Joint tenancy has been the only means of ownership of property at law since the Law of Property Act 1925 relegated tenancy in common to equitable ownership only. Despite the 90 years which have elapsed, joint ownership as it impacts on day to day management of residential leasehold property is not always understood. It is not uncommon, on an enfranchisement of a terraced house converted into two flats, for the freehold to be acquired by the two lessees jointly. What then? Must both decide on service charge expenditure together? What happens if one of the two refuses to join in, can the other sue? What if one of the two breaches their lease as leaseholder? These are issues which have often arisen in cases I have dealt with. The answers lie in an analysis of the trust law implications of joint ownership.
If two leaseholders, A and B, acquire their freehold and elect to have it conveyed into their joint names, they will hold it jointly at law. No doubt, A and B bought the freehold expecting to have equal shares in the freehold. It is equity, however, that can reflect those shares. On purchase, the two could choose how to hold the freehold in equity; tenants in common at 50% each would be the most obvious choice in this case. In that case, A and B as joint tenants at law hold the freehold on trust for themselves as tenants in common in equity in 50% shares. Now trustees must act together to administer their trust. It follows from this straightforward proposition of trust law that when A and B take decisions as joint landlord as to how to perform the landlord’s obligations under the leases, they must take those decisions jointly. A decision by one is no decision at all. The existence of the trust also means that each of A and B is a trustee, subject to trustee’s duties. Even though they are individually lessees, they cannot consider their own interests only when administering the freehold.
One purpose of the lessees acquiring the freehold is to allow them to manage the property for themselves, but it is in management that the often cumbersome nature of the trust can become problematic. If decisions need to be taken about what maintenance works are to be done, the two lessees, as freeholder, together must decide. If consultation notices need to be served under the Landlord and Tenant Act 1985 then it is the two together who need to serve the notice, even though service is on each of them as a lessees because the 1985 Act, unlike the Housing Act 1988 for s8 and s21 notices, does not make service by one of the two sufficient. If one of the two serves notice under the 1993 Act to extend his lease, then both together must serve a counter-notice (a refusal to join in doing so could well be a breach of trust).
What if one of the two lessees refuses to join in necessary acts of the landlord? For example, what if one of the two as lessee breaches his lease and the other seeks to take the litigation steps necessary to forfeit? One of two joint freeholders cannot issue proceedings as landlord. There are two ways out of this problem. The first is analytically sound but far from practical. The court has power under the Trustee Act 1925 and the Trusts of Land and Appointment of Trustees act 1996 to regulate the administration of trusts, including, under the 1925 Act, the power to remove a trustee and the power to appoint another. The second, though little tested, is more likely to assist. When obligations are owed jointly to two people, one of the two can sue, provided the other is joined as a party – as defendant if he will not agree to be a co-claimant. This seems a route to allow for example a declaration under s168 of the Commonhold and Leasehold Reform Act 2002 that there has been a breach of lease, but it is not obvious that it will assist on a possession claim based on forfeiture because it is to both the freeholders that possession must be given, notwithstanding that the breach is by one in his alter ego as lessee.
The enfranchisement legislation is designed to allow lessees the right to manage their own properties, but the result of enfranchisement is to put the lessees into a more complicated legal relationship between themselves than it is likely they ever anticipated. Landlord and tenant lawyers need to know the workings of trust law if they are to help their clients negotiate the greater complexities of management that co-ownership of a freehold can introduce.