Take advice or count the cost
20th October 2017
Does a TR1 form which is unexecuted by the purchasers create an express declaration of trust? Nicola Muir examines the issue.
The difference between beneficial ownership as joint tenants and ownership as tenants in common is one which eludes most couples. By ticking the wrong “declaration of trust” box on the Land Registry TR1 form a new co-owner can be deprived of his or her investment in the property, but surprisingly they don’t even need to sign the form – an “x” is enough. It is now more than 10 years since Baroness Hale (as she then was) highlighted this problem in Stack v Dowden  UKHL 17 yet we seem to be little further forward. Two recent decisions highlight the difficult question of whether or not a valid trust can be created by the TR1 form if it is not executed.
The Land Registry’s prescribed forms of transfer – TR1 and TP1 – include a box entitled “declaration of trust” and where the transferee is more than one person, it gives three options – one of which should be ticked. They can either hold the property on trust for themselves (1) as joint tenants; (2) as tenants in common in equal shares; or (3) on some other trust, for example, an unequal split of the equity. Joint tenants each own the whole of the beneficial interest so where one of the joint tenants dies, the whole of the beneficial interest will automatically vest in the other. Tenants in common each own a distinct share of the beneficial interest and if one of them dies, his share will pass to his estate.
At the time of the purchase, co-owners are usually on good terms and may well be unconcerned as to what happens when they die. The difficulty arises, of course, if they fall out. If they own the equity as joint tenants they can “sever” the joint tenancy so that they hold as tenants in common but they will then each have a 50% share. For example, say Bob and Judy purchase a new house for £500,000 as joint tenants. Judy contributes £250,000 from the sale of her old flat and they get a joint mortgage for the balance. A year later they split up and sever the joint tenancy. After payment of the mortgage, each would be entitled to half the equity, ie, £125,000. Ticking the “joint tenancy” box on the TR1 form was an expensive mistake for Judy.
The latest version of the TR1 form (published in April 2017) states that if there is more than one transferee, each of them must execute the transfer to comply with the requirements of section 53(1)(b) of the Law of Property Act 1925 but it seems that a declaration may still be binding even if the purchasers have not executed the TR1 form.
Section 53 (1)(b) of the 1925 Act provides that a declaration of trust respecting an interest in land must be manifested and provided by some writing signed by some person who is able to declare such trust. Does ticking a box on the TR1 form suffice?
In Taylor v Taylor  EWHC 1080 (Ch);  PLSCS 108 a father and son each contributed funds to the purchase of a small hotel and campsite in Cornwall. On their instructions, their solicitor ticked the “joint tenants” box on the TP1 form. They did not sign the form but their solicitor passed it on to the vendors who executed it in the usual way. The parties later fell out and the father severed the joint tenancy which would ordinarily result in each owner holding half of the equity. The father argued, however, that he was entitled to 80% of the equity based on his contributions and an agreement to that effect. He claimed that the declaration of trust in the TP1 form was of no effect because he had not signed it and that the rules of constructive trusts applied. The father said that the vendors, who had executed the TP1, were not “able to declare” such trusts.
The court disagreed. It said that when the vendors signed the transfer they were the legal and beneficial owners of the property and, as such, were capable of declaring trusts on which it was to be held.
In Insol Funding Company Ltd v Dowey  EWHC 1822 (Ch), Master Bowles took the opposite view. Again, the purchasers had ticked the “joint tenancy” box on the form but he said that in order for the declaration in the TR1 form to create an express declaration of trust it needed to be signed by the purchasers. In the absence of an express declaration, the rules of implied trusts apply. However, as was made clear in Stack, where a domestic property is purchased in joint names there is a presumption that co-owners hold the equity as beneficial joint tenants. The fact that there is discrepancy in the contributions made by the parties will not usually displace this presumption but it is only a presumption. It can be displaced by evidence that the parties acted from the outset with a different intention or that their intentions have subsequently changed.
It is therefore still far from clear whether by ticking the joint tenancy box on the TR1 form without signing it, Judy has created an express declaration of trust limiting herself to a 50% share on severance or whether it is open to her to try and displace the presumption of equal ownership by proving that she and Bob intended her share to reflect her contribution.
Hopefully, Bob and Judy would have taken legal advice before purchasing their home, which would clarify their intentions, but all too often the advice given concentrates on what happens on death rather than on relationship breakdown which, of course, at that time the parties think will never happen to them. Clear advice on what will happen if the parties’ split up is essential at the time of purchase.
Perhaps the time has come to ensure that co-purchasers are obliged to execute the transfer as part of the registration process and their title will not be registered unless they have done so.
This article first appeared in Estates Gazette.