Jointly owned property 2
Living together …… joint ownership revisited
02/05/2007
That there is no such thing as a Common Law marriage is a truism to lawyers but among the public the myth persists that a period of cohabitation of itself confers the right to share in each other's property. Married couples (and now same sex couples who have entered into a civil partnership) take the benefit of the wide distributive powers of the court to reallocate assets on breakdown of the relationship, and ascertaining their respective property rights takes second place to achieving a fair result having regard to the statutory criteria. Not so cohabitants whose rights in the home which they shared are determined by the complexity of the law relating to trusts which has evolved, originally to deal with transactions of a commercial type, but which has had to be adapted by the courts to deal with everyday home ownership. Trust law is inflexible. It exists to determine the parties' interests in property at the time of acquisition not to adjust them as their circumstances may change during the period of their relationship. The history of unmarried cohabitant cases reflects the continuing conflict between the desire to do justice and to achieve certainty. (For the latest on matrimonial finance please refer to the articles entitled "Family Finances 1 2 & 3" - see also the article entitled "Jointly owned property 1").
Of course even in the case of married couples (the expression will include civil partners) where third parties, e.g. creditors, claim rights against one party then it may still be vital to ascertain the other's rights in the property in order to resist the claim (this will usually apply where the property is in the sole name of one party). So if and when, following the Law Commission's report on cohabitants expected in August 2007, legislation is implemented to assimilate in some way the position of unmarried couples to married couples on relationship breakdown, the principles of trust law will by no means disappear from the domestic scene.
The question of how far the courts can go to achieve a "fair" division of property where an unmarried relationship breaks down has now been addressed by the House of Lords in the recently decided case of Stack v Dowden. Dicta in Oxley v Hiscock 2005 (Court of Appeal), a case of a single legal owner, had suggested that assuming the non-owner could establish a beneficial interest e.g. by a constructive trust or proprietary estoppel, then each would be entitled to a fair share having regard to the whole course of dealing between them in relation to the property. (This case is reviewed in the article entitled "Beneficial interests in property"). The Lords' decision was eagerly awaited - were they about to break new ground and apply broad brush concepts of retrospective "fairness"? The answer was a negative which was more or less emphatic depending on whose judgment was read since the Lords were unanimous only in dismissing the appeal, but did so for differing reasons.
The relevant facts of Stack v Dowden were as follows:-
Mr S and Ms D started a relationship in 1975 when he was 19 and she was 17. They started to cohabit permanently in1983. The first house was purchased in Ms D's sole name. The price was £30,000. A deposit of £8,000 came from a building society account also in her sole name and £22,000 was borrowed on an interest only mortgage backed by an endowment policy. Both worked and earned although Mr S was initially a self employed builder and Ms D a highly qualified engineer whose income was eventually twice his. Four children then followed in quick succession. The parties carried out a good deal of work to the property some by way of decoration and maintenance and others genuine improvements.
In May 1993 the house was sold for £90,000. Ms D received a cheque for the net proceeds of £66,613. In 1993 another property in Chatsworth Road London NW2 was bought as the family home. This time it was transferred into the joint names of the parties using the then current Land Registry form. This contained no declaration of trust but did contain a statement that the survivor could give a good receipt for the proceeds of a disposition of the property. The price of this house was £190,000 of which £128,813 came from Ms D's building society account (her savings plus proceeds of sale). A further £ 65,025 was provided by a loan to both parties secured by a mortgage and 2 endowment policies, one in the joint names and the other in Ms D's sole name. The mortgage interest and joint endowment policy premiums were paid by Mr S. Both parties contributed to the repayment of the mortgage capital. Improvements were also made to this property. Throughout this time they kept separate bank accounts and each made a series of investments and savings.
The parties separated in October 2002. After various other matters Mr S's claim for an order for sale and equal division of the proceeds was heard at the Central London County Court in October 2004. The judge ordered a sale of the property and an equal division of the proceeds. The crucial passage in his reasoning, as found by Baroness Hale, was that "they have both put their all into doing the best for themselves and their family as they could. In these circumstances after such a very long relationship a 50/50 share is … an appropriate division of the net proceeds of sale." Had they been a married couple this reasoning would have been impeccable. Here was a classic case for applying the "yardstick of equality" test as laid out in White v White (HL).
Since they were unmarried however an appeal by Ms D to the Court of Appeal was inevitable - she had contributed substantially more in monetary terms. No declaration of trust as to the shares had been specified so the court had to look at the respective parties' contributions to the acquisition of the property. In July 2005 the Court of Appeal overturned the judge's decision and ordered that the net proceeds of sale be divided 65/35 in her favour. Mr S appealed to the House of Lords and asked that the decision of the trial judge be restored. In November 2005 the house was sold for over £750,000. On 25th April 2007 the Lords Hoffmann Hope Walker Neuberger and Baroness Hale delivered judgment and unanimously dismissed Mr S’s appeal. So the division remained at 65/35. Allowing for various adjustments the extra 15% claimed amounted to £111,936. Baroness Hale who gave the leading judgment commented somewhat acidly that this was a not inconsiderable sum but the costs of pursuing the appeal to the Lords "will have been quite disproportionate".
One important aspect of the argument in the Court of Appeal was the effect of the survivorship clause. Did it signify a beneficial as well as a legal joint tenancy? The Court of Appeal following earlier decisions found that merely ticking the survivorship clause box in the Land Registry Transfer was insufficient to found a beneficial joint tenancy. This was unhesitatingly upheld by the House of Lords. The fact that a survivor could give a valid receipt was not necessarily inconsistent with the imposition of trust obligations on that survivor.
The current Form of Land Registry Transfer (as opposed to the 1993 form) contains at panel 11 of the TR1 three boxes applicable to a declaration of trust where there is more than one transferee. An X should be placed in the appropriate box specifying whether the property is to be held on trust for themselves as joint tenants, for themselves as tenants in common in equal shares or in some other way, e.g. for themselves in specified unequal shares. Baroness Hale pointed out however that since it is not mandatory to complete panel 11 it is still possible to leave the beneficial interests unspecified as the legal title will still be validly transferred with the box uncompleted. She said that if the completion of panel 11 and execution by all parties were mandatory the problem would disappear in the case of joint transferees and urged the Land Registry to consider revisions to the form of Transfer. However if there were to be an opt out for those who did not wish to commit themselves at the time of the initial purchase it would still be necessary to determine the trusts later on. The Land Registry does not concern itself with equitable interests in this context but only with validity of the legal title. Furthermore, where panel 11 is completed indicating that the property is to be held in specified unequal shares, those shares will not appear on the register. Conveyancing solicitors will take careful note of these practical considerations. Especially they should consider whether and when it would be desirable for joint owners to execute a declaration of trust independently of Land Registry requirements.
Because the Lords upheld the unequal split despite the very long relationship those practitioners who either hoped that the House would impose a quasi-matrimonial regime or perhaps feared it will be disappointed or relieved. But in addressing how flexible the trust regime might be to accommodate the facts their reasoning differed. Lord Hoffman for example gave no separate judgment (agreeing with Baroness Hale) but in the course of argument referred to an "ambulatory" constructive trust i.e. one changing to reflect the parties' intentions. Baroness Hale stated firmly that while their intentions may change from time to time their interests must be the same for all purposes. "They cannot at one and the same time intend … a joint tenancy with survivorship should one of them die while they are still together a tenancy in common in equal shares should they separate on amicable terms after the children have grown up and a tenancy in common in unequal shares should they separate on acrimonious terms while the children are still with them". (A cohabitation agreement might achieve this of course).
Baroness Hale supported a presumption that where there is joint legal ownership there should be joint beneficial ownership. It will be for the joint owner who proposes some interest other than a joint beneficial interest to prove it. Lord Hope took it as a given that the English law presumed that the beneficial interests were to be divided equally. Lord Walker agreed with Baroness Hale that "in cases where a flat or house has been registered in the joint names of a married or cohabiting couple (but with no express declaration of trust) there will be a considerable burden on whichever of them asserts that their beneficial interests are unequal and do not follow the law". However Lord Neuberger took a very different and more traditional line concentrating on the unequal monetary contributions of the parties and merely observing that "the fact that a property is taken in joint names is some evidence that both parties were intended to have some beneficial interest."
Given that the majority were strongly in favour of the presumption of equal division how was it that this presumption was found to be displaced in Stack v Dowden? The answer was inevitably on the "very unusual" facts of the case. Both parties knew that Ms D had contributed far more to the cash paid towards the purchase than Mr S. Although they planned that Mr S was to pay the interest on the loan and premiums on the joint endowment policy they also planned to reduce the loan as quickly as they could. In the context, said Baroness Hale, these supported an intention to share otherwise than equally. Furthermore the nature of their attitude generally towards their property and finances supplied a context where it could not be said that they had pooled their separate resources even for the common good. The only things they ever had in their joint names were Chatsworth Road and the associated endowment policy. Because they kept their affairs rigidly separate during their long relationship this was indicative that they did not intend their shares to be equal and on the evidence and figures Ms D had made good her claim to 65%.
The post Stack v Dowden position now appears to be as follows:-
Where the property is in the sole name of one party the party claiming a beneficial interest must prove it. In the absence of an express declaration of trust you must look at the evidence to see if there was a common agreement intention or understanding that the non-owner should have an interest in the property. It can of course be readily ascertained where the non-owner has made a financial contribution towards the initial purchase. If there is no such common agreement or intention etc. then the doctrine of proprietary estoppel may confer such an interest (see Oxley v Hiscock).
Where the property is taken in joint names then there is a presumption that it is held on a beneficial joint tenancy and strong evidence is needed to displace this.
In either case one must then decide how the extent of any such beneficial interest is to be calculated. If there is a sole owner it may be rare for a court to find that the parties intended to hold in equal shares. In the case of joint owners a beneficial joint tenancy will be the norm. The statement of Chadwick L J in Oxley v Hiscock was quoted with approval by Lord Walker and Lady Hale namely that "each is entitled to that share which the court considers fair having regard to the whole course of dealing by them in relation to the property … includes the arrangements which they make from time to time in order to meet the outgoings (for example mortgage contribution council tax and utilities repairs insurance and housekeeping) which have to be met if they are to live in the property as their home." Significantly Baroness Hale qualified this "holistic" approach to the extent that it emphasises that the search is still for the result which reflects what the parties, in the light of their conduct, must be taken to have intended but it does not enable the court to abandon that search in favour of the result which the court itself considers fair.
These days when a couple decide to buy a house or flat together it will almost invariably be in their joint names. Lenders will expect a joint mortgage and economics surely dictate it. They may act for themselves or be imperfectly advised and give little or no thought to how they should hold the property, save that it is to be their home, but Stack v Dowden now confirms that on a separation it would be unusual not to split the proceeds equally.
What if the couple had pooled their resources instead of keeping them separate and although contributing unequally to the purchase price had each contributed as best they could to the expenses of running and upkeep of the home? It follows from the majority views that an inference would have been drawn that they intended to own the property as joint tenants beneficially. In this way Stack & Dowden has just preserved the trust concept.
On this point Lord Neuberger would probably have dissented. He would look at the evidence at the time of acquisition and in particular the respective financial contributions and would require compelling evidence to infer that subsequent to the acquisition of the home the parties intended a change in the shares in which the beneficial ownership was held. His robust judgment may be read with interest.
As to the future The Law Commission will soon report. It is bound to recommend legislation that will reflect changing patterns of social behaviour. Properly the House of Lords decided not to "legislate" but to leave it to Parliament. It seems that the Law Commissions report will not contain a draft bill but it would be surprising indeed if some measure of redistributive powers analogous to ancillary relief for married couples were not proposed, especially where the parties had demonstrated their commitment to each other over a period of time. In that case flexibility would have won out at last over the certainty that Lord Neuberger was keen to preserve.
|
