Where a property is owned by more than one person, a severance of tenancy is essential for the majority of estate planning that a co-owner has in place. If a client co-owns a property, a severance of tenancy will be required for any trusts that have been established, as well as if the client has set up a will.
But why is a severance of tenancy important? What are the benefits, and why is there more than one type of severance available? This article aims to answer these questions and address the main concerns a client may have when severing a tenancy.
Types of co-ownership
There are essentially two ways a property can be co-owned by more than one person: through a joint tenancy, or a tenancy-in-common.
In the case of joint tenancy, each joint tenant owns the property in its entirety. A joint tenant cannot give their share to someone else. The key difference is that on the death of a co-owner, the property will continue to be held by the remaining owners irrespective of any will or death planning that the co-owner had in place. This is known as the Right of Survivorship.
The other way a property can be co-owned is as tenants-in-common. This means each co-owner holds a distinct share of the property, either in equal or unequal shares. Each owner is entitled to deal with their share of the property as they see fit. In this case, a will that your client has signed that references their property will be effective, and any named beneficiaries in that will are entitled to their share of the property as per the terms of the will.
For your client to hold their co-owned property as a tenant-in-common, they will need to sever the tenancy of the property.
The wording on the legal title to show a severance of tenancy restriction is as follows and is known as a Form A Restriction:
“No disposition by a sole proprietor of the registered estate (except a
trust corporation) under which capital money arises is to be
registered unless authorised by an order of the court”
Severing the tenancy of a property
There are several ways to sever the tenancy of a property. This can be done mutually between the co-owners; there can be a non-mutual severance where not all owners are required to give consent; and there can also be an unequal severance of tenancy, which means the property will be held in unequal shares.
At CTT Group, we offer a Severance of Tenancy service and can facilitate the severance of tenancy on your client’s property using any of the above scenarios.
It is important to note that the unequal shares will not be recorded specifically on the legal title. While the standard severance of tenancy restriction will appear, it is recommended that a separate deed or declaration is created to confirm the unequal shares.
An Unequal Severance is available to order through CTT’s Legacy Software.
Non-Mutual Severance of Tenancy
A non-mutual severance of tenancy is completed when one of the proprietors is unwilling or unable to sign the legal severance documents. This is commonly used where one of the co-owners lacks mental capacity, or if the co-owners are no longer in contact.
The key difference with a non-mutual severance of tenancy is that the Land Registry requires evidence that notice was given to the co-owner who has not signed the legal documents. This is to ensure that all owners to the property are aware of the severance of tenancy taking place.
It is important to note that a non-mutual severance is just as effective as a severance signed by both parties. The end result of both will be a standard Form A restriction on the legal title which reflects that the tenancy of the property has been severed. Once the restriction is registered, there should be no dispute as to how the property is held.
The benefits of severing a tenancy
There are many client benefits to severing the tenancy of their property. These include but are not limited to:
- Ensuring the validity of the will: If a client has left their share of a property to a beneficiary, the severance of tenancy will ensure that the will is adhered to. If their share of the property has been left to a trust, the severance will also allow for the trust to receive this share of the property. Without the severance of tenancy, the share would instead pass automatically to the client’s surviving co-owners under the Right of Survivorship.
- Control and flexibility: Clients can dispose of their share of a property as they see fit. This gives individuals greater control compared to a jointly owned property and allows the client to sell or gift their share of a property if they wish.
- Free of charge: Currently, HM Land Registry does not charge a fee for a severance of tenancy to be registered. This means that no extra fees will be incurred to register this on the legal title of a client’s property.
Where a property is unregistered with the Land Registry, it is not possible to update the legal title. The only evidence to prove that a severance of tenancy has taken place is the Deed of Severance itself. In this situation, it is highly recommended that a voluntary first registration is completed on the client’s property.
A voluntary first registration occurs where a property is registered at the Land Registry voluntarily by the owners of the property. The reason it is voluntary is because there is no ‘trigger event’ which requires a title to be registered under the Land Registration Act 2002 (S.3). Currently, a severance of tenancy does not trigger a compulsory first registration.
There are many client benefits to voluntarily registering their property, including:
- Reduced fees: The Land Registry offers reduced disbursement fees for voluntary first registrations. You can access the current disbursement fees on the government website.
- Lost or damaged deeds: Where a property is unregistered, the only proof of ownership is evidenced by the historic title deeds held by the proprietors. If these get lost, damaged, or stolen, then clients would struggle to prove ownership of their property in the future. This can cause issues and be difficult and expensive to rectify.
- Getting ahead: If the property is registered voluntarily, this causes fewer issues later on should the client decide to sell or mortgage their property. If the property is already registered on a later ‘trigger event’, there will be fewer costs involved and will lead to a quicker, less stressful transaction for the client.
A Voluntary First Registration is available to order through CTT Group. CTT members can contact the CTT Conveyancing Department for more information on this via the Adviser Chat.
If your client is considering registering their property at a later time, CTT Group also offers storage for them to safely store their deeds. This will reduce the likelihood of a client’s deeds getting lost or damaged, so they are able to prove ownership of their property when needed.
Through CTT Group, we can also undertake work for a severance of tenancy for any clients with properties located in Scotland and Northern Ireland. This work would be referred to nominated solicitors, as the work involved is substantially different to that in England and Wales. In Scotland, this is referred to as a ‘Evacuation of Special Destination’.
There are various benefits to a severance of tenancy, and CTT Group is able to assist you with facilitating this for your clients with co-ownership of a property. Whether the severance is mutual, non-mutual, or unequal, CTT Group is able to undertake this work and ensure the legal title is updated accordingly. We are also able to register your client’s properties with the Land Registry, to ensure their properties benefit from the added protection of a legal title.
If you are looking to order a severance of tenancy on a client’s property, are unsure on whether a client’s property needs severing, or require any advice regarding their estate planning, please get in touch with us and we can assist.