7.1 It is apparent that a joint tenancy arrangement is a mechanism for distributing property after death. The procedure for severance should be neither more complex, nor more time consuming than drafting or altering a will.
7.2 Contrary to popular belief, joint tenancies do not carry any “security” for the co-owners. As a general rule, every joint tenant is at liberty to defeat the right of survivorship at any time. Unfortunately though, the difficulties involved in severing unilaterally a joint tenancy serve to reinforce and perpetuate the notions of permanence and security that the term joint tenancy apparently connotes.
7.3 There is no good policy reason for endowing joint tenancies with the qualities of permanence and security when severance generally, and unilateral severance in particular, is a right which currently exists. The entitlement to sever should be facilitated, not impeded.
OPTIONS FOR REFORM
7.4 Any new procedure for severing unilaterally must possess certain key attributes: it must be simple, affordable and quick.
7.5 In DP 23, two possible options for achieving reform were suggested: severance by registration of a declaration of severance (modelled on the Tasmanian provision) and severance by notice (based on the English model but adapted to our system of title by registration).
7.6 The submissions received overwhelmingly supported the first option, although there was at least one very strong submission favouring the second option, which convinced the Commission to reassess its provisional recommendation in favour of severance by registration proposed in the Discussion Paper.
7.7 Following a thorough re-assessment, the Commission’s initial preference in favour of severance by registered declaration has prevailed. Set out below, in abridged form, is an assessment of the options for reform considered by the Commission in formulating its ultimate recommendation; including the reasons for preferring severance by registered declaration.
SEVERANCE BY NOTICE
7.8 In summary, this model would permit a joint tenant to effect a severance in equity on communication of a written notice, provided that the notice evinces a clear intention of effecting an immediate severance of the joint tenancy. Severance at law would be postponed until registration of the notice.
7.9 It is objected that as a result of this procedure the Register could cease to provide an accurate reflection of the relationship between co-owners in all cases. However, there are a number of reasons why this is not a compelling argument. As one submission noted:
- it has always been the case that a joint tenancy is severed in equity when one joint tenant has entered into a binding contract to sell his or her share to a third party;
- since Corin v Patton it is possible to sever a joint tenancy of Torrens Title land in equity where the joint tenant has done all that he or she can do to put the donee in a position to become the registered proprietor; and
- finally, and more generally, the courts have consistently recognised unregistered interests.1
7.10 For example, at general law severance of a joint tenancy by agreement or by course of conduct is recognised. In such circumstances the Register will not necessarily reflect the proper status between co-owners and yet the agreement or course of conduct is sufficient to sever the joint tenancy.
7.11 One of the most important factors in favour of this model is that disadvantage is unlikely to be suffered by third parties. A bona fide purchaser for value, or non-fraudulent volunteer may rely on the Register. The equitable severance on communication of notice would occur between the parties to the transaction only. The title of a bona fide purchaser for value or non-fraudulent volunteer is indefeasible, in accordance with the ordinary principles of priority.2
7.12 Therein lies the incentive for the severing joint tenant to secure registration of the notice in due course. Only registration will make the notice effective at law against the whole world, and prevent the rights of third parties intervening, and taking priority.
7.13 By contrast, any title to the entire property obtained by a fraudulent joint tenant must be defeasible. For this proposed model for effecting a unilateral severance to operate effectively in practice, provision would need to be made affirming that registration of a notice of death by the surviving joint tenant, in clear disregard of the notice of severance amounts to fraudulent conduct, and that the resulting title would be defeasible at the suit of certain nominated parties. In this way a mechanism is provided for ensuring that the surviving joint tenant cannot assume ownership of the entire property in the event that the other joint tenant dies before the notice of severance is registered.
7.14 This proposal is very attractive for its simplicity. Depending on the requirements for effective notice, it also has the potential to operate in such manner as to ensure that severance is not defeated by reason only that the severing joint tenant has no knowledge of
- the form of co-ownership;
- the significance of the rule of survivorship; or
- the legal requirements for effecting severance;
provided that he or she has nevertheless clearly indicated that he or she regards his or her interest as one held in common rather than jointly. For example, it is currently the case that severance by course of conduct will have taken place even where the joint tenants are ignorant of the fact that they hold as joint tenants: Williams v Hensman.
7.15 The advantages of this model are its inexpensiveness, speed (the notice is effective on communication) and informality (the notice need not be in any particular form). The tenancy is severed without the need for court proceedings, access to title documents, or administrative delay.3
7.16 These features notwithstanding, there are several factors which have ultimately persuaded the Commission against adopting this model. The principal arguments against severance by notice are summarised below.
Reasons for rejecting severance by notice
Severance by notice produces greater uncertainty
7.17 The benefits to be derived from informality are outweighed by the uncertainty it produces. This scheme offers no absolute assurances that a given document constitutes notice. To prescribe formal requirements for notice would destroy the objective of giving effect to the intent of the joint tenant however informally expressed. However, in the absence of specific requirements it would then fall to the courts to decide whether the requisite elements were to be found in a given document. The terms of an informal communication intended to sever a joint tenancy might well be unclear. A question may also arise as to whether a particular document had the implied or incidental effect of severing the joint tenancy. There may be uncertainty not only as to whether a document constituted notice of severance, but also as to whether there had been communication of the notice.
7.18 In any case the advantages of informality may be illusory. It may be doubted that anyone would attempt to effect severance without consulting a lawyer.
Severance by notice introduces a greater chance of fraud and/or duress
7.19 If this method is to be available to give effect to the intent of persons who are ignorant of the law it will be less practical to insist on the same safeguards against fraud existing in respect of wills. A compromise position in which there are set requirements for notice with judicial discretion to waive the requirements (modelled on s 18A of the Wills, Probate and Administration Act 1898 (NSW)) is not particularly satisfactory. The principal objective of introducing the section would only be accomplished by reference to the exception rather than the rule. Too much reliance would be placed on the exercise of judicial discretion, a fruitful source of litigation.
7.20 Moreover, the position of the surviving joint tenant cannot be disregarded. Introducing severance by notice admits the possibility of unscrupulous beneficiaries falsely alleging that severance has taken place.
REGISTERED DECLARATION OF SEVERANCE
7.21 Severance by registered declaration addresses the problem identified in the Discussion Paper without attracting the concomitant problems found with severance by notice.
7.22 Severance by registration of declaration of severance represents a simplified procedure for severing unilaterally in terms of cost, complexity and time while in no way derogating from the primacy of the Register.
7.23 Unilateral severance by registration of a declaration of severance meets the essential criteria identified in paragraph 7.4 above. Under this proposal severance can be achieved in a straightforward manner. Severance by registered declaration obviates the need for the severing joint tenant to alienate his or her interest or appoint a trustee. Intervention by the court is avoided. Cost is minimised since court fees and legal fees connected with court proceedings are eliminated.
7.24 Certainty is the clear advantage of having severance effective at law and in equity on registration. No equitable interests are created outside the Register. Under this scheme the integrity and accuracy of the public record is maintained. A standard document ensures consistency and permits the surviving joint tenant and the beneficiaries of the deceased joint tenant to be confident of their respective positions.
7.25 Registration of a declaration of severance in a prescribed form is unambiguous and unequivocal. Either the declaration has been registered or it has not. Litigation is avoided. The opportunities for fraud are negligible. The drawbacks outlined in the paragraphs above in relation to severance by notice do not arise.
7.26 The severance procedure envisaged can be quickly carried out. As evidenced by the Tasmanian system, dispensing with the need to produce the certificate of title facilitates rapid registration and overcomes one of the major obstacles to successful severance operating at present. A similar provision in New South Wales would reduce the opportunities for the non-severing joint tenant to be obstructive.
7.27 The obvious disadvantage is that nothing short of registration will suffice. This proposal will not prevent the rule of survivorship operating if death of the severing joint tenant occurs before the registration process is complete. It is the Commission’s considered view, however, that the introduction of a provision designed to meet this rare occurrence is unwarranted.
CONDITIONAL SEVERANCE ON LODGMENT OF DECLARATION
7.28 A third possible model was considered as a means of overcoming perceived shortcomings in the option of severance by registered declaration.4
7.29 Under this model notice to the other joint tenant(s) would be required. Notice would be given to the other joint tenant(s) by the Registrar, upon lodgment of the declaration. Registration would be postponed for a specified period of time, during which the other joint tenant(s) would be able to take action to prevent registration of the declaration.
7.30 Severance would be effective when a declaration of severance was lodged, unless court action to prevent registration was taken by the other joint tenant(s) within this specified time period. If court action failed, severance would be effective retrospectively from the date of lodgment. In this way, a severance would not be defeated should the severing joint tenant die before the court action was resolved in his or her favour.
7.31 This model was suggested as a means of ensuring that a severing joint tenant would not be prejudiced by delays on the part of the Land Titles Office in registering a declaration or delay caused by the presence of a caveat.
7.32 The Commission does not believe that these are significant problems. Although the Land Titles Office does currently experience administrative delays during periods of peak lodgment or by reason of computer malfunction, it anticipates that within a few years lodgment and registration will be effected simultaneously.
7.33 The circumstances in which the non-severing joint tenant’s interest in maintaining the joint tenancy would support a caveat are rare. Provided that provision is made for the declaration of severance to be added to those dealings listed in s 74H(5) of the Real Property Act, the circumstances in which delay may be caused by the presence of a caveat are minimal.
7.34 In these circumstances the safeguards contemplated by the third model are largely unnecessary and represent a significant departure from the general thrust of the Real Property Act. The possible delays which might occur do not justify the introduction of this gloss, which would complicate an otherwise simple method.
RECOMMENDATION
7.35 For the reasons outlined above the Commission has adopted the provisional proposal contained in the Discussion Paper and recommends the introduction of unilateral severance by registration of a declaration of severance.
7.36 The features of this new scheme for unilaterally severing a joint tenancy are described in the following chapter.
FOOTNOTES
1. B Edgeworth Submission (29 February 1992) at 6-7.
2. In the case of a bona fide purchaser such indefeasibility would be conferred following settlement pursuant to s 43A of the Real Property Act 1900 (NSW).
3. B Edgeworth, Submission (29 February 1992) at 6.
4. Such as delays in the time from lodgment to registration, institution of court proceedings and presence of a caveat on the title. B Edgeworth Submission (29 February 1992) at 5.
