By Tara McInnes, Partner within the Contentious Wills and Estates Team at The Burnside Partnership
An issue I have come across on several occasions in Deceased estates, which sometimes confuses clients and legal advisers, relates to the treatment of land when one of the joint owners dies.
Most Solicitors will recall from law school the basic legal principles of owning property where there are joint owners. It can be held as either:
a) joint tenants, whereby upon the death of one of the owners their share passes automatically to the survivor; or
b) tenants-in-common, whereby the Deceased person’s share passes under the terms of their Will or the rules of intestacy (if there is no Will).
On the face of it this seems straightforward, until the elements of legal and beneficial ownership are introduced to the mix. This is where things start to get more complicated.
Property ownership and restrictions
Since 1925, legal title to a property can only be held as joint tenants (sections 1(6) and 34 of the Law of Property Act 1925). Therefore, should one of the joint owners of a property die, legal title passes to the survivor (Surviving Owner) irrespective of whether they hold the property as joint tenants or tenants in common.
Once the Land Registry becomes aware of the death, it will remove the Deceased person’s (Deceased Owner) name from the register and the Surviving Owner becomes the sole legal owner on the title register. Should anyone examine the title register, they would see only the name of the Surviving Owner, with no reference to the Deceased Owner or their estate.
Where property was held as joint tenants during life, the Surviving Owner owns both legal and beneficial title and is free to sell the property. Where the property was held as tenants in common, a restriction should have been entered on the register – this remains after the Deceased Owner dies. It should therefore be apparent to any purchaser of the property that a share of the beneficial ownership of the property is held by the Surviving Owner on Trust for the Deceased Owner’s estate.
The relevant restriction is usually a Form A restriction, which states:
‘no disposition by a sole proprietor of the registered estate (except a Trust corporation) under which capital money arises is to be registered unless authorised by an order of the court.'
So, the restriction prevents the sale of the property by the Surviving Owner then, right? Wrong. The restriction only restricts the sale by a ‘sole’ proprietor. Where there is more than one Surviving Owner, the property can be sold. Even where there is a sole Surviving Owner, they can appoint a second Trustee (usually in the TR1 form) to ‘overreach’ the beneficial interest of the estate and sell the property. The estate’s interest then fixes to the net proceeds of sale, which the Surviving Owner holds on Trust for the Deceased Owner’s estate.
Where during life the joint owners are married or in a civil partnership, the property is their home, and the surviving partner is the main beneficiary of the estate, there is usually no issue with them holding legal title following the death of their spouse or civil partner. However, difficulties can arise where the joint owners are not married or partners, where they are divorced, siblings, or worse, where they are not related – this is especially so if there is an existing estate dispute.
In these circumstances, it is not uncommon that upon realising that they are free to sell jointly held property simply by appointing a second Trustee, the Surviving Owner proceeds to do exactly that, much to the horror of the beneficiaries of the Deceased Owner’s estate.
The potential risks and disputes
Understandably, the beneficiaries of an estate who are in dispute with the Surviving Owner of the property might find it difficult to understand why they now appear to be able to do what they like with the property, half of which belonged to the Deceased Owner and may have been held as tenants in common. Explaining to them that the Land Registry does not concern itself with beneficial ownership and is primarily concerned with a purchaser of a property obtaining good legal title, is unlikely to allay their fears.
The first thing most advisers do when discovering the removal of the Deceased’s name from the title register is to consider entering a restriction at the Land Registry. This would make sense, but there is already a restriction entered – a Form A restriction (see above). The beneficiaries, however, want more, especially once they have been advised this can easily be overreached by appointing a second Trustee.
So, the legal adviser starts to consider the various options available: should they apply for another form of restriction, of which there are many, but what does a restriction even do? Will it prevent a sale? In these types of scenarios, the Land Registry will not usually add a second restriction and will argue that the standard Form A restriction should suffice. They might agree to remove the Form A and replace it with another restriction, but that is not really what the beneficiaries want. You might obtain a Form LL as well as a Form A, but all this requires is that if the property is sold, the conveyancer signs a certificate confirming the proprietor is the correct owner.
There is also the added risk that if your client applies for a restriction without showing reasonable cause there could be an action brought against them for breach of statutory duty (section 77 Land Registration Act 2002). This is all very worrying, especially for grieving beneficiaries.
Therefore, what is to prevent the Surviving Owner from appointing a second Trustee to sell the property and then to disappear with the proceeds of sale? The answer is that, sadly, there is very little you can do to prevent this from happening. The Land Registry will not usually enter a restriction against the property where a Form A restriction already exists, because the Land Registry considers the Form A restriction is sufficient. In certain circumstances, you might be able to register a second restriction where you have agreement of the survivor, or if there is another reason for entering the restriction.
However, in my experience, I have found the Land Registry to be reluctant to do this.
The Land Registry is not interested in the beneficial ownership of the property; therefore, the new purchasers of the property will take good
title provided they have not been aware of any fraud. Where they are ‘on notice’ that there has been a deliberate attempt to take monies from the estate, then your client could have a claim against the proposed purchasers or the property itself.
So, what is available to advisers and clients to prevent such a situation from happening?
Pre-warned is pre-armed, and where there is an existing estate dispute it is always better to err on the side of caution. You should advise your clients as to what could happen. You should set up a Land Registry alert at an early stage so you are warned of any changes to the title – whilst this will not prevent the situation from occurring, it will at least provide advance warning so steps can be taken before the new ownership is registered.
If the Surviving Owner has legal advisers, set up an early dialogue with them about the sale or retention of the property. Ask whether their client would be prepared to agree to a restriction and discuss ways of dealing with any proceeds of sale.
If the Surviving Owner remains in the property and refuses to sell, then an application can be made by the Executors of the estate under The Trusts of Land and Appointment of Trustees Act 1996 for a declaration as to the ownership of the property and an order for sale.
However, in circumstances where the Surviving Owner has proceeded to sell the property and there is clear evidence they have no intention of accounting to the estate for its share of the sale proceeds and even more so where they are a flight risk, the only real way of preserving estate property is to apply to the court for an injunction. It goes without saying that this should be made sooner rather than later.
I have come across the above situation several times. I have spent many hours on the telephone to the Land Registry seeking to protect my clients’ interests and, as I am aware, so have many other advisers. I have had to threaten injunctive proceedings against Surviving Owners on several occasions but, thankfully, have only once actually obtained one. Legal advisers acting on behalf of estates, especially where there is a dispute, should consider the preservation of estate property at an early stage and advise their clients on the available options to minimise the risk of this type of situation occurring in the first place.
This article is featured in the autumn 2023 edition of our quarterly news digest, Entitlement. Click the image below to download your free copy of Entitlement for more informative articles.