommendations by regulatory means (that is by further amending the Land Registration Rules 2003 and the prescribed forms).
Further developments post Stack v Dowden
It was hoped that the Supreme Court Decision in Jones v Kernott [2011] UKSC 53, which also involved a property acquired in the joint names of a co-habiting couple, without any express Declaration of Trust, might have provided some greater clarity but the case did not produce any decisive findings. Initially, the approach of the High Court in Clarke v Meadus [2010] EWHC 3117 HC, as well that of the Supreme Court in Jones v Kernott, indicated an element of uncertainty as to the extent to which an express Declaration of Trust that is made by joint owners at the point of acquisition would be conclusive.
However, the Court of Appeal in their recent decision in Pankhania v Chandegra [2012] EWCA Civ1438 has confirmed that an express Declaration of Trust will be conclusive as to the joint owners' beneficial interests (in the absence of fraud, mistake or some other vitiating factor giving the court grounds for setting aside or rectifying the express trust), unless the trust is expressly varied by subsequent agreement between the parties.
In 2011, the government announced its decision not to take forward the recommendations set out in Law Commission's Report, 'Co-habitation: the Financial Consequences of Relationship Breakdown' during the current Parliament. Lord Lester subsequently introduced the Inheritance (Co-habitants) Bill, which would give cohabitants legal rights to financial provision if their partner dies intestate.
The Bill had its second reading in the House of Lords on 19 October 2012. Lord McNally has said that the government has 'strong reservations' about the Bill and Lord Lester said that, even if the Bill was given a second reading he would do nothing further until the government responds to the Law Commission's recommendations.
Uncertainty therefore persists in this area of law, particularly for unmarried couples. If joint owners do not expressly declare their interests at the time of purchase, the uncertainty surrounding the position of the parties could cause significant problems in the event of a relationship breakdown or the death of the one of the owners.
The joint ownership practice note
It is considered beneficial for prospective joint owners to address the issue at the point of acquisition. Baroness Hale's aim was to reduce the incidence of costly disputes and litigation about the nature and/or extent of joint owners' beneficial interests and this remains important.
The practice note issued jointly by Land Registry and the Law Society endeavours to encourage this by highlighting the desirability of joint owners completing the Declaration of Trust panels in Transfers of registered land and to execute the Transfer or complete the transfer information panels in Forms FR1 and ADV1.
Land Registry has introduced the Form JO as a voluntary form under the power in Section 100(4) of the Land Registration Act 2002. As there is no regulation and the issues involved are not mandatory, the voluntary initiative depends on the co-operation of solicitors in bringing the matter to the attention of clients who propose to be joint owners.
The Law Society is interested to see how this operates in practice and any feedback or comment on the practice note can be sent to property@lawsociety.org.uk.
The Law Society is grateful to Alasdair Lewis (director of Legal Services Land Registry) for his contribution to this article.