During the course of debt recovery proceedings, a creditor has a number of options available to them to enforce a Judgment, secured against someone who owes them a sum of money (‘Debtor’).  One such option is to apply to the Court for a Charging Order in circumstances where the Debtor owns their own property.  If the creditor is successful in obtaining a Charging Order from the Court then this will be registered on the title of the relevant property at HM Land Registry.

The effect of a Charging Order is that:

1. The debt is secured and therefore if the property is sold then payment will be made to the creditor, provided that there is enough equity in the property to cover the amount owing after deduction of the usual sale costs and any other charges which may take priority; and
2. It gives the creditor the right to apply for an Order for Sale if they do not wish to wait until the Debtor sells the property of their own volition.

In addition, there is one further effect of the registration of a Charging Order on a jointly owned property, which is less widely known, and has it’s roots in the case of C Putnam & Sons v Archibald Taylor and Agneta Taylor [2009] EWHC 317 (Ch) as follows:

 The Facts

The Claimant in this case was a building contractor who was engaged by the First Defendant, Mr Taylor, to carry out some demolition and site clearing work.  The Second Defendant and wife to the First Defendant, Mrs Taylor, had no knowledge of her husband’s business activities and was not a party to that contract.  Mr Taylor failed to pay the Claimant the sums for which he was invoiced and court proceedings ensued.  The Claimant secured a judgment against Mr Taylor for sums owed on 13^th January 2004 and later applied for a Charging Order which was granted on 10^th February 2005.

The Charging Order was registered against the title of the matrimonial home of Mr and Mrs Taylor which, it was established by the Court, was held as beneficial joint tenants at the date of purchase.  This meant that in the event of the death of either party, the property would automatically pass to the other by the doctrine of survivorship.

The Claimant subsequently applied to the Court to enforce the Charging Order by way of a sale of the property.  Mrs Taylor argued that it would be unfair that her home should be sold to settle the debt of her husband, which he solely incurred, and alleged that he was not entitled to any beneficial interest in the property as a result of his financial conduct throughout the marriage.

Judgment

Whilst sympathetic to Mrs Taylor’s circumstances, the Court was ultimately not convinced by her arguments and an Order for Sale was granted in favour of the Claimant.

What is significant to take from the Judgment given by His Honour Judge Purle QC, is that he identified that whilst the property was owned by the parties as beneficial joint tenants as at the date of purchase, the registration of the Charging Order had the effect of severing the joint tenancy and thereafter the property was held by Mr and Mrs Taylor as tenants in common, meaning that they each owned a separate, distinct and equal share of the property. The result of this is that it was held that only Mr Taylor’s share of the property that could be utilised in settlement of the Claimant’s judgment debt and not Mrs Taylor’s.

Commentary

There are a number of points to note from the decision in this case as follows:

1. Debt Recovery

It will be a welcome comfort to anyone who is joint owner of a property that they will not be held liable for any sole debts of their co-owner in the event that a Charging Order is registered on their property.

However, as highlighted by the above case, this alone does not prevent the sale of the property being ordered and therefore could result in the innocent co-owner losing their home.

2. Probate

As discussed above, in the event that a joint tenant dies then their beneficial interest in the jointly owned property will pass automatically to the co-owner by survivorship.  However, where the tenancy has been severed and the property is owned jointly as tenants in common, the doctrine of survivorship no longer applies. This means that:

(a) If the individual has a Will at the date of their death, then their share of the property will pass in accordance with the terms of that Will which may result in the surviving co-owner now owning their home with someone else, which may not have been the original intention of the deceased; or

(b) If there is no Will at the date of death then their share will pass in accordance with intestacy rules and, again, the surviving co-owner would own the property with someone else.

These circumstances may be of particular concern where the original joint owners occupy the property together and the intention would always be for the property to pass to each other upon death.

It is therefore extremely important that should a Charging Order be registered against your jointly owned property, advice is sought in relation to the preparation of a new Will or amendment of an existing Will to ensure that your share of the property passes in accordance with your wishes.

3. Transfer of Ownership

It should also be noted that where a property is owned beneficially as tenants in common, there is nothing to prevent either party transferring their own share of the property to another party during their lifetime and the consent of their co-owner would not be required.

Again, this is of concern if one co-owner unilaterally decides to sell or transfer their share and the existing co-owner then owns the property with a different person.

Further, unless there is a record of the shares in which it was intended that the property should be held (and there is unlikely to be in the circumstances where the property was initially purchased as joint tenants), a 50:50 split is presumed and it would be difficult to rebut that position.

In such circumstances, upon notice being given that a Charging Order has been registered, it would be advisable to enter into a Declaration of Trust with your co-owner, to record the intended shares owned by you both together, with provisions for disposal of those shares to prevent any unilateral sale taking place.

If you are a joint owner of a property and need further advice in relation to debt matters or any matters in relation to Charging Orders, please contact Louise Palmer on 01543 263456 or by email at lpalmer@ansons.law

If you would like some advice in relation to the preparation,  or amendment, of a Will, please contact Sarah Nash on 01543 263456 or by email at snash@ansons.law

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