‘Tonti is dead, and I never saw anyone who even pretended to regret him; and, as for the tontine system, a word will suffice for all the purposes of this unvarnished narrative.’ (Robert Louis Stevenson and Lloyd Osbourne, The Wrong Box)
Tontines have captivated authors and screenwriters for centuries. In the original form, a group of investors pool sums in a common fund, and receive an annuity. As members of the fund die, their share passes to others, increasing the income that flows out to the survivors.
In the original form of the tontine, the scheme is simply wound up on the death of the last investor – but in a variant, the last survivor takes all the capital. This variant is much beloved of crime writers, no doubt because of the potential it has for creating (to put it mildly) severe conflicts of interests amongst the investors as fewer and fewer survive. For that reason, tontines can be found among the works of Agatha Christie, Robert Louis Stephenson and even The Simpsons, among many others.
Tontines, as such, have been illegal in England and Wales for many years. Many people are however surprised to find that the traditional concept of ‘co-ownership’ in England looks – in some respects – to have many of the characteristics of a tontine.
When two people (to be unimaginative, let’s call them A and B) jointly buy an asset – say, land or an investment – then it is clearly important for them to understand clearly what exact interest they each have.
In England, the primary form of joint ownership is called ‘joint tenancy’. Under a joint tenancy, the law of ‘survivorship’ applies – meaning that, if A dies, then B becomes entitled to the whole of the asset. That is to say, the asset does not pass to A’s heirs under A’s will (or intestacy). B simply takes everything.
This form of co-ownership is often common among spouses (who very often leave their assets, or the majority of them, to each other on death in any event). But it is not hard to see that this is likely to be an unattractive arrangement for arm’s length investors.
Another form of co-ownership exists, known as ‘tenancy in common’. Under this form, A and B have separate (and possibly unequal) interests, which they can deal with separately (and which do pass under their wills or intestacies). More complex forms of co-ownership are effectively possible by declaring various sorts of trust over assets.
There is plenty of detailed law in this area – including the circumstances in which a joint tenancy can be ‘severed’ so that it becomes a tenancy in common. The key thing is that co-ownership is not a simple, straightforward concept. Where two people own property jointly, it is extremely important that there is clear evidence to show what the exact arrangements are. If not, there is a very real possibility of a dispute when one of them dies.
The position gets more interesting – and potentially complicated – when people co-invest in assets outside their own country. A UK-domiciled couple might invest jointly in a fund in Luxembourg, assuming that – because they are from the UK – the concepts of ‘joint tenancy’ and ‘tenancy in common’ will apply in the usual way. But Luxembourg, of course, has its own very different rules dealing with co-ownership, and the couple might be surprised to find that they have very different rights under Luxembourg law.
It goes without saying, but it is very important to clearly understand the rights you have as a co-owner before investing – because there may be some banana skins for the unwary.
Ed Powles is a partner at boutique private wealth law firm Maurice Turnor Gardner LLP