What is Joint Ownership/Beneficial Interest?
A property can legally be held by more than one person, either as Joint Tenants or Tenants in Common.
No decision needs to be final; even after a transfer has been completed and the land registered a joint tenancy can be changed to a tenancy in common, or vice versa.
When two people co-own as joint tenants it is assumed that the ownership is equal irrespective of how payments etc have been apportioned for the property.
When one of the owners dies, the deceased’s share in the property passes automatically to the survivor without any other requirement. This is known as the right of survivorship, and the property forms no part of the deceased’s estate. The property passes to the other despite the provisions of any will that the deceased has made. Even if the deceased leaves all his or her land to a third party, the survivor will still own all of the property previously held with the deceased. The survivor is then free to deal with the property as they wish, or sell it and claim all of the sales proceeds.
Tenants in Common:
Co-owners who under a tenancy in common hold a distinct share of the property can leave that half share to any person they wish. Shares can be held equally or in different ratios. If, for example, one person has financially contributed more to the property, they may hold a larger share of the property than their co-owners.
In contrast to a joint tenancy, the deceased’s share under this method of ownership does form part of their estate on death, the share of the property passes according to the shareholder’s will (or to their next of kin if there is no will).
In other words, if the deceased leaves their share in the land to a third party then that third party will own that share of the property. Of course, the survivor(s) will still own their respective shares. If and when the property is sold the sales proceeds will then be divided between the third party and the survivor(s).
Beneficial interest is another form of ownership that sits behind the legal ownership of the property and can be a very complex area of law. The beneficial ownership is separate from the legal ownership and the legal owner or owners will not necessarily be the same as the beneficial owner or owners. Beneficial interest is apportioned by creating a discretionary trust to sit behind the property.
The legal owner is said to hold the beneficial interest in the property on trust for the beneficial owner.
The beneficial owner of the land will have a right to the income from the property or a share in it, and a right to the proceeds of sale of the property or part of the proceeds.
It is not unusual for beneficial interest to crop up in farming transactions, accountancy advice should be sought before instructing a solicitor to alter any beneficial ownership.
Why have a written farming Partnership Agreement?
If you and your partners do not have a formal agreement, the Partnership Act 1890 dictates how certain issues will be resolved. This will almost inevitably mean that the position between you and your partners is not as you expected or intended. In the context of a fall out, it can be very difficult to reach an agreement between partners.
When bringing in new partners/the next generation in to the farming business, we always recommend putting a written farming partnership agreement in place for a number of reasons.
What may seem to be an unnecessary exercise/expense for a farming partnership business now, is likely to be invaluable going forward as it will set out terms dealing with all eventualities that life may throw at the partnership in the future.
A written partnership agreement will:
Prevent issues arising such as:
- When a partner can retire or be removed
- What percentage of the income and capital profits each partner is entitled to
- How much time each partner is expected to devote to the business
- What limit of costs a partner can pay out on behalf of the Partnership without involving the other partners
- Who can sign cheques on behalf of the Partnership
- What is to be classed as partnership assets: land, entitlements, vehicles etc
- Automatic dissolution of the partnership on the death/retirement of a partner
- Banking implications such as frozen accounts
- Property being inadvertently determined as an asset of the partnership
- Assets being valued at market value as opposed to book value
What is a Partnership Asset?
Over the years, Farming Partnerships have become significant asset-holding structures and it is not uncommon to see valuable assets being held within a partnership. A partnership asset can be anything that is used by the farming partnership: the farm, additional land and property, vehicles, entitlements, rental income, wind turbines etc.
The term ‘Partnership Asset’ should be used carefully and only after discussions with your lawyer and accountant; once an asset is contributed to the partnership, it will become a partnership asset for the duration and cannot be taken out (unless expressly set out within a written partnership agreement). All partners have an interest in all of the partnership assets, and must hold and use them only for the partnership business.
It is becoming increasingly important for partnership assets to be specifically referenced within agreements so as to ensure individual assets do not inadvertently become assets of the partnership business. It is particularly important to set out expressly within the partnership agreement the partners' decisions about the ownership and use of the more valuable assets.
If the partnership agreement is silent about ownership of assets, the partnership accounts will often be used to clarify whether assets belong to the partnership however, it is not 100% conclusive that an asset is owned by the partnership just because it sits on the balance sheet. It will be the presumption but can be disproven.
We are often asked to reference the existence of a Capital Property Account within a partnership agreement in order to protect individual interests that are connected to assets sitting within the partnership accounts.
We would recommend all of our clients, past, present and future, to put a formal partnership agreement in place.
What is the difference between unregistered and registered land?
The term ‘unregistered land’ is used to describe any land that is not registered with HM Land Registry and ‘registered land’ relates to land that is registered with HM Land Registry.
Before legislation regarding registration of land was enacted, all land was unregistered.
This meant that owners of land were required to keep deeds and documentation relating to their ownership safe, in order to produce them should they wish to dispose of the land or should any dispute arise.
Ownership was evidenced through the presentation of the deeds and documents. Clearly, this could prove to be problematic if an owner mislaid their deeds and documents, or they were destroyed through flooding or a fire for example.
In 1990, it was compulsory across the whole country for land to be registered upon ‘dealing with’ or ‘disposing of’ land. Later legislation, the Land Registration Act 2002, further expanded upon the triggers requiring registration of land.
Registration is now compulsory where you have:
- Mortgaged the land;
- Inherited it;
- Been gifted it;
- Bought it; or
- Received the land in exchange for other land or property.
Even where the above triggers apply, a person is able to register their land through a voluntary application to the Land Registry.
More than 80% of land is now registered since legislation came into force.
What are the benefits of registering my property with the Land Registry?
A large proportion of land in England and Wales still remains unregistered.
If your property or land has not changed hands or been dealt with in a way which triggers compulsory registration for a number of years, as is the case with lots of family run farms and agricultural land in England and Wales, then it is highly likely that your farm is still unregistered.
There are significant advantages in registering your property and land now, not least the fact that the Land Registry fees for voluntary registration are significantly lower than the fees for compulsory registration.
Benefits for registration include ease, efficiency and protection:
- Saves time and reduces costs on subsequent dealings with the property
- Reduces the paperwork that needs to be retained and reduces the risk of deeds being lost as they are obtainable in electronic form from the Land Registry
- Offers a title guaranteed by the Land Registry and an accurate plan of the extent of ownership is created
- Provides better protection against claims of adverse possession or “squatter’s rights”
- Helps put your estate in good order for the benefit of future generations
- Provides an opportunity for any anomalies that might need to be sorted out with the title that would have remained undiscovered without the title investigation.