UK: A House Divided

Last Updated: 15 April 2013
Article by Fay Copeland

An increasing number of people are buying property with someone who is not their spouse, and unless there is a declaration of trust in place to determine their beneficial shares of the property, problems could arise when they come to sell, or if they die.

Executing a declaration of trust between co-owners of a property is becoming increasingly important. People are more likely to buy with unmarried partners or, especially first-time buyers struggling to get on the property ladder, with family or friends. This is leading to a variety of non-traditional co-ownerships, where the division of sale proceeds may be unequal. All of this is further complicated if improvements are later made to the property that are not funded by all of the co-owners (or, if they are, not in identical proportions to the original purchase price).

Pankhania v Chandegra [2012] EWC A Civ 1438 shows both the robustness of a declaration of trust, and what can happen if co-owners do execute one, but fail to update it. In this case, the Court of Appeal had to determine the beneficial shares of a residential property, and whether to uphold a declaration of trust executed by the two co-owners stipulating the shares each was entitled to.

Background

The property in question was a residential freehold property in Leicester, which was purchased by a nephew (the claimant) and his aunt (the defendant) in 1987. The aunt's brother had initially wanted to purchase the property, but was unable to obtain a mortgage, so the aunt and nephew stepped in to help, obtaining a mortgage and securing the property. It was claimed that the long-term intention was for the aunt's brother to purchase the aunt's and nephew's interests, although this never happened.

The aunt and her brother contributed the vast majority of the £18,500 purchase price and between them made all of the mortgage payments on the property, save for some contributions made by the nephew between August 2005 and December 2008, amounting to £2,650. The aunt lived at the property with her husband for some of the period of ownership. The nephew did not live there at any point.

At the time of the purchase, the transfer contained a declaration of trust setting out how the equity was to be divided in the event of a sale. This stipulated that each of the nephew and aunt had a beneficial interest of 50% of the property.

The nephew sought an order for sale of the property, seeking his 50% beneficial share of the sale proceeds. The aunt claimed that she should receive 100% of the sale proceeds, on the basis that there was an underlying agreement that she should be the sole beneficial owner, and this displaced the terms of the declaration of trust.

The case was originally heard by the High Court, which applied the principles in Stack v Dowden [2007] UKHL 17, and found that the entire beneficial interest was vested in the aunt. The nephew appealed.

Relevant law

The relevant law in respect of property co-ownership is set out in Stack, as reviewed in Jones v Kernott [2011] UKSC 53. A transfer of a property into joint names gives rise to a presumption of a beneficial joint tenancy unless or until proved otherwise. This presumption of equality can be displaced by an express declaration of trust or, if a contrary intention can be inferred, by the actions and behaviour of the parties, such that the court can impose a resulting, implied or constructive trust. A contrary intention can more readily be shown where the conduct of the parties does not indicate a joint enterprise, such as where they do not share financial resources.

The High Court used evidence of the nephew's nominal involvement in the property to infer an intention for the beneficial interest in the property to be vested wholly in the aunt. They cited the nephew's minimal financial contributions, the fact that he did not live at the property or ask for any income from the property, and the fact that his involvement had effectively been one of convenience only (so that the mortgage could be obtained).

However, in this case, there was an express declaration of trust. This means that the related trust law principles are relevant. It has been established by case law that the terms of a declaration of trust are conclusive of the parties' beneficial interests unless:

  • the declaration is varied;
  • the declaration is rectified by the court on the grounds of mistake, fraud or undue influence;
  • the principles of proprietary estoppel apply; or
  • the trust is a sham.

Decision

The Court of Appeal decided that the declaration of trust should be upheld. It concluded that it was not open to the court to apply the principles in Stack, as these are not applicable where there is an express declaration of trust setting out the beneficial interests; they only apply where there is no such document to go on. This is so regardless of the parties' subsequent actions and behaviour which might otherwise point towards different beneficial interests. The nephew remained beneficially entitled to a 50% share of the property, despite only being notionally involved with the property and having made no financial contributions to the purchase price or the property's ongoing maintenance.

In this case, the declaration of trust had not been varied by the parties, nor were there any grounds for the court to set it aside or apply the principles of proprietary estoppel. The argument that the trust could have been a sham was considered but dismissed. The qualities of a "sham trust", as summarised by Lord Diplock in Snook v London and West Riding Investments Ltd [1967] 2 QB 786, were not present: namely, an intention by the parties never to create the trust and to give a false impression to third parties or the court of a desire to create legal rights and obligations.

The court therefore ordered a sale of the property, with the net proceeds to be divided equally between the nephew and aunt, in accordance with the declaration of trust.

Practice points

The case has a number of points for practitioners who are advising clients intending to purchase a property jointly, or who already hold a joint property.

Clients who co-own property should make a declaration of trust to effectively fix their percentage shares of the equity in the property. While this may not be necessary for spouses and civil partners who are content to split the equity equally, other co-owners who are not married or in a civil partnership (together described as "unmarried" hereafter) should always consider making a declaration. This is particularly true in the following situations.

  • An unmarried couple or friends and family members have purchased a property together and informally agreed how the equity is to be divided, but have not documented this.
  • A married couple or civil partners want their shares to be other than equal (the presumption of a joint tenancy could be especially difficult to rebut in this situation).
  • An unmarried couple wishes to split the equity equally, notwithstanding unequal contributions to the purchase price and / or mortgage. Evidence that a co-owner is entitled to a larger beneficial share is more readily available in unmarried relationships, because unmarried couples often have separate bank accounts and conduct many of their financial affairs separately. Such contrary evidence will displace the presumption of equal beneficial ownership if there is no supporting declaration of trust.
  • There are beneficial owners who are not registered as legal owners – for example, a first-time buyer has purchased a property with assistance from their parents. The parents may agree for the property to be put into the name of their child on the basis of an unwritten agreement that the parents will get their money back when the property is sold. If this agreement is not documented in a declaration of trust, however, the parents' beneficial share is not adequately protected. The presumption of a beneficial joint tenancy only arises where the property is registered in joint names.

The parties will be legally bound by the terms of a declaration of trust, even if it is out of date and the stated percentages are then seemingly unfair in light of the parties' new circumstances. It is therefore important for clients to keep their declaration of trust under regular review to ensure it continues to reflect their intentions. This is particularly important if one of the co-owners dies or if co-owners who are married or co-habiting separate. A declaration of trust is not automatically revoked in these situations; it is up to the parties to alter its terms. If the declaration needs to be updated for any reason, it can be varied by a deed signed by all of the parties.

Clients should also keep a copy of any declaration of trust alongside their wills and / or make their executors aware of it. This will hopefully avoid any possible dispute over the extent of the client's beneficial interest when they die.

The most important message is that co-owners should not leave the door open for a court to impose a resulting, implied or constructive trust, but take matters into their own hands by executing a declaration of trust and keeping this under review. Pankhania has confirmed that this will be robust in the event of later challenges.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.