Chapter 5 Audio: How to approach a severance problem question

Co-ownership

How to approach a severance problem questions

Audio titled: Chapter 5 Audio: How to approach a severance problem question

Severance problem

Amreet and Bree are legal joint tenants of Happy Cottage. Amreet, Bree, Cindy, Dhruv and Eraj are equitbale joint tenants of Happy Cottage. Consider the following circumstances to determine if severance has taken place:

  1. Bree forges Amreet’s signature on a mortgage of the land with Durham Loan Co.
  2. Amreet agrees in writing to sell her equitable interest in Happy Cottage to Eraj.
  3. Cindy sends Dhruv an email asking Dhruv to buy her equitable interest in Happy Cottage. Dhruv is keen but they disagree on the price. Cindy dies in a skiing accident leaving her interest to her partner.
  4. Eraj is caught up in the financial crash and is made bankrupt but before declared bankrupt by the court, Dhruv commits suicide leaving his interest in Happy Cottage to the Cat’s Protection Charity.

In this audio I want to walk you through a severance problem. You should see the severance problem in front of you. Now, there's only so much we can do in a short audio. What I want to do is flag up for you the key issues. This is a severance problem, and you've got in front of you a series of potential severance events, so take them one by one.

The first event: Bree forges Amreet's signature on a mortgage of the land with Durham Loan Co. Here, the question is, does this fraudulent attempt to mortgage sever Bree's joint tenancy in equity? Well, there’s authority to suggest that yes it will. (That's First National Security v Hegerty. Look up that case, check it out, it's in the textbook.) The effect of this is that B will have severed her joint tenancy and Bree becomes a tenant in common in equity with a one-fifth share.

Secondly, Amreet agrees in writing to sell her equitable interest in Happy Cottage to Eraj. An agreement to sell at your equitable interest will amount to again operating on one's own share. It's a classic example. This means that Amreet will have severed her interest and will have become a tenant in common. When Amreet's interest is therefore transferred to Eraj, Eraj becomes a tenant in common of a one-fifth share. Bree, is of course, already a tenant in common of a one-fifth share. Meaning that C, D and E are joint tenants of the remainder as to three fifths.

In our next scenario, Cindy sends Dhruv an email asking Dhruv to buy her equitable interest. Dhruv is keen but they disagree on the price. Cindy then dies in a skiing accident leaving her interest to her partner. As no prices were agreed, there can be no severance by mutual agreement. Again, it appears that there can be no severance by course of dealing, because there's no meeting of the minds, no agreement.

What is the effect, then, of this scenario? Well, on Cindy's death, Cindy died as a joint tenant in equity, therefore her interest survives to D and E. D and E are therefore joint tenants of the remainder three fifths. B—Bree--is a tenant in common of a one-fifth share, and E, Eraj, is a tenant in common of a one-fifth share.

In our final scenario, Eraj is caught up in the financial crash and has been made bankrupt. But before the court orders bankruptcy Dhruv commits suicide leaving his interest in Happy Cottage to the Cats’ Protection. A court order declaring bankruptcy severs a joint tenancy, but here Dhruv commits suicide before Eraj is declared bankrupt.

What is the effect of this, then? Well, Dhruv died as a joint tenant and so Dhruv's interests survives to Eraj under the doctrine of survivorship. He cannot leave his interest to the Cats’ Protection as it has already survived to Eraj.

One final point: when you reach the end of your severance problem question, be sure to note the final co-ownership position. And remember severance only operates in equity, so the legal position is unaffected.

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