8.1 Chapter 7 recommended that severance by registration of a declaration of severance should be introduced. In this chapter the details of the procedure for effective severance are outlined.
8.2 First, a number of threshold issues need to be addressed.
SHOULD NOTICE TO THE OTHER JOINT TENANTS BE REQUIRED BEFORE SEVERANCE CAN TAKE PLACE?
8.3 Under both the Tasmanian and the Queensland schemes notice to the other joint tenants is contemplated. However, the Queensland provision requires the Registrar to be satisfied that a copy of the instrument has been given to all other joint tenants before he or she may register the instrument of transfer. In Tasmania notice is sent to the other joint tenants after registration.
8.4 A requirement of notification before the severing transaction is effective does impose a restraint on the severing joint tenant’s freedom of action. Arguably though, this burden is outweighed by consideration of the position of the other joint tenant.
8.5 The non-severing joint tenant may have (or may believe that he or she has) good grounds for seeking to prevent a severance taking place. For example, registration might be objected to on the grounds that it infringes a legal or equitable obligation including obligations under an agreement; or it might be alleged that the severance should not take place because the equal ownership which results ignores the fact that the parties contributed unequally to the purchase price.
8.6 Situations falling within the first category will be rare, although they are not unknown.1 The second category of aggrieved joint tenant is the most significant one. A non-severing joint tenant who contributed the largest proportion to the purchase price may complain about a severance which ignores this consideration. However, in such a situation, the non-severing joint tenant may be entitled to seek a declaration as to the extent of each of the co-owners’ interests. This remedy is not destroyed by the registration of the declaration of severance.
8.7 Insisting on service of notice on the other joint tenant(s) as a prerequisite for registration has the potential to jeopardise the severance and disadvantage the severing joint tenant severely. Delays might occur in complying with such a requirement, particularly since in many instances the joint tenants will be estranged. In the event that the other joint tenant were overseas, necessitating service by post, service would not be taken to have been effected until the letter had been delivered in the ordinary course of post.2 In the case of a seriously ill severing joint tenant any delay could defeat the severance.
8.8 Uncertainty about the sufficiency of notice could be resolved to a large extent by including formal requirements for notice in the code, including provision for substituted service, but that would not avoid all the practical problems about compliance, particularly where for example, the parties may be estranged, residence uncertain or avoidance of service possible.
8.9 Further, where time constraints exist and these are known to the non-severing joint tenant, a requirement of notice would present the non-severing joint tenant with an opportunity to employ delaying tactics.
8.10 Notice to the other joint tenant is not a prerequisite for existing methods of unilateral severance, and should not be a prerequisite for severance by declaration. Measures already exist which may be enlisted by the non-severing joint tenant to protect his or her interest, if in fact the interest is of a nature which deserves protection.
SHOULD NOTICE TO THE OTHER JOINT TENANTS BE REQUIRED AT ALL?
8.11 It is settled law that severance may be effected unilaterally without the consent, or even the knowledge, of the other joint tenant.
8.12 Secrecy, however, is at the very least unfair and may lead to a suspicion of fraudulent dealing. It is desirable that notice in fact be given to the other joint tenant. The other joint tenant ought to be apprised of the change in the nature of his or her existing interest. In this way he or she will be provided with the opportunity of making appropriate provision for the disposition of that interest by will. Notice of the severance to the other joint tenant(s) should be a part of the new procedure. The Commission proposes that the obligation to inform the other joint tenants of the severance reside in the Registrar General. However, this duty will be fulfilled upon issue of the notice to the last known address of the other joint tenant(s). The Registrar General should not be obliged to conduct enquiries for the purposes of determining the whereabouts of the other joint tenant(s).
8.13 The notification to the other joint tenants which is issued by the Registrar General upon registration of the declaration should advise that severance has taken place and that the joint tenant(s) should now make arrangements for the disposition of their interest.
CERTIFICATE OF TITLE
8.14 A significant impediment to expeditious unilateral severance at present is the inability of the severing joint tenant to obtain the certificate of title, either because it is in the hands of the other joint tenant who refuses to produce it or with a mortgagee who may likewise refuse to produce it without the consent of all mortgagors. There is a mechanism for dispensing with the need for production of the certificate of title but this procedure can take time.3 Once a severing joint tenant has attempted to negotiate with the other joint tenant or mortgagee and sought the assistance of the Registrar a considerable period of time may have elapsed. In the case of an ill or elderly joint tenant this delay may defeat the attempted severance. As noted previously in paragraph 6.4, it is the practice of the Land Titles Office in Tasmania not to require the production of the certificate of title for registration purposes. Under proposed NSW legislation the Registrar should be under an obligation to register the declaration of severance without insisting on the production of the certificate of title.
EFFECT OF THE SEVERANCE
8.15 By the nature of a joint tenancy each of the joint tenants have, at law, an equal interest in the property. Severance of a joint tenancy by presently available methods results in the joint tenants henceforth holding their interest as tenants in common in equal shares. The effect of a unilateral severance by declaration should be identical. The Registrar is not in a position to know or judge the merits of any special claim to the property made by any of the parties. Therefore the Registrar cannot register any declaration of severance which purports to create a tenancy in common in unequal shares.
8.16 It was a matter of some concern to the Law Society’s Property Law Committee that severance of a joint tenancy results in equal ownership notwithstanding that the parties’ contribution to the purchase price may have been unequal.4 However, this is neither a novel problem, nor is it one which arises exclusively in the context of unilateral severance. The law of resulting trusts has developed in response to this circumstance.5 Should the situation foreshadowed by the Property Law Committee arise in practice, it should be resolved according to ordinary principles of equity. This is a separate issue from severance per se and should be left to be addressed by the parties in the same way as any assertion that the legal position does not reflect the equitable position.6
8.17 Where there are more than two joint tenants and one joint tenant registers a declaration of severance the joint tenancy as between the remaining joint tenants should be unaffected by the severance such that, as between themselves, the other co-owners continue to hold as joint tenants. This is in accordance with the position at common law.
SHOULD THIS METHOD BE THE EXCLUSIVE MEANS OF EFFECTING UNILATERAL SEVERANCE?
8.18 In Williams v Hensman the Court declared three methods of severing a joint tenancy: an act of any one of the persons interested operating upon his own share; mutual agreement; and course of dealing. The current enquiry by the Commission is confined to an examination of the first of these methods. Specifically, the Commission’s recommendations are directed at overcoming those particular problems which have been identified as obstacles to expeditious unilateral severance, especially where the severing joint tenant is operating under time constraints by reason of age or ill-health. Outside of the discrete context in which the Commission’s recommendations have been formulated there is scope for the operation of the other methods of effecting severance, including those for unilateral severance identified elsewhere in this Report. Joint tenants wishing to sever the joint tenancy should be able to avail themselves of the most appropriate method, which may depend on individual circumstances.
SHOULD NOTICE FOLLOWING SEVERANCE BE A REQUIREMENT FOR ALL MODES OF UNILATERAL SEVERANCE?
8.19 The Commission has concluded that in the interests of fairness notice of the severance should be given to the other joint tenants after severance by declaration has taken place, where possible. These considerations of fairness are equally applicable to all forms of unilateral severance. The question therefore arises whether the requirement of notice should be made a general requirement for all modes of unilateral severance.
8.20 In the course of his judgment in the Canadian case of Re Sammon, Morden JA of the Ontario Court of Appeal said:
Before concluding, it is not out of the way to comment that while the law is well settled on this point, it seems wrong that one joint tenant should be able to sever a joint tenancy without any requirement that the other be notified.7
8.21 His Honour’s disquiet was particularly justified in that case, where severance of the joint tenancy was attempted by delivery of a deed to uses by one joint tenant in favour of himself as grantee. In this situation notice to the other joint tenant is a safeguard against fraud. Absent a requirement of notice, it is possible that a deed of assignment may be kept hidden and ultimately destroyed in the event that the other joint tenant dies first.
8.22 It would appear that land registry practice in certain provinces in Canada requires that notice be given to the other joint tenants as a prerequisite to severance.8
8.23 Whilst notice of severance to the other joint tenants is highly desirable in all cases on the grounds of fairness, the Commission does not wish to distract from the main thrust of its recommendations by proposing a requirement of notice under the existing methods of unilateral severance.
FORM AND CONTENT OF THE DECLARATION
8.24 Dealings with Torrens Title land are generally achieved by registering the approved RP form. As the declaration of severance is a registrable instrument a separate RP form for this purpose should be developed. The Land Titles Office suggested that RP 13 (“Transfer”) could be used for this purpose. However in order to distinguish this method of severance from a transfer to self as tenant in common pursuant to s 24 of the Conveyancing Act 1919 (NSW) and also to avoid characterising the transaction as a transfer it is preferable that a separate form be developed.
Content of prescribed RP form “Declaration of severance”
8.25 The minimum details which should be contained in this form are the particulars of title and description of the land. It should identify the joint tenants and there must be an execution clause and an attestation clause.
8.26 One submission received by the Commission9 made the following point:
[I]n the often difficult circumstances surrounding the dissolution of joint tenancies, the nature of the new interest created, being a tenancy in common which can be disposed of by will, is overlooked.
8.27 Two reasons are given to explain why it is necessary to ensure proprietors have considered the issue of disposition of their new interest (particularly as the proprietors severing tenancies are sometimes old or terminally ill), namely:
- It is always desirable that persons have given due consideration to the disposition of their belongings.
- More particularly, it may be that the reason for dissolution of the joint tenancy was to prevent a particular family member from taking by survivorship. If no provision is made regarding the property in a will the rules of intestacy might operate in favour of that particular person, and so thwart the proprietor’s intentions.10
8.28 It is suggested that a clause be included in the form acknowledging that due consideration has been given to making provision for the disposition of the property. The clause would serve as a reminder.
8.29 The Commission favours the insertion of an appropriately worded clause in the separate RP form to be developed.
Additional formalities
8.30 In Chapter 5 the Commission commented that a joint tenant should be able to sever the joint tenancy with the same degree of facility as in making or redrafting a will. Correspondingly, in order to safeguard against forgery and duress some at least of the formalities required for a valid will should be adopted. Old or dying joint tenants may otherwise be pressured into severing by persons taking under their will. At a minimum, the declaration of severance should be signed by the severing joint tenant in the presence of one or more attesting witnesses. The regulation prescribing the requirements of a valid declaration of severance should also address such issues as whether or not a person likely to benefit under the will of the joint tenant, as a result of the severance, should be disqualified from being a witness.
RECOMMENDATION 9
A separate RP form entitled “Declaration of Severance” should be created. It should identify the property and the joint tenants. It should contain an acknowledgment clause confirming that the joint tenant has given consideration to making provision for the disposition of the property following severance. It should contain an execution clause and an attestation clause, and should conform with such other requirements as may be prescribed by regulation.
POSITION OF JUDGMENT CREDITORS, MORTGAGES AND CHARGEES
8.31 One of the submissions received by the Commission raised the issue as to whether severance of a joint tenancy should be permitted without first obtaining the consent of any mortgagee, caveatee, chargee or judgment creditor registered on the title, or alternatively whether notice of the severance should be served upon such parties.11
8.32 The view of the Commission is that the consent of these persons or bodies to the unilateral severance of the joint tenancy should only be required if their position with respect to their security or judgment, as the case may be, is prejudiced by the severance.
8.33 Generally speaking not only is no disadvantage suffered by these people but their position may in fact be enhanced by a severance (in circumstances described below). Accordingly the Commission recommends that their consent to the severance not be required as part of the scheme.12 However, as a matter of courtesy such persons should be notified of the severance following registration of the declaration.
Mortgage
Old System land
8.34 This issue does not arise where the mortgage is by one joint tenant of his or her interest in Old System land. A mortgage of Old System land is in the form of a conveyance (subject to contractual proviso for reconveyance). Consequently the effect of one joint tenant creating a mortgage over his or her interest in Old System land is to sever the joint tenancy.13
Torrens Title land
8.35 A mortgage of Torrens Title land takes effect as a charge on the land, and not as a conveyance.14
8.36 It is most unusual for a mortgagee to accept as security a mortgage from one joint tenant alone, the reason being that if the joint tenant mortgagor dies before the other joint tenant(s) the land will vest in the surviving joint tenant(s) free of the mortgage.15
8.37 In the unlikely event that a mortgagee has accepted a mortgage from one joint tenant alone and the occasion arises for the mortgagee to exercise his or her power of sale then from the point of view of the mortgagee it makes no difference whether the mortgagor holds his or her interest as joint tenant or tenant in common: the mortgagee can only sell the extent of the mortgagor’s interest in the property. Naturally the person taking title under the transfer from the mortgagee takes as tenant in common.
8.38 In the usual situation, where all joint tenants are party to the mortgage, the rights and obligations of the parties are determined by the terms of the mortgage or the general law governing mortgages. The relationship between the parties has no bearing on their obligations to the mortgagee. Ownership is separate from liability under the mortgage contract.
8.39 At present, if all joint tenants are party to the mortgage and one of the joint tenants sought to sever the joint tenancy, the bank, as holder of the certificate of title would be made aware of the intended severance. Under the proposed system the certificate would no longer be required in order to sever the joint tenancy. The Commission recommends that as a courtesy the mortgagee should be advised of severance by declaration.
Judgment creditor
8.40 A judgment creditor has a number of avenues available for enforcing a judgment. Probably the most common form of enforcement chosen by creditors is a writ of execution against the goods of the debtor. It is not unusual for goods, for example, household furniture and motor vehicles, to be held jointly by the debtor and another. The practice adopted by the Sheriff in relation to such goods is that, as a general rule, they may be seized and sold. The other party may seek the assistance of the Sheriff who may bring an application for relief by way of interpleader. The form of co-ownership is of no practical significance to the judgment creditor when it comes to enforcing his or her judgment.
8.41 A debtor’s personal property may be insufficient to satisfy the judgment debt whereupon the judgment creditor may seek execution upon land. If the real property is co-owned then only the right and title of the debtor may be sold. This is the position irrespective of the form of co-ownership. Accordingly, a change in the nature of the co-ownership is of no consequence to the judgment creditor. However, where a writ has been placed in the Sheriff’s hands against a joint tenant, under which an interest in land may be taken by the Sheriff, and the joint tenant dies before execution, the surviving joint tenant will hold the land discharged of the execution.16 In this situation the position of the judgment creditor would in fact be enhanced by an earlier severance of the joint tenancy.
8.42 A further method of enforcing a judgment is by obtaining a garnishee order, whereby a creditor can “garnishee” money from certain people who owe money to the debtor. However, a joint bank account cannot be attached to answer a judgment debt of only one of the account holders.17 In this situation the judgment creditor would once again obtain a clear benefit from a severance of the joint account.
8.43 It should be noted that bankruptcy of one of the joint tenants effects a severance of the joint tenancy.18
WHO MAY SEVER UNILATERALLY BY DECLARATION?
8.44 The Commission anticipates that severance by declaration will have greatest application in matrimonial cases. However severance by declaration has a much broader application and the scheme should not be limited to joint tenants who are married couples. Apart from the exceptions noted below, any joint tenant, including corporations should be able to sever by declaration.
EXCEPTIONS TO THE GENERAL RULE
Old System land
8.45 The submissions received by the Commission on the question of whether severance by notice should be available in respect of Old System land were divided. In favour of extending the new procedure to Old System land was the Victorian Bar Council who submitted that if rights to unilateral severance are to be extended then they ought to be extended to owners of both Old System and Torrens Title land.
8.46 On the other hand, the Commission agrees with the submission of Mr Brendan Edgeworth, that there seems to be less need to introduce reform in the area of Old System land. The presently existing requirements for severance: execution and delivery of a deed, are not particularly onerous and may be satisfied relatively quickly. Furthermore, a notice of severance could easily be removed, either by accident or by design, from the chain of title, with resulting prejudice to bona fide purchasers for value.
8.47 There are approximately only 60,000 to 80,000 parcels of Old System land still in existence in NSW, representing about 3% of all existing land parcels. It is likely that in another five to ten years all outstanding land parcels will have been converted to Real Property Act land.19 Extension of unilateral severance by declaration to Old System land is not warranted.
Persons holding property as joint tenant by virtue of their office
8.48 There are some capacities in which persons hold property together which are most suited to joint tenancy. This fact is recognised by statute because the statutory presumption in favour of tenancy in common does not apply to persons who by the terms or the tenor of the instrument are executors, administrators, trustees, or mortgagees.20
8.49 The position of executor is in fact quite exceptional and co-executors are not joint tenants in the technical sense. Generally speaking the authority of co-executors is joint and several so that any one of them may bind all of the others.21 Unlike ordinary joint tenants, executors cannot partition a chattel22 and they have no power to sever their joint interest and create a tenancy in common.23
8.50 A further and common example of persons holding property as joint tenants by virtue of their office are trustees. Trustees invariably hold trust property as joint tenants because of the convenience of the trust property passing automatically by the right of survivorship to the other trustees when one trustee dies. If co-trustees were not joint tenants then on the death of one of the trustees a conveyance of the trust property to the surviving trustee would be necessary, because the office of trustee does not devolve on the trustee’s legal personal representative upon his or her death.
8.51 In contrast to executors, where there is more than one trustee of a private trust, the concurrence of all is in general necessary in a transaction affecting the trust property. Subject, therefore, to any contrary provision in the trust instrument constituting the trust, unilateral severance by one trustee is not possible. If severance is for any reason deemed necessary then the trustee may seek the authorisation of the Court. In the exercise of their general supervisory power over trusts, courts may authorise any action which is beneficial to the trust.
8.52 The Law Society’s Property Law Committee was concerned that any relaxation in the requirements to sever joint tenancies will make it easier for a fraudulent trustee to dispose of an interest in trust property to a third party without the knowledge of his co-trustee especially if the fraudulent trustee holds the title deed.24
8.53 A simplified method of severing unilaterally will not facilitate a fraudulent disposal of an interest in the property. Unilateral severance by declaration will enable a joint tenant to sever the joint tenancy without the need to produce the certificate of title. However, any disposal to a third party will continue to require the certificate of title. If a trustee has the certificate of title and is determined to be fraudulent there is no reason why he or she would wish to effect severance at all.
PERSONAL PROPERTY
8.54 Generally speaking personal property is capable of being owned in common or jointly in the same way as real property.25
8.55 The incidents of joint tenancy in personal property are identical to those of a joint tenancy in real property. Thus the “four unities” are necessary for the creation of a joint tenancy in personalty, and so also the rule of survivorship holds.
8.56 Joint ownership of personal property is likewise severed in the same manner and by the same methods available in respect of real property. In fact the property the subject of dispute in Williams v Hensman, from which the classical statement on severance derives, was personal property, in that instance a money fund.
8.57 In England, there is some dispute as to whether severance of a joint tenancy in personalty by notice is available under the general law. It has been said that it would be a curious position if the method of severance prescribed by s 36(2) of the Law of Property Act (UK) was only available in respect of real property.26 In New South Wales there is little doubt that severance of a joint tenancy in personalty by notice is not possible.
8.58 To avoid any uncertainty, and to prevent the anomalous situation whereby the same procedures are not available for all forms of joint tenancy, the Commission recommends that it be made explicit that severance by declaration extends to joint tenancies in personal property.
8.59 In view of the broad range of items coming within the category of personal property it is not convenient to make individual recommendations in respect of each kind of personal property. In so far as they are applicable, the preceding recommendations have effect in respect of personal property.
8.60 In general (and subject to the important qualification mentioned in the paragraph below), a written declaration communicated to the other joint tenant(s) showing an intention to bring about the severance immediately should sever the joint tenancy both in equity and at law.
8.61 This is quite straightforward in relation to those items of personal property with which third parties have neither interest nor function, such as most common chattels. Where complications arise, however, are in those cases where third parties are unavoidably involved, or have a compulsory interest in the items of personal property. Choses in action where ownership or membership is a reflection of, and dependent upon notation being made in, a Register are the obvious example. In such cases the written declaration should take effect in equity once communicated to the other joint tenant, but severance should not be taken to have been effected at law unless and until the Register is altered. As noted in Chapter 4, ownership in common in certain choses in action may not be possible either as a matter of law or as a result of the instrument creating or governing the particular item of personal property. In these cases also, the written declaration should nevertheless take effect in equity once communicated to the other joint tenant.
8.62 Permitting severance to take effect in equity on communication of the written declaration to the other joint tenant, before the Registrar notes the consequence of the declaration, introduces a material difference between severance by declaration of joint tenancies in personal property and real property. The main reason for this difference is that, unless alterations to the governing legislation were to be made, a declaration of severance is not the type of document which would generally be accepted for recording purposes into a personal property register. Few personal property registers have the facility to record a transaction of this nature. They are not designed to accommodate the type or extent of information that can be entered into the Torrens Register. Personal property registers do not have the paramount status of the Torrens Register. Under the Torrens system the Register is conclusive. By contrast, a share register (for example), is merely prima facie evidence of all matters inserted therein.27
8.63 To give effect to this recommendation ancillary changes to some of the governing statutes may be required, stipulating that a declaration of severance is an exception to the general provisions which make unregistered particulars inadmissible for the purpose of proving title.
RECOMMENDATION 14
Severance by declaration should be available to joint tenants of personal property. As a general rule, and subject to any prohibition to the contrary by statute or in an instrument relating to the item of personal property, a written declaration of severance communicated to the other joint tenant(s) should take effect at law and in equity.
In cases where there is a system of registration of title, severance at law should be postponed until the Register is appropriately altered. However, a severance of the joint tenancy in equity should occur on communication of the written declaration of severance to the other joint tenant(s).
Similarly, in so far as a severance of the joint tenancy cannot be achieved at law, for whatever reason, then the written declaration should have effect in equity upon communication of the declaration to the other joint tenant(s).
CAVEATS
8.64 The caveat provisions in the Real Property Act are intended to offer persons with an unregistered interest in Torrens Title land protection for that interest. The provisions operate in the following manner. If a dealing is lodged for registration which would defeat the caveator’s interest, the Registrar General must withhold registration until the caveator has been given the opportunity of pursuing such remedies as he or she may have against the person lodging the dealing for registration.
8.65 Clearly, a caveat will delay the registration of the dealing in question. It is conceivable then, that the registration of a declaration of severance might be delayed by the presence of a caveat, thereby jeopardising severance.
8.66 For the purposes of this discussion it is convenient to consider separately caveats lodged by third parties and caveats lodged by the co-tenant. As regards caveats in the former category it was apparent from the consideration at paragraph 8.33 et seq above, that a change in status between co-owners from joint tenants to tenants in common was essentially a matter of indifference to mortgagees and chargees. It is hard to conceive of any interest of a third party that would be defeated by a severance of the joint tenancy.
8.67 To minimise the risk of delay by reason of the presence of a caveat generally, a declaration of severance should be added to the list of dealings contained in s 74H(5) of the Real Property Act 1900 so that the Registrar will not be prohibited from recording the declaration of severance, unless the caveat otherwise specifies.
8.68 As regards caveats lodged by the other or another joint tenant, it was noted in Chapter 7 that in practice it would be rare for the non-severing joint tenant’s interest in maintaining the joint tenancy to be sufficient in itself to support a caveat.
8.69 A person who lodges a caveat “wrongfully and without reasonable cause” is liable to pay compensation to any person suffering pecuniary loss as a result.28 This provision should be sufficient to ensure that a frivolous caveat is not lodged for the purpose of obstructing a severance.
8.70 There is a further category which requires special consideration. In its submission the Law Society’s Property Law Committee states that:
No consideration appears to have been given to the situation that sometimes arises where there is a devise to several persons, often siblings, to be held by them as joint tenants on condition (express or implied) that they retain it in that form. Resort to caveat or injunction proceedings in such circumstances will be encouraged [by implementation of either of the proposals].29
8.71 The Commission does recognise that joint tenancies may arise under a will in circumstances contemplated by the Property Law Committee, or otherwise be created on condition that the joint tenancy be maintained.
8.72 Unilateral severance by registered declaration is not intended to defeat joint tenancies which have been created by will pursuant to this understanding, neither is it intended to defeat agreements entered into between joint tenants whereby each joint tenant agrees not to do anything to sever the joint tenancy or at least agree that specified procedures must be followed before a severance can take place.
8.73 However, the submission of the Law Society’s Property Law Committee fails to recognise that the same considerations apply equally to severances effected under the current law. At the basis of this submission appears to lie the premise that the incidence of severance will increase with the introduction of severance by declaration. This is at least debatable.
8.74 It is also necessary to bear in mind that there are limits to the type of restriction on alienation that can be imposed by an agreement. Such bargains risk being declared void on the grounds that they constitute an invalid restraint on alienation.30
8.75 To the extent that agreements between joint tenants limiting the circumstances or the manner in which severance can take place are not an invalid restraint on alienation, they ought to be protected.
8.76 Whereas it would be rare for the non-severing joint tenant’s interest in maintaining the joint tenancy to be sufficient in itself to support a caveat, the existence of an agreement of this nature might well alter the position. Section 74F(2) of the Real Property Act 1900 empowers a registered proprietor of an estate or interest, who fears an improper dealing with the estate or interest by another person, to lodge a caveat prohibiting the recording of any dealing affecting the estate or interest. Arguably, registration of a declaration of severance by one joint tenant in breach of an agreement to maintain the joint tenancy amounts to an “improper dealing” for the purposes of the section. The Commission was unable to find any authority on this point to determine conclusively whether a joint tenant who was party to, or subject to an agreement of this nature would be competent to lodge a caveat under this section.
8.77 In the event that a severance takes place in breach of a valid agreement a joint tenant will have recourse to the usual remedies.31
ENLARGEMENT OF JURISDICTION IN PARTITION AND SALE
8.78 The Law Society’s Property Law Committee in its submission asserted that reform, if any, in this area should be achieved by enlarging the Supreme Court’s jurisdiction in partition and sale to enable the Court to make an order for severance, even after the death or loss of mental capacity of a joint tenant, retrospectively to the date of the lodgment of an application for an order under s 66G.32 For reasons given elsewhere in this Report the Commission is not persuaded that this measure is in itself a sufficient reform. However, the Commission does agree that it is desirable that proceedings pursuant to s 66G be capable of being continued notwithstanding the death of one of the parties. In the Commission’s view it is not clear whether or not such an application abates on death or whether it is of a class of cause of action which falls within s 2 of the Law Reform (Miscellaneous Provisions) Act 1944 (NSW).33
8.79 Accordingly, s 66G should expressly provide for proceedings brought under the section to survive after death.
STAMP DUTY
8.80 In Tasmania, a declaration of severance is liable for nominal stamp duty pursuant to the Stamp Duties Act 1931 (Tas).
8.81 The Commission would prefer that the declaration of severance be exempted from stamp duty but declines to make any recommendation to this effect since matters arising under the Stamp Duties Act 1920 (NSW) do not come within the purview of this reference.
8.82 The amount of stamp duty, if any, payable on a declaration of severance is likely to have ramifications in terms of the mode of severance adopted by practitioners.
8.83 Currently, instruments executed pursuant to the making of a s 79 (of the Family Law Act 1975 (Cth)) order are exempt from duties or charges.34 A transfer from X and Y as joint tenants to X and Y as tenants in common is chargeable with duty of $10.35 A court order under s 66G of the Conveyancing Act 1919 (NSW) is liable to duty of $10.36
8.84 The duty payable on a transfer to a trustee accompanied by a declaration of trust is dependent upon the order of execution of the documents. If the transfer is signed prior to the declaration of trust, duty would be payable at conveyance rates on the value of one half of the property on such a transfer. The subsequent declaration of trust would be liable to duty of $10.37 If the order of execution is reversed the declaration of trust would be liable to conveyance rates of duty on value and the transfer liable to duty of $2.
8.85 According to the Office of State Revenue, stamp duty on a transfer from one joint tenant to himself or herself would be payable at conveyance rates on the value of one half of the property.38
8.86 The foremost consideration is that severance not be delayed for any reason connected with stamping. The most common requisition raised in Tasmania is in respect of non-payment of stamp duty. However, the Commission understands that in New South Wales it is the practice of the lodgment officers not to accept for lodgment in the first place, any dealing not appropriately marked. In view of this practice it is unlikely that a declaration would ever be required to be uplifted for stamp duty purposes.
ISSUES OF LEGAL PRACTICE
8.87 Whilst no empirical data has been collected, anecdotal evidence suggests that there is substantial ignorance amongst co-owners in the general community concerning the existence of, and differences between, the two different forms of co-ownership. This is a matter of concern. Such ignorance should be addressed when the joint tenancy is formed, rather than making provision to overcome it at the dissolution stage. Solicitors and licensed conveyancers should therefore be educated to impress upon co-purchasers of property the significance of the different forms of co-ownership, the entitlement to sever, the methods of achieving severance and of the opportunity to caveat (where relevant). Joint tenancy is, after all, a mode of distributing property after death. Most people are aware that drafting a will is attended by certain legal formalities, and that a will is a “solemn” document. People should likewise be conscious of the significance of joint tenancy.
RECOMMENDATION 17
Solicitors and licensed conveyancers should be educated to impress upon co-purchasers of property the significance of the different forms of co-ownership, the entitlement to sever, the methods of achieving severance and of the opportunity to caveat (where relevant).
8.88 The implementation of the proposed method of unilateral severance should be monitored and an assessment made at the conclusion of its second year of operation for the purpose of determining whether the method is achieving its principal objective, to determine if cases exist where speedier severance inter partes would have been desirable and whether the method has had any untoward effect. The assessment should be coordinated by the Law Society by means of a survey of its members.
FOOTNOTES
1. See for example Stephens and Anor v Debney (1959) 60 SR (NSW) 468. A blanket prohibition on severance effectively denies a joint tenant the right to sell his or her interest. An agreement containing this type of prohibition might well be found to be an invalid restraint on alienation, and therefore contrary to public policy. No relief by way of injunction will be given to enforce a restraint clause which is contrary to public policy and void or unenforceable on that ground: J W Carter, D J Harland Contract Law in Australia (2nd ed, Butterworths, Sydney 1991) at para [1708]). More common are agreements which limit or qualify the co-owners’ right to seek an order for partition or sale, for example, until some preconditions are satisfied or some procedure carried out. (Once again, an agreement which seeks to exclude totally the parties’ entitlement to apply for an order under s 66G is not likely to be effective or enforced.) However, a joint tenant who severs unilaterally by registered declaration will not be in breach of a valid agreement qualifying the circumstances in which an order under s 66G may be sought.
2. Interpretation Act 1987 (NSW) s 76.
3. See para 4.5.
4. Law Society of New South Wales, Property Law Committee Submission (21 August 1992) at 2.
5. When two or more purchasers contribute to the purchase of property then, in the absence of a relationship that gives rise to a presumption of advancement, the equitable presumption is that they hold the legal estate in trust for themselves as tenants in common in shares proportionate to their contributions. Calverley v Green (1985) 59 ALJR 111.
6. Ms Margaret Stone, Freehill Hollindale & Page in comments to the Law Reform Commission on the draft report contained in a letter dated 25 October 1993.
7. (1979) 94 DLR (3d) at 609.
8. A J McClean “Severance of Joint Tenancies” (1979) 1 The Canadian Bar Review 1 reports that the Land Registry practice in Alberta and Manitoba is not to accept for registration a transfer by a joint tenant of his interest unless the other tenants consent or at least are notified.
9. Mr Michael Reymond, Sly & Weigall Submission (29 January 1992).
10. Submission of 29 January 1992 at 2.
11. New South Wales Land Titles Office Submission (29 November 1991) at 2.
12. This is consistent with the position in England. According to the internal Practice Book of HM Land Registry, the entry of a restriction following the severance of a joint tenancy in equity is not a disposition or dealing by the proprietor of the land which is caught by the terms of any existing restriction and no consent by an existing restrictioner to the entry of the obligatory restriction is ever required. Likewise, the entry of an obligatory restriction is not a dealing by the proprietor for the purposes of s 55 of the Land Registration Act 1925, so that no consent by any existing cautioner (or depositee of the Land Certificate) is required. No “objection” notice should be sent on registration of the obligatory restriction following the severance of a joint tenancy in equity, and no notice to a chargee under s 30 of the Land Registration Act 1925 is required.
13. A mortgage by all joint tenants of old system land will not result in a severance. See generally A J Bradbrook, S V MacCallum and A P Moore Australian Real Property Law (Law Book Co., Sydney 1991) at 321.
14. Real Property Act 1900 s 57(1) provides: “A mortgage, charge or covenant charge under this Act has effect as a security but does not operate as a transfer of the land mortgaged or charged.”
15. Penny Nominees Pty Ltd v Fountain (No 3) (1990) 5 BPR 11,284 (NSW Supreme Court, Young J). However, if one joint tenant transfers (“releases”) his or her interest to the other joint tenant then the mortgage does subsist over the whole fee simple in the transferee joint tenant’s hand.
16. Lord Abergavenny’s Case 6 Co. Rep. 78b, (1607) 77 ER 373; Power v Grace [1932] 2 DLR 793.
17. Hirschhorn v Evans (1938) 54 TLR 1069.
18. Section 58 of the Bankruptcy Act 1966 (Cth) provides that upon sequestration the property of the bankrupt vests in the trustee in bankruptcy. Thus, the trustee in bankruptcy and the other co-owner will hold as tenants in common in equal shares.
19. Letter from Land Titles Office to NSW Law Reform Commission dated 26 March 1993.
20. Conveyancing Act 1919 (NSW) s26(2).
21. Union Bank of Australia v Harrison (1910) 11 CLR 492. However, the Conveyancing Act 1919 s 153(4) now requires all legal representatives to join in the sale, lease or mortgage of real estate, unless the leave of the Court is obtained.
22. Union Bank of Australia v Harrison (1910) 11 CLR at 527.
23. Union Bank of Australia v Harrison (1910) 11 CLR at 521.
24. Law Society of New South Wales. Property Law Committee Submission (21 August 1992) at 3.
25. Subject to the possible qualifications referred to in para 4.31 et seq.
26. See paras 3.31 and 6.17.
27. Corporations Law s 209(9). Similarly, the Register of patents is prima facie evidence of particulars registered in it: Patents Act 1990 (Cth) s 195.
28. Real Property Act 1900 (NSW) s 74P.
29. Law Society of New South Wales. Property Law Committee Submission (21 August 1992) at 2-3.
30. See for example Nullagine Investments v WA Club Inc (1993) 67 ALJR 739; (1993) 116 ALR 26.
31. The non-severing joint tenant will have an action for breach of contract. Clearly though, the assessment of damages will be complicated, because as at the date of breach no actual financial loss has occurred, the only loss is of the chance of receiving the entire estate. Consequently, the non-severing joint tenant might be able to seek an order for specific performance on the basis that damages are an inadequate remedy. In the event that the joint tenant who severs in breach of an agreement dies first, it is possible that the agreement might be enforced by a court in its equitable jurisdiction at the suit of the surviving tenant, by treating the persons claiming under the deceased joint tenant as constructive trustees of that half interest in the property.
32. Law Society of New South Wales. Property Law Committee Submission (21 August 1992) at 4.
33. This section provides for the survival of causes of action after death.
34. Stamp Duties Act 1920 (NSW) s 74CB.
35. s 66B.
36. Stamp Duties Act 1920 Second Schedule “Appointment of Trustees”. All information on stamp duty liability on instruments which may sever joint tenancies kindly provided by the Office of State Revenue to the Commission in a letter dated 11 May 1993.
37. Second schedule, para 2(b).
38. Cf J H Wade Property Division Upon Marriage Breakdown (CCH Australia Limited, 1984) at para 13-012.
