Joint Tenants and the division in Equity
By Steven Smith and Alex Milne
Our firm recently achieved an impressive result for a client who had been engaged in a property law litigation. The decision by his Honour Justice Croft is interesting and somewhat significant in that it clarifies issues surrounding the severance of a joint tenancy in equity where co-owners of real property are registered as joint-tenants. This article is co-authored by Stephen Smith, Managing Partner and Alex Milne, Construction Lawyer of Lovegrove Solicitors, and endeavors to explain some of the main principles referred to in the judgment. This exploration may be useful in helping people to understand the mechanics of their own situation if they hold property in a co-ownership relationship. To access this article please click here.
Joint Tenants and the division in Equity
Our firm recently obtained a significant result for a client engaged in a property law litigation matter Mischel v. Mischel Holdings Pty Ltd (in liq)  VSC 292. The decision by his honour Justice Croft was extremely precise, and clarified a number of important points on the issue between the equitable and legal interests held by co-owners of property.
Explanation of Joint Tenancy v Tenancy in Common:
in property law, co-owners of property can hold their property in two different ways – as ‘joint tenants’ or as ‘tenants in common’. Many co-owners may not even remember whether they hold as joint tenants or tenants in common, however whenever a transfer of land is registered, it will be there, specified in black and white.
Joint tenants mean that each owner has an undivided equal share in the whole of the land and the demise of one means that their share passes to the other joint owner. Tenants in common are where each party has a defined share in the land and this can be 50/50 or 40/60 or 90/10 or any such other percentage ratio. When one party dies as a tenant in common their share passes according to the terms of their will or according to intestate laws, rather than going automatically to the other part owner on survivorship.
The issue arises where the parties are registered on title as joint tenants but they agree or act in such a way as to in truth be tenants in common.
Brief Statement of the facts of the case:
In the Mischel case the owners of an apartment were a mother and her son’s company. The parties were registered on title as joint tenants. The mother loaned the son’s company moneys prior to the purchase of the apartment that equated to at least half the cost of the purchase of the apartment. The mother occupied the apartment exclusively for a number of years and the son, by his company used the apartment for security over various loans and finance arrangements with third parties. Shortly before the mothers death the mother had expressed a desire to sell and move to reside close to family in Queensland. It was agreed the mother would receive her share of the proceeds of the sale of the apartment free of any encumbrances created by the son’s company on the title.
The mother died before settlement of the sale of the apartment, and the son’s company went into liquidation. The liquidator sought the mother’s share of the proceeds of sale based upon survivorship a joint tenant. The estate of the mother contended that the joint tenancy had been terminated in Equity and the mother’s share of the sale proceeds should be distributed as if she was a tenant in common, namely according to her will.
Summary of the Judgement by Croft J:
Justice Croft held that, as the son’s company never had possession of the apartment that there was not the requisite unity of possession which was required to constitute a joint tenancy. The son’s company never had the right to possession of the premises, as it was an apartment for the mother to live in by herself.
Further and alternatively, and of more wide ranging application, his Honour found that an oral agreement to sever a joint tenancy will suffice and that Equity regards the parties as tenants in common as soon as the agreement to sever is made, even though legal title remains in them as joint tenants, and even though the agreement contemplates the occurrence of future events. The consideration for the agreement to severe can be said to be the relinquishment by each party of their interest as a joint tenant, including the right of survivorship. The joint tenancy was transformed into a tenancy in common immediately upon the making of the agreement.
The agreement to transform the joint tenancy into a tenancy in common can also be supported by part performance and there can as a separate ground be severance of the joint tenancy by a course of conduct that constitutes ‘a general dealing, sufficient to manifest the intention to divide the whole.’
Discussion of some of the interesting points raised in the judgement:
It appears that although parties may at law be joint tenants it is relatively easy for the parties to become tenants in common if they so agree, even if such agreement is oral, or they conduct themselves in such a manner as to show an intention to severe the joint tenancy.
This is a case where Equity provides a very practical solution to giving effect to the true intention of the parties. Common law is very rigid but Equity provides the flexibility to accord with the true intentions of the parties.
Even at the time of registration, co-owners can in fact be joint tenants at law, but tenants in common in equity. Firstly, if the purchasers contribute to the purchase price in unequal shares, then they shall be deemed to be tenants in common in equity, even if registered as joint tenants.
Additionally the so called ‘four unities’ must be present. One of the four unities touched upon was the unity of possession. Essentially unless both co-owners are entitled to possession of the property, they cannot be joint tenants. Notably in this case, although both parties were theoretically entitled to possess the property, in reality the agreement was that the mother who was entitled to possess the property, and the son’s company would not. This side agreement was held to have the effect that the unity of possession was broken, and the parties were therefore tenants in common in equity from the very beginning.
This decision provides an interesting exploration of the principles in this area where there is often more than meets the eye in the co-ownership relationship between the parties. The decision affirms the general position that co-owners can become tenants in common simply by engaging in conduct or structuring their relationship in a manner which is inconsistent with a joint tenancy. The co-owners may not understand the legal technicalities of what they are doing, but thankfully equity is doing a good job if looking into the intentions of the parties and effectively correcting the record where the registration of the parties as joint tenants does not reflect those intentions.