With regard to rectification of the notice of severance of a joint tenancy, a claim for rectification of a document would succeed if it was established that there had been some prior agreement between the parties. However, a Notice of Severance, even if given unilaterally under Section 36 of the Law of Property Act 1925, might be rectified if other necessary conditions were satisfied. In re Butlin’s Settlement Trust (1976) a voluntary settlement was rectified on the basis that a power intended to be conferred on the Trustees had been recorded in the settlement in a form which was more limited than the settler had intended. There was no reason why the same principle should not apply to a unilateral Notice of Severance which did not correctly record the true intention of the person or persons who made it.
In Lee and Another –v- Lee and Another (2018) EWHC 149 (Ch) the Claimants were the Executors of W’s latest Will. The First Claimant (R) was W’s wife. They had 3 children including the First Defendant (B). The Second Defendant was the Revenue and Customs Commissioners (HMRC).
W and R owned their property in Cornwall as Joint Tenants. The property consisted of a farm bungalow and a number of surrounding fields. The whole of the property consisted of 3 registered Titles at HM Land Registry.
In 2007, W and R made Wills in substantially similar terms. The idea was that on the death of the first to die, the survivor would take the farm bungalow and the 3 named fields absolutely and then retain a half share in the remainder of the farm. The other half would go to B on the death of the second to die then B would receive the other half, the farm bungalow and the 3 named fields. In order to achieve that it would be necessary for the Joint Tenancy between W and R in the land in which they own to be severed. A Notice of Severance dated 31 January 2007 was prepared by their solicitors and was signed by them. However the Notice only referred to one of the registered Titles and therefore on the face of it, the Joint Tenancy and the remaining parts of the farm remained unsevered.
In October 2013, W died. In September 2014, W’s last Will was proved. However, given the Notice of Severance of 31 January 2007 related only to the one Title, then the Testator’s Will leaving a half share in the farm could not operate as a severance of the rest of the Titles. The remaining Titles passed beneficially to R by survivorship and B received only W’s severed half share of the one Title to which the Notice of Severance related. If the Notice of Severance had related to all of the land at the farm, the farm bungalow and the 3 named fields, they would have gone to R under the gift of residue and B would have received W’s half share in the remainder of the farm under the specific gift to him.
In May 2015, R and B executed a tax neutral Deed of Variation of W’s Estate within 2 years of W’s death. Accordingly, it was effective for Inheritance and Capital Gains Tax purposes. The intention would be that B would receive W’s half share in the 3 named fields. Unfortunately, this did not achieve its objective because the Joint Tenancy had not been severed in respect of all of the property as intended and 2 of the 3 named fields had passed to R by survivorship and outside of the Will. Those problems were discovered during the administration, but only after the tax neutral 2 year period since the death had elapsed. The Court, therefore, had to consider the Claimant’s Application for rectification of the Notice of Severance of the Joint Tenancy. The Court took into account the following:
- On the basis of the material and other evidence, the intention of W and R had been on the death of the first of them to die that half of the farm would pass to B, excluding the farm bungalow and the 3 named fields which were to belong to the survivor absolutely and then on the death of the survivor of them, B would inherit the remainder of the farm including those items previously excepted. That meant that it had been necessary for the beneficial ownership of W and R to be Ownership in Common rather than joint. In other words there was a need for a severance.
- W and R had relied entirely on the solicitors to advise them how to bring the severance about. The solicitors had made the mistake of excluding everything but one field and only making reference to only one Title. W and R had not noticed those errors in the Notice and signed it as they had believed that the Notice of Severance would be effective so as to allow their Wills to operate as they intended in relation to the whole of the land farm. W and R had also made a mistake as to the effect of the words used in the Notice. In all the circumstances, the Notice had been signed by both Joint Tenants and accordingly might properly be regarded as the result of an agreement between them.
- It was clear that the Notice, as executed, did not give effect the agreement between, and intention of, W and R.
- There was a clear difference in the result between the case where the Notice of Severance was rectified so as to apply to the whole farm and the case where the Notice was not rectified. Further, there did not appear on the evidence to be any clear tax advantage to be obtained from the rectification claim. W and R had not intended to execute the Notice in the form of which they had in fact executed it. It was their mistake which mattered.
- There were no factors suggesting that the remedy of rectification should not be awarded. The fact that one party to the Notice of Severance had died since it had been executed did not of itself mean that the relevant Third Party rights had arisen to prevent rectification. That was, first, because any Third Party rights acquired would not have been acquired for value and without notice of the equity of rectification, and second, because the only persons currently concerned were R and B and they were united in seeking such rectification. Lastly, there was no question of delay or any other reason not to grant rectification.
All the conditions for the award of the equitable remedy of rectification of that Notice has been satisfied and therefore the Court allowed the Application.
In conclusion, the parties and their solicitors should ensure that any Notice of Severance includes all of the Titles and Land of which the parties have referred to in their Wills otherwise it could potentially be very costly and not guaranteed that there will be rectification of a Notice of Severance that does not meet the parties intentions.
For further information, please contact our Specialist Team on 0800 088 6004.