UK: Cohabitation – A Fair Share?

Last Updated: 4 April 2012
Article by William Massey and Christina Scotland

It is commonplace for unmarried couples to purchase a home together with the intention of living there as a couple. The property will often be in their joint names, and, more often than not, there will have been no discussion or documentation regarding what proportion of the property each owns.

This can cause difficulties, as highlighted by the Supreme Court decision in Jones v Kernott this week. Below we set out the essential facts of that case, and the approach taken by the court to resolve the dispute. Whilst the Supreme Court's judgment provides much needed clarity in what approach the courts should be taken to these disputes, we also set out how to avoid finding yourself in the courts.

Facts

Mr Kernott and Ms Jones, an unmarried couple, bought a property in joint names in 1985. They had two children together. They purchased the property for £30,000, with £6,000 funded by Ms Jones and the rest by way of mortgage.

Ms Jones paid the property's outgoings including the mortgage and bills, whilst Mr Kernott paid for some improvements made to the property.

The couple separated in 1993. Mr Kernott moved out of the property and made no further financial contributions to it. The couple cashed in a joint life insurance policy and divided the proceeds, enabling Mr Kernott to purchase his own property, which he did in 1996. It was clear that he was able to afford this new property because he was making no contribution to the joint property, and nor was he making any significant contribution towards the support of his children.

Mr Kernott did not seek repayment of his share of the property with Ms Jones until 2006, some 13 years after their separation. As a result Ms Jones commenced court proceedings to obtain a declaration that she owned the entire beneficial interest in the property. It was common ground that, at the point that the parties separated, they each had a 50% interest in the property. The difficulty lay in what happened to those interests in the 13 years after separation when Mr Kernott was not living at the property and was making no contribution to it.

The Court's approach

Ms Jones and Mr Kernott fought through four levels of Court and spent a huge amount of money and time in trying to reach a conclusion.

The County Court Judge's view was that he had to "look at the whole course of dealings between the parties to infer what the agreement between them was" regarding their ownership of the property.

The Judge ruled that Ms Jones' investment in the property since the couple had separated, meant she was entitled to a greater share. The Judge found that, whilst at the outset, the parties' intention may well have been to provide a home for themselves and the children, it had changed over time and Mr Kernott had essentially shown no interest in the property in the latter years. The Judge assessed the parties' interest in the property on the basis of what was 'fair and just'. He decided, a fair and reasonable division, would be for Ms Jones to retain 90% of the sale proceeds and Mr Kernott 10% (given that the parties had been together for 8 years, with Mr Kernott contributing to the property for 4 years and Ms Jones for over 17/18 years). The High Court agreed with this approach.

However, Mr Kernott, not satisfied with the decisions of the lower courts, appealed to the Court of Appeal, who, by a majority, allowed the appeal and declared that the parties owned the property in equal shares. They found that there was nothing to indicate that the parties' intentions had changed after their separation, and they could not either infer or impute that it had.

Unsurprisingly Ms Jones appealed to the Supreme Court, and it is that judgment that was reported this week.

The Supreme Court unanimously allowed the appeal and restored the order of the county court, awarding Mr Kernott a 10% interest in the property.

The reasoning applied by the Supreme Court was as follows:

The primary search must always be for what the parties actually intended, to be deduced objectively from their words and actions. In this way you can infer what their intention was.

If there is insufficient evidence of what was actually intended by the parties, the court can consider what their intentions as reasonable and just people would have been had they thought about it. In this way an intention can be imputed to them.

Applying that reasoning in this case, three of the judges considered that there was sufficient evidence to infer that the parties intended that, at the time that Mr Kernott ceased making financial contributions to the property, his interest in it crystallised and he would no longer continue to benefit from an interest in it.

The two remaining judges did not feel that there was sufficient evidence to infer that this was the parties' intention, but did feel that this would have been their intention as 'reasonable and just people' had they thought about it.

So what is the answer?

Where cohabiting couples buy a house in their joint names and both are responsible for any mortgage but there is no express declaration of their beneficial interests the starting point is that the couple will own the property equally (even if their financial contributions are different). However, that presumption can be displaced by showing that they had different common intention either at the time when they acquired the home or later.

In ascertaining what their intention was, the court can either infer it from their conduct or can impute it to them on the basis of what the court considers fair having regard to the whole course of dealing between them in relation to the property.

So, what lessons are there to be learnt?

1. Unmarried couples who own property together should always discuss between themselves how they intend to hold property and ask a lawyer to prepare a declaration of trust;

2. If their circumstances change, unmarried couples should review their declaration of trust and, if necessary, change it;

3. Unmarried couples who do not have a clear agreement between them as to how they own their property risk having the Courts imputing an intention to them, if the circumstances dictate that it is fair. This is discretionary, and risks a potentially arbitrary result.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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