Another co-ownership question - Equity?

ldxo15wus6fpgm

It might be apparent to some of you at this stage that I am a student. I'm having difficulty understanding the role of equity in the courts altogether, and me being me I ignored the topic because I disliked it, but until now I have managed to survive this problem.
My general understanding of it is that equity used to be an appeal to the king and then to the king's chancellor as the trend grew, but has now been developed into a set of exceptions to the rules of the common law (very open to correction here).

What has caught me out is my property law module. I'm studying for an exam, and on the topic of co-ownership it mentions that the rules of equity can intervene with the common law presumption of a joint tenancy existing, and recognise a tenancy in common.

So this means that a co-ownership can be a joint tenancy in law and tenancy in common in equity.
My question is: What the hell does that mean?! I can't figure it out and can't find anything that tries to explain this.

evercloserunion

I think what you need to understand is that ownership of property can be divided into two types; legal ownership, and beneficial (aka equitable) ownership. One piece of land can be owned in law by one person, and by equity in another (or, of course, both types of ownership may vest in a single person). Legal ownership of land is dealt with by common law rules, whereas equitable ownership is governed by the rules of equity. The main practical distinction between the two types is that the person who owns the land in law must use that land for the benefit of the person who owns it in equity, ie he holds it on trust for the equitable owner.

Sometimes people intentionally and expressly divide the legal and equitable ownership of land by creating an express trust. For example, where a testator wants money to be used to provide for a minor, he may give the money to someone else to be held on trust for the minor. But sometimes legal and equitable ownership is divided by the operation of law, particularly when common law and equity each apply different rules to a transaction of land. For example, if someone purports to make a transfer of land and the formal requirements of the Statute of Frauds are not met, the transaction will fail at common law, but there are some instances where equity will not insist on the requirements being met (eg, where to do so would allow someone to benefit from fraud). In such circumstances, the land would stay with the transferor in law but would move to the transferee in equity--legal and equitable ownership would be separated.

The same applies to co-ownership. When people don't specify which form of co-ownership they want to hold the land under, courts have to choose which one to apply. Common law courts traditionally held that, absent any express evidence of an intention to the contrary, parties would be presumed to hold under a joint tenancy. This meant (as you probably know) that when one co-owner died and others remained, the deceased co-owner couldn't pass his interest to his heirs because of the operation of survivorship. But because equity was more flexible, it recognised that there were some situations in which this wouldn't be fair or sensible, for example in commercial scenarios or where there had been unequal contributions to the purchase price of the property. Therefore, equity in such circumstances presumed that a tenancy in common had been created, so each co-owner had more freedom to deal with their own share (and someone who paid a bigger proportion of the price had a bigger share). The equitable rules, of course, applied only to the equitable ownership of the land, and the common law rules applied to the legal ownership of it, so the legal ownership would vest in one way and the equitable ownership would vest in another, different way.

As for the practical consequences, let's say A and B own land in legal joint tenancy but equitable tenancy in common (in equal shares). B dies. His legal interest in the land immediately passes to A via survivorship, but he can pass his equitable interest to his son, C. So now A owns all the legal interest in the property, but he holds half of that on trust for C. C is entitled to the benefit of that half of the property.

I know this is long and sorry if I explained too much, it's difficult to guage people's prior understanding of the issues. Also, that was recalled from memory and is not intended to be a watertight restatement of the law but hopefully you get the general idea.

ldxo15wus6fpgm

evercloserunion wrote: »

(pure gold)

Thankyou a million times over, I understand it now. You should try your hand at lecturing

ldxo15wus6fpgm

After explaining it to someone else a little scenario has popped up in my head.
I'm fairly sure that if you own part of a property and you're excluded from it by another owner you can claim rent under a common law rule under an action of ouster? (again open to correction)

But this is a common law rule. What if B decides he's not going to rent/sell the house but instead he will live in it and excludes C from the property? This means C cannot benefit as he has no legal interest in the house and cannot claim ouster on a house he does not legally own.

Is that correct?

evercloserunion

Well the thing is, C isn't necessarily entitled to occupation of the property in the first place. C's equitable interest in the land entitles him to the benefit of the property, not to actual possession or occupation of it. A common example of how this works would be if the legal owner (trustee) of the land was to rent out a house or office space on the land and apply the proceeds in some way that benefits C. Although I guess it's possible that the trustee might decide that it would be most beneficial for C to occupy the land at a low or reduced rent.

The key point is that the trustee must make sure that the land is applied in a way that benefits the beneficiary, but he usually has some discretion as to how to achieve that aim. Also, the trustee is liable for breach of trust where he does not manage the property for the benefit of the equitable owner. So it's really up to the trustee to make sure that the beneficiary is not deprived of his benefit under the trust.

It's an interesting point you raise about one equitable co-owner preventing another from benefiting from the land, but my understanding is that it's up to the trustee not to let this happen, and that in any case a beneficiary won't usually have sufficient direct control over the land to prevent the others from benefiting from it anyway.