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.


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.


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.

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