Property lawyers are frequently required to advise their clients on the legal consequences of owning property in joint names. An all too common scenario arises where two people, say A and B, decide to purchase a house together and, at the same time, want to make provision for the devolution of the property in the event of their deaths. Both A and B already have children from previous marriages (or relationships) and are keen to ensure that, in the event of either of their deaths, their joint interest in the house should pass to the respective issue from their former unions. How can this be achieved?

At first glance, an express trust, on the standard Land Registry Forms TR1/FR1, declaring that A and B hold on trust for themselves as beneficial tenants in common may offer the most practical solution. The trust, coupled with a will being made by both A and B leaving their respective shares in the realty to their issue will ensure that, in the event of A or B’s death, the deceased’s share will pass to that party’s children. Thus, by way of example, if A had two children (C and D) and B had two children (X and Y), on A’s death, C and D would take A’s interest jointly by virtue of A’s will.

An obvious difficulty, however, may arise when either A or B dies (say A) and the children of the deceased (C and D) wish to realise their inherited share despite understandable opposition from the survivor (B), who wants to remain in the property. What measures can be taken to avoid this potential conflict?

Underlying purpose of the trust

If C and D remain adamant that they desire sale and B continues to remain in occupation, the former may well be tempted to make an application, under ss14 and 15 of the Trusts of Land and Appointment of Trustees Act 1996, for an order for sale.

The pre-1996 Act case law, on the old trust for sale, placed great emphasis on the concept of the ‘underlying purpose of the trust’. If the original purpose of the trust continued, a sale would be refused. On the other hand, if that purpose had ceased, then sale would usually be ordered in the absence of any other counter-balancing factors. Since 1996, however, the trust for sale has been replaced by the ‘trust of land’ as the standard conveyancing tool for coownership of land. The judicial discretion conferred by ss14 and 15 of the 1996 Act deliberately removes any bias towards a sale, encouraging a more broad-based and flexible approach. Thus, it will often now be reasonable for one party to desire sale and the other to resist it. In such cases, the court is obliged to fall back on the criteria specified in s15 of the 1996 Act, which enable the court to assess the specific circumstances affecting the trust relationship. In this connection, the purposes for which the land is held on trust (ie, the motivation underlying a co-operative living arrangement) can still be hugely relevant.

In Stott v Ratcliffe [1982] – a pre-1996 case – the original purpose of the trust had been to provide a home for two elderly people living during their joint lifetimes and, thereafter, for the surviving co-owner. The Court of Appeal declined to order sale at the behest of the personal representatives of the deceased tenant in common, the explicit object of the acquisition of the co-owned property having been to secure a home for the survivor (see also Power v Brighton [1984]. By contrast, in Grindal v Hooper [2000] a sale was ordered where no such mutual intention to house the survivor existed.

Where the trust is aimed at providing a joint home for A and B (as in our scenario), the courts have tended to refuse an order for sale while that purpose remains substantially capable of fulfilment, sale only being permitted where the residential purpose has been exhausted or frustrated (eg by a breakdown in the relationship): see Jones v Challenger [1961] and Grindal. Thus, in our scenario, it seems unlikely that A’s children (C and D) would be able to claim a sale over the wishes of B. The matter can be put beyond doubt if the parties expressly agree that no sale should take place during the joint lives of the parties: see Re Buchanan- Wollaston’s Conveyance [1939]. To this end, s15(a) and (b) of the 1996 Act declare that:

… the matters to which the court is to have regard in determining an application for an order under s14 include… (a) the intentions of the person or persons (if any) who created the trust and (b) the purposes for which the property subject to the trust is held…

Although there is an inevitable overlap between paragraphs (a) and (b), it seems clear that an express statement in the transfer or trust deed to the effect that the property is to be a joint home and used to house a co-owning survivor, would suffice to pre-empt any court application for sale.

It is possible that, in certain circumstances, the element of underlying purpose can operate like an estoppel in precluding a sale on the death of a co-owner. In Jones (AE) v Jones (FW) [1977], for example, a father had induced his son to give up his employment and to contribute money towards the purchase of the father’s house. This was done on the basis of a reasonable expectation, encouraged by the father, that the son could live in the property for the rest of his life. The Court of Appeal held that the father’s widow (who later succeeded to the father’s interests under the relevant trusts) was estopped from obtaining an order for sale, the Court considering it inequitable to defeat the purpose originally contemplated by the parties, which was to provide long-term housing for the son.

Creating life interests and remainders

An alternative way forward would be to employ an express trust which declares that A and B hold the property on trust for themselves for their joint lives, remainder to all their children in equal shares. This way, A and B acquire an immediate joint life interest in the property vested in possession, whilst the children have the benefit of a vested remainder with possession postponed until the death of the survivor of A and B.

On the death of A, the survivor (B) will succeed to the life interest and will, therefore, be entitled to remain in the property. The possessory rights of all the children remain postponed during B’s lifetime, but will fall into possession as soon as B dies. They will then become absolutely entitled in equal shares. For the purposes of s15 of the 1996 Act, the underlying purpose of the trust would be self-evident in that A and B would have interests for their joint lives in the property, whilst the children would have to wait to inherit their shares.

Lease for lives

At first glance, the mechanism of a lease for joint lives may appear to provide an attractive alternative to the grant of joint life interests. Normally, a lease determinable with a life is converted, under s149(6) of the Law of Property Act 1925, into one for a fixed period of 90 years, if it is granted at a rent. If no rent is payable, however, the lease for life takes effect under a trust and, for most purposes, is virtually identical to a life interest under a trust because there is no statutory conversion under the 1925 Act.

The inherent problem, however, in applying this mechanism to our scenario is that the parties to a lease must be different persons, so that A and B cannot legally grant a lease of the property to themselves: see Rye v Rye [1962] and Ingram v Inland Revenue Commissioners [1997]. The rationale is that a lease creates a division of ownership between landlord and tenant. If the landlord and tenant is one and the same person, there is a merger of freehold and leasehold estates and no division of ownership can occur. By way of statutory exception, however, it is possible for A (the legal owner) to grant a lease to Aand B. Similarly, Aand B can grant a lease to A (or B) under s72(4) of the Law of Property Act 1925.

Mutual wills

Wills, as we all know, are inherently revocable. However, they can become irrevocable through the application of the doctrine of mutual wills. As Morritt J said in Re Dale [1993]:

… the doctrine of mutual wills is to the effect that where two individuals have agreed as to the disposal of their own property and have executed mutual wills in pursuance of the agreement, on the death of the first, the property of the survivor, the subject matter of the agreement, is held on an implied trust for the beneficiary named in the wills. The survivor may thereafter alter his will, because a will is inherently revocable, but if he does his personal representative will take the property subject to the trust.

The rationale for imposing a constructive trust in such circumstances is that equity will not permit the survivor to perpetrate a fraud by reneging on the agreement. Because the survivor receives the property on the basis of the agreement not to revoke their own will, it would be unconscionable for them to take the benefit without complying with their promise, and thus equity intervenes to prevent this fraud. In this connection, there must be clear evidence (eg statements included in the wills) of a legally binding contract not to revoke, rather than just a mere moral obligation so to do: see Re Dale, Goodchild v Goodchild [1997], Re Hagger [1930] and Re Cleaver [1981]. The constructive trust operates as a form of floating trust on the death of the first testator, which prevents the survivor disposing of the property by will in a manner inconsistent with the mutual wills. It seems, however, that the survivor can dispose of the property during their lifetime so long as this does not defeat the purpose of the trust. Upon the survivor’s death, the trust crystallises and attaches on the remaining assets in accordance with the terms of the mutual wills.

In our scenario, A and B already hold title to the property as tenants in common in equity. Let us assume that they execute identical wills leaving their respective shares in the property to each other for life, remainder to their issue. What will be the effect of this arrangement? In the event of A’s death, for example, the constructive trust will take effect to protect the terms of the parties’ agreement, giving B a life interest in the house over A’s share with remainder (after B’s death) to A’s children. When B dies, B’s own children will become entitled to B’s share and A’s children obtain the interest in remainder in A’s share.

Conclusion

The scenario posed in this article is not an uncommon one, given that more and more couples are now in second-time relationships following a failed first marriage or previous relationship involving children. The parties will be naturally anxious to secure a home for their joint lives as well as providing financially for their respective issue upon death.

The obvious approach is to rely on the standard form of declaration of trust in the transfer document expressly declaring that the parties hold on trust for themselves as beneficial tenants in common. If, however, the parties then make wills leaving their respective shares in the property to their issue, there is the potential for conflict where a surviving co-owner wishes to remain in the property and the children want a sale in order to realise their inheritance. Although, as we have seen, a simple statement in the transfer document that the property is a home for the parties’ joint lives would probably thwart any attempt at a forced sale, the matter would not always be free from doubt. An alternative approach is to create life interests in favour of the parties with remainders to their respective issue. As noted earlier, for the purpose of the 1996 Act, the ‘underlying purpose’ of such a trust would be self-evident in that the parties would have joint life interests in the property whilst the children’s entitlement would be postponed automatically until the death of the survivor.

The third solution, as we have seen, is to adopt the mechanism of mutual wills, which allows the surviving coowner to retain a life interest in the property over the deceased’s share until their own death. Here again, the remainders in favour of the children will not fall into possession until the survivor’s death. © Property Law Journal