Severance by mutual agreement ABCD ABCD ABCD He & Figure 6.9 Mutual severance Statutory Severance By statute, a joint tenant can sever by serving written notice on the other joint tenants (LPA. 1925, s 36(2)). There is no particular form that the notice must take. However, the notice must express an immediate severance and denote that ownership of the land (or of the pro- ceeds of sale of the land) is to be held in a manner inconsistent with a joint tenancy. A dir- ection merely as to how the proceeds of sale of land is to be used is insufficient to constitute statutory severance (Nielson-Jones v Fedden (1975). In Re Draper's Conveyance (1969), the issue of a summons and affidavit asking the court to order the sale of a former matrimonial home and equal distribution of the proceeds between a former husband and wife was held to constitute severance by written notice. In contrast, no severance was effected by a petition to the court in Harris v Goddard (1983) ‘that such order may be made by way of transfer of property and/or settlement in respect of the former matrimonial home . .. and otherwise as may be just. ‘The petition did not evince an immediate desire to sever, but merely invited the court to exercise a discretion which, when exercised, may or may not result in severance. For written notice to effect a severance it must be validly served on all other joint ten- ants. In the light of the ways in which the LPA 1925 enables notice to be served (6.29), there is no requirement that the notice has actually been received by the joint tenants (Kinch v Bullard (1999)). Severance takes effect at the moment of service, regardless of if or when the joint tenants received the notice. In the usual course of events, written notice is sent and received and the matter is beyond doubt. Where the notice is connected to judicial proceedings it will be served in the context of those proceedings assuming the joint tenants are all party to the proceedings (cf Quigley vy Masterson (2011) as a case in which the joint tenant was not a party). Questions over the timing of service may typically arise where a death occurs in close proximity to a written notice being sent, or where a joint tenant, having issued notice, seeks to intercept it follow- ing a change of mind—possibly to take advantage of another joint tenant's sudden death. General guidelines on service of notice contained in section 196 of the LPA 1925 apply to section 36(2) (Re 88 Berkeley Road (1971)). Applying section 196, there are two ways in which notice can be served: + by being left at the joint tenant(s)’ last-known place of abode or business in the UK;192 Trusts of Land 6.30 6.31 + by posting the notice to the joint tenant(s)’ last-known place of abode or business in the UK by registered post. Unless the letter is retuned undelivered, notice is deemed to have been served at the time when the letter would have arrived in the ordinary course of business. If notice is sent by the ordinary post, it is served when the postman or postwoman pushes the letter through the letterbox as the notice is thereby ‘left’ in the premises. Kinch v Bullard (199: al joint tenants of their matrimo- nial home. The parties were divorcing and Mrs Johnson, who was terminally ill and expected to pre-decease her husband, sent a notice of severance to Mr Johnson by ordinary first-class post. The letter was duly delivered but, before seeing it, Mr Johnson suffered a serious heart attack. Realizing that she was now likely to outlive her husband, Mrs Johnson destroyed the rand Mrs Johnson were benefi letter. Mr Johnson died a couple of weeks later, followed, in a matter of months, by Mrs Johnson. An action was brought by the parties’ respective executors to determine whether the notice—delivered, but then destroyed—had operated to sever the joint tenancy. If it had, then each party had a 50 per cent share to pass under the terms of their respective wills; if not. survivorship would have operated on Mir Johnson's death, leaving the entire property to pass under Mrs Johnson's will. It was held that the notice was served when delivered in the post and could not be‘un-served’. Therefore the joint tenancy had been severed. Neuberger J suggested—albeit tentatively—that it would be possible to withdraw notice after a letter had been sent but before it was delivered if the withdrawal is communicated prior to the letter being delivered Severance by registered post is illustrated by Re 88 Berkeley Road (1971). Written notice was sent by registered post and signed for on delivery by the joint tenant who had sent the letter without, it seems, the letter ever being passed on to the other joint tenant to whom it was addressed, Severance was still held to have taken place; receipt was not required. Severance by an Act of a Joint Tenant Operating on His or Her Share An act of a joint tenant operating on his or her share causes severance by destroying one or more of the unities of title, time, and interest which are a precondition for the sub- sistence of a joint tenancy (6.7). There is a logical difficulty in talking of an act operating ona share; we have emphasized in this chapter that joint tenants—in contradistinction to tenants in common—do not have shares (6.6). In what way, can it then be said that a joint tenant has acted on his or her share in order to effect severance? ‘The analytical difficulty with this method of severance is effectively sidestepped by treating the act itself as causing severance and so freeing up the share to be the subject of the act in question (Crown (2001)). ‘There is no set form that the ‘act’ must take. The clearest example of an act operating on a share is a disposition (referred to in Williams v Hensman (1861)). Other acts that have6.34 6.35 6.36 been accepted as sufficient include entering a contract for sale (Brown v Raindle (1796)) or acquiring a greater share in the land than the other joint tenants (Megarry and Wade (2008)). Conversely, it is established that a mere unilateral declaration of intent is not an ‘act’ and cannot constitute severance (Nielson-Jones v Fedden (1975), Burgess v Rawnsley (1975)). In the absence of an ‘act, unilateral severance must be effected through the statu- tory method of written notice (6.26-6.31). These examples suggest that an act requires a share to be divested, or for there to be a legal obligation to divest a share. A disposition may be voluntary—for example, the transfer of a share (by sale or gift) to another one of the joint tenants or to a third party—or involuntary. The most important example of an involuntary disposition is bankruptcy. The effect of a joint tenant being declared bankrupt is that his or her share vests in the trustee in bankruptcy. Where the act operating on a share takes the form of a sale or other disposition of one joint tenant’s share to another joint tenant, the joint tenant who receives the share is left in a particular position. The recipient of the share is a tenant in common as regards the newly acquired share, but remains a joint tenant in relation to his or her original interest. Hence, just as the joint tenancy and tenancy in common can subsist side by side (6.21), the same beneficiary may be a joint tenant in relation to his or her initial interest and a tenant in common as regards a subsequently acquired interest. Example: A, B, C, and D are joint tenants at law and in equity. A sells his or her share to B. A, B, C, and D remain joint tenants at law and hold on trust for B as tenant in common of the severed 25 per cent share and for B, C, and D as joint tenants of the remaining 75 per cent (Figure 6.10). A sells shares to B ABCD ABCD ABCD B BCD 25% 75% Figure 6.10 Severance by sale to another joint tenant The clearest instance of a voluntary act operating on a share is an outright transfer of a share by a joint tenant by sale or gift, whether to another joint tenant or a third party. A joint tenant may also do an act that constitutes a partial transfer of his or her interest, whilst retaining an interest him or herself. A partial transfer arises where a joint tenant declares a trust of his or her share. The effect of such a declaration of trust is that the joint tenant's severed share is held on a sub-trust for the beneficiary. The joint tenant retains his or her beneficial interest, which is now subject to the trust. A partial transfer also arises on the grant of a mortgage or charge by a joint tenant. Such mortgages may be unlikely to be granted expressly, because the security of a beneficial share may not be6.37 6.38 6.40 194 Trusts of Land commercially attractive, but they arise, not infrequently, as the result of a failed attempt by a single joint tenant to mortgage the legal title through, for example, forgery or undue influence committed against the other co-owners (Nield (2001)). For example, in First National Securities v Hegerty (1965) a husband forged his wife’s signature on a legal charge to use the property as security for a loan. Bingham J considered this to constitute a disposition of the husband's beneficial share, which severed the beneficial joint tenancy and created a valid equitable charge over the husband's share. However, the matter was not argued in the case as it was unclear whether the parties were in fact equitable joint tenants or tenants in common. An involuntary act operating on a share is most likely to arise through the interception of a debt affecting one of the joint tenants. Bankruptcy has provided the focus of attention, although the grant of a charging order also operates to sever a joint tenancy as the debt becomes secured against the debtor's share (C Putnam e Sons v Taylor (2009)). While bankruptcy undoubtedly causes severance, debate continues as to the time at which sev- erance occurs. This can be significant where the bankrupt (or another joint tenant) dies during the course of the bankruptcy. If death predates the time of severance, then sur- vivorship operates, taking the beneficial interest beyond the reach of the creditors. Courts have adopted conflicting approaches to identifying the date on which severance occurs in the event of bankruptcy. In Re Palmer (1994), a decision on the current legis- lation (Insolvency Act 1986), it was held that severance occurs at the time of the dec- laration of bankruptcy. This date was chosen because, from the time of the declaration, the bankrupt’ estate is held in trust by the Official Receiver—vesting in the trustee in bankruptcy immediately upon appointment. Mr Palmer was declared bankrupt after his death. Where that occurs, through the doctrine of ‘relation back’ the declaration of bankruptcy dates from the day of death, so that the bankrupt’s estate on that day vests in the trustee in bankruptcy. The court held, however, that ‘relation back’ did not include a joint tenancy that the bankrupt had at the start of the day of their death, but which ceased to exist at the moment of death through survivorship (6.22). Through survivor- ship, Mr Palmer's wife became solely entitled to that couple's home on her husband's death, which meant that the home was protected from the effect of the bankruptcy. A different date of severance was chosen by the court in Re Dennis (1996)—a later case than Re Palmer, but decided under previous legislation (Bankruptcy Act 1914). In that case, the bankrupt and his wife were joint tenants of their home. Between the date of the act of bankruptcy (by failing to comply with a bankruptcy notice) and the declaration of bankruptcy, the wife died. The court held that severance occurred at the date of the act of bankruptcy. This meant that, on her death, the wife was a tenant in common of a 50 per cent share, which passed to the couple's children. If the date of the declaration of bankruptcy had been chosen (the date adopted in Re Palmer), survivorship would have operated on the wife’s death, leaving the bankrupt as sole owner and the entire house therefore available to his creditors. Notably, in Re Palmer and Re Dennis the courts’ interpretation of the timing of severance produces results that are sympathetic to the bankrupt's family. The courts’ choice as to6.41 6.42 6.43 6.44 the date of severance conflicts and, while factually distinct, there is no logical reason for treating the date of severance as different, according to whether bankruptcy occurs dur- ing the bankrupt’ lifetime, or after his or her death. The analysis in Re Palmer should now be followed in all cases, because it applies the current legislation. If applied to the facts of Re Dennis, it would appear to reverse the decision in that case. Subsequent to the decision in Re Palmer, a new provision (s 421A) has been inserted into the Insolvency Act 1986 (IA 1986). The effect of section 421A is that where a joint tenant is declared bankrupt after his or her death (so that survivorship operates in favour of the remaining joint tenants), the survivors may be required by the court, on an application by the trustee in bankruptcy, to compensate the bankrupt's estate by payment of a sum not exceeding the value lost through survivorship. Hence, while the operation of sever- ance remains governed by Re Palmer, the financial consequences of the decision may be reversed by an application under section 421A. Severance Through Mutual Agreement The second category of severance identified in Williams v Hensman (1861) (6.24) is sever- ance through mutual agreement. Unlike the previous methods of severance considered— statutory severance (6.26-6.31) and an act operating on a share (6.82-6.41)—mutual severance requires the participation of all of the joint tenants. Its effect, when applied, is to turn all the joint tenants into equitable tenants in common (6.25). ‘The rationale for severance through mutual agreement lies in the common intention of the parties. For example, in Davis v Smith (2011) the Court of Appeal held severance to have taken place where correspondence between the joint tenants evidenced a common intention that a house should be sold and the proceeds divided equally. This stands in contrast to the rationale for severance by an act operating on a share. Such an act effects seyerance by the destruction of one or more of the unities of title, time, and interest (6.7). In mutual agreement, destruction of a unity is the result of the severance, not the cause of it. ‘The scope of severance through mutual agreement is difficult to pinpoint in the ab- stract: it is sandwiched between the stricter requirement of an ‘act’ (6.33) which permits unilateral severance (6.25) and the more liberal third category of a course of dealings (6.45-6.49), which also requires the participation of all joint tenants. Hence, mutual agreement applies where there is no valid contract to constitute an act, but (unlike sever- ance by a course of dealings) it appears to require an informal agreement, However, that ‘agreement’ may be inferred by the parties’ conduct. Burgess v Rawnsley (1975): Mr Honick and Mrs Rawnsley were joint tenants of a house occupied by Mr Honick alone. The property had been purchased in the expectation that the parties would both live there, but while Mr Honick anticipated marriage, Mrs Rawnsley intended to live alone in the upstairs flat. The parties’ mismatched expectations came to light after the purchase. Mrs Rawnsley did not move in, but reached an oral agreement to sell her6.45 6.46 6.47 6.48 196 Trusts of Land share to Mr Honick for £750. She then changed her mind and sought a higher price. Matters stood this way at Mr Honick’s death, whereupon the house was sold and Mrs Burgess, his administratrix, sought to establish that severance had occurred, leaving his estate entitled to 50 per cent of the proceeds of sale. The Court of Appeal unanimously held that severance had occurred through mutual agreement. The oral agreement to sell for £750 was sufficient to effect severance even though there was no enforceable contract and despite the fact that Mrs Rawnsley had repudiated the agreement Severance by Course of Dealings In common with severance by mutual agreement, severance through a course of deal- ings requires the participation of all of the joint tenants and is founded on the common, intention of the parties (6.43). Unlike severance through mutual agreement, a course of dealings does not require there to be an agreement—even inferred—between the parties. Instead, it ‘includes cases where what is to be inferred is that the parties have mutually treated their interests as a tenancy in common in ignorance that they were really joint tenants’ (Hunter v Babbage (1995)). This form of severance is therefore focused on the conduct of the parties and is sometimes described as severance by mutual conduct. Hence, for example, the execu- tion of mutual wills by joint tenants may constitute severance through mutual conduct as joint tenants have no share to dispose of through a will (6.19). ‘The key issue that arises in understanding the scope of severance by a course of deal- ings is determining when negotiations that fall short of an agreement are able to effect severance, In Burgess v Rawnsley (1975), where severance was held to have taken place through mutual agreement (6.44), the Court of Appeal were divided as to the scope of a course of dealings as a method of severance and as to its application to the facts of the case. Pennycuick LJ commented that ‘[o]ne could not ascribe to joint tenants an inten- tion to sever merely because one offers to buy out the other for £X and the other makes a counter-offer of £Y° In contrast, Lord Denning MR suggested that ‘[e]ven if there was not any firm agreement but only a course of dealing, it clearly evinced an intention by both parties that the property should henceforth be held in common and not jointly” In Burgess v Rawnsley Lord Denning MR also suggested that severance through a course of dealings should have been applied on the facts of Nielson-Jones v Fedden (1975). There, a memorandum agreed between the parties directed the husband to ‘use his entire dis- cretion and free will’ to decide whether to sell the parties’ former matrimonial home to purchase a home for himself. The husband died having entered a contract for sale and a deposit having been paid. The memorandum was held not to constitute statutory sever- ance because it concerned only use of the proceeds of sale, not their ownership (6.26). Walton J rejected an alternative argument that there had been severance by mutual con- duct through the parties’ discussions as regards their financial arrangements and the distribution of the deposit. Lord Denning MR considered that ‘[t]he husband and wifeSeverance 197 entered on a course of dealing sufficient to sever the joint tenancy. They entered into negotiations that the property should be sold. Each received £200 out of the deposit paid by the purchaser. That was sufficient? To the extent that reliance is placed on negotiations to establish a course of dealings, these should be accepted only where the agreement, if reached, would have been suffi- cient to sever within the category of mutual conduct. If the agreement would have been insufficient to effect severance, it necessarily follows that negotiations for the agreement cannot do so (Hunter v Babbage (1995)). Whether negotiations will be sufficient to con- stitute a course of dealings is heavily dependent on the facts. An agreement in principle by a divorcing couple who were joint tenants of two properties to transfer one of the properties to each of them was held not to constitute a course of dealings, where it was clear that the wife had not committed to becoming a tenant in common prior to the div- ision of the parties’ property in their divorce proceedings (Gore and Snell v Carpenter (1990)). In the same case the court accepted, as a matter of principle, that even failed negotiations can constitute a course of dealings on appropriate facts. Severance Through Unlawful Killing Public policy prevents a person responsible for the unlawful death of another from ben- efiting from his or her death. Such benefit could arise through the operation of survivor- ship where one joint tenant is responsible for the death of another. ‘The public policy rule is achieved through forfeiture under the Forfeiture Act 1982, which also provides for the possibility of relief against forfeiture. In Re K (1985), Vinelott J accepted the view of counsel that ‘the forfeiture rule unless modified under the Act of 1982 applies in effect to sever the joint tenancy in the proceeds of sale and in the rents and profits until sale. This implies that, where relief is awarded, the correct analysi that severance does not occur, leaving survivorship to operate. Hence, it is the availability of relief that determines whether severance occurs (Bridge (1998)). In Re K, relief was awarded where a wife, who was the victim of domestic abuse, had been convicted for manslaughter after she had unintentionally shot and killed her husband (she had intended to threaten him). The culpability of the defendant is the prin- cipal factor in determining relief (contrast the outcome in Dunbar v Plant (1998) with that in Chadwick v Collinson (2014)). Severance and the Common Intention Constructive Trust ‘The effect of Stack v Dowden (2007) and Jones v Kernott (2011) is to impose a presump- tion of joint tenancy in respect of particular properties that are purchased as homes. The presumption can be rebutted through a common intention constructive trust (6.18). The common intention constructive trust is ‘ambulatory’ meaning that the parties’ intentions (and therefore their beneficial shares) can change over time. In Stack v Dowden and Jones v Kernott the parties’ shares were ultimately quantified as being unequal: respectively198 Trusts of Land 6.53 6.54 65/35 per cent and 90/10 per cent. There are unresolved doctrinal issues as to how the outcome in these cases can be rationalized with the rules of severance. If parties begin (as they did in those cases) as equitable joint tenants, but end with unequal shares, then severance must have taken place. But on what basis? Further, severance credits the par- ties with equal shares (6.21). Hence, it appears that severance alone cannot explain the outcome in the cases. If the parties severed in equal shares and a transfer of a beneficial interest was then made to leave the parties with the correct proportions, that transfer appears to constitute a disposition of an equitable interest—which is required to be made in writing (LPA 1925, s 53(1)(c)) Neither the method of severance applied nor the application of section 53(1)(c) of the LPA 1925 are addressed by the House of Lords in Stack v Dowden or the Supreme Court in Jones v Kernott. The ambulatory nature of the trust has been replied upon to explain both the severance and alteration of the parties’ beneficial shares (Mee (2012)). But it remains unclear which head of severance—if any—would thereby apply. A change in the parties’ common intention could constitute severance through mutual agreement (6.42-6.44). Alternatively, there could be an act operating on a share (6.32-4.41), see Pawlowski and Brown (2013a)). Mee (2012) suggests that section 53(1)(c) does not apply “because each new division of the beneficial ownership occurs under a new, or (to put it a different way) newly refreshed, constructive trust: The creation and operation of con- structive trusts is exempt from the formality requirement by section 53(2). Pawlowski and Brown (2013a) suggest that section 53(2) applies to exempt the (notional) transfer if that transfer takes place under the existing constructive trust. If each new common intention gives rise to a new trust, then the authors suggest that there is no reason in principle why the parties should not be able to agree to sever in unequal shares. On that basis, no question of the application of section 53(1)(c) arises. A Critique of the Severance Rules and of the Beneficial Joint Tenancy The Law Commission (1985) considered two radical reforms of severance: first, limit- ing severance to the statutory method of written notice; secondly, enabling severance by will, Reform of severance was not carried over into the Commission's subsequent final report on ‘Trusts of Land, on the basis that the issue is also relevant to personal property. ‘The Law Commission instead anticipated returning to the topic of severance in future work on severance, though this has not materialized. ‘The reforms considered by the Law Commission represent polarized responses to dis- satisfaction with the operation of the current rules. ‘Ihe first possibility, of confining severance to the statutory method of notice, would require the abolition of the Williams v Hensman (1861) methods and, inevitably, increase the incidence of survivorship. The Williams v Hensman method of severance by an act operating on a share is currently relied upon by creditors to make a joint tenant’s share available to discharge debts on bankruptcy. Legislation and case law reflects a general public policy concern to ensure6.56 6.57 6.58 Termination of Co-ownership 199 that debts are paid. In view of this policy, it appears unlikely that a change to the rules of severance would be countenanced without any potential difficulties that would arise in relation to bankruptcy being resolved. In that respect, the abolition of severance by an act operating on a share appears problematic. While the other Williams v Hensman methods have generated few cases, it is possible that they are relied upon by practition- ers, making the impact of abolition difficult to predict (Tee (1995)). ‘The second possibility, of extending severance to permit severance by will, appears to strike at the heart of a joint tenancy as a gamble on survivorship. As Tee (1995) notes, it would enable a ‘rogue’ joint tenant to ‘have his cake and eat it’ by placing words of severance in a will and enjoying the possibility of the right of survivorship without any risk to his or her estate in the event of pre-deceasing the other joint tenant(s). Additionally, questions of construction are likely to arise as to whether the wording ofa will constitutes severance. Any reform of the severance rules necessarily impacts on the operation of survivor- ship: a liberalization of severance makes survivorship less likely to occur, while restric tions on severance increase the likelihood of the joint tenancy remaining intact on the death of the parties. Survivorship is the key difference between the joint tenancy and tenancy in common (6.19). Therefore, the question underlying reform of severance is the desirability of the beneficial tenancy in common. Difficulties and uncertainties in the application of severance rules would be removed at a stroke by confining equitable ownership to the tenancy in common. But because this would come at the expense of survivorship, is it a price worth paying? ‘The operation of survivorship is most obviously consistent with the likely intentions of parties embarking on what they anticipate will be a lifelong relationship. As Smith (2005) notes, the ‘great majority’ of severance cases appear to arise as a consequence of relationship breakdown, following which survivorship ceases to match the parties’ intentions. The joint tenancy remains apt to give effect to the likely intentions of parties where a relationship ends on death, while the imposition of a tenancy in common places an onus on the parties, in all cases, to ensure that their intentions are reflected in an up- to-date will. But intestacy is common: it is estimated that between half and two-thirds of adults in England and Wales have not made a will, many of whom will die before having done so (Law Commission (2011)). In the light of the incidence of intestacy, it must be doubted whether the imposition of a joint tenancy in all cases would better ensure that the parties’ intentions are fulfilled than does the current law.