Cohabitation and Finance

Cohabitants and Financial Remedies 

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Property disputes between cohabitants are resolved using existing property and trusts law through the Civil Courts not the Family Courts much to many peoples’ surprise. The law is complex, uncertain, and expensive to litigate and not designed for resolving family issues.

 

Jointly Held Property 

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If property is held by both cohabitants jointly as legal co-owners, then the property cannot be sold or transferred without the consent of both cohabitants. If the cohabitants do not intend the property to be shared 50/50 on sale, then they should execute a declaration of trust. A declaration of trust is a document that states the shares in which each joint cohabitant holds the property, for example 50/50 or some other unequal proportions. Unfortunately, not everyone is advised about the importance of making such a declaration when purchasing a home out of wedlock.

 

The completion of the TR1 (transfer form in the conveyance of a house) is crucial and parties buying a house should be fully advised on how to record how the property is held. A problem usually arises where the property is held jointly but a dispute arises at a later stage post-purchase, as to how the net sale proceeds should be divided on

the sale of a property.

 

The assumption is that beneficial interests should follow legal title unless the contrary is proved. What this means is that joint legal owners will be assumed to hold the property as beneficial joint tenants and sole legal owners will be assumed to hold the beneficial interest solely unless the contrary is proved. The contrary can be established

by the parties’ express, implied, and imputed intentions.

 

The onus is on the person seeking to show that the beneficial ownership is different from the legal ownership.

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Property Owned by One Party 

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The only way that a cohabitant can seek a beneficial interest in a property where the legal title is vested in just one cohabitant’s name is to demonstrate that the legal owner holds the property in trust for the person claiming the interest.

 

The starting point is to look at the conveyance of a property as this will indicate not only the legal owner of a property, but also who has a beneficial interest in the property. The title deeds to the property should therefore be carefully checked.

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Establishing a Beneficial Interest 

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The person claiming an interest is called a ‘claimant’ as proceedings will be in the civil courts, not family courts. In order to claim a share of the property the claimant will have to demonstrate that a legal owner holds the property in trust for the claimant. The establishment of such a trust depends upon the parties’ intention. Establishing

the common intention can be extremely problematic.

 

Section 53(1)(b) Law of Property Act 1925 (LPA 1925) requires that a valid declaration of a trust of a beneficial interest in land must be in writing. If one partner buys the home out of their own money and has it conveyed into their sole name, any oral agreement between the parties for one to take a beneficial share will not (per se) give that person an entitlement. The agreement will amount to an imperfect gift, which equity will not perfect. However, s53(2) LPA 1925 does not require the creation or operation of resulting, implied, or constructive trusts to be evidenced in writing. The

classification of trusts can be problematic, but it is important to do so as this may impact the quantum of interest available.

 

Resulting Trusts

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A resulting trust arises when property is bought by one party and put into the name of the other; the property is presumptively held on a resulting trust by the latter for the purchaser. If one person puts money into the property at the time of purchase (and it is not a gift), a trust is created. The person’s beneficial interest will consist of the amount of money which they have paid into the property where their name is not on the deeds as a legal owner. Case-law suggests that resulting trusts arise only at the time of the purchase of the property. Resulting trusts are fairly easy to prove as there is a direct financial contribution to the purchase of the property.

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Constructive Trusts

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Where there is no evidence of direct contributions made to the purchase price there could still be a constructive trust formed between the parties. This is a much ‘looser’ type of trust and is often more difficult to establish. There are two hurdles for a client to establish:

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1. There must be evidence of a common intention between the parties to share in the own-ership of a property, and

2. There must also be evidence of a detrimental reliance by the party whose name is not on the legal title, on this common intention seeking to establish the trust.

 

There are two ways of demonstrating a constructive trust; first by evidence of agreement between the parties, and secondly, where there is no evidence of a common agreement the court can infer common intention.

 

Where there is evidence of an agreement between the parties to share the property, this will establish the first limb of a constructive trust. The evidence may be that of a written deed or evidence of an oral agreement or discussions about a common intention to share the property. This is very difficult to prove, leaving the court to decide whose evidence they prefer and decide if there should be an inferred (or implied) intention.

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No Evidence of Common Intention 

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Where there is no evidence for the court to find that the parties agreed or arranged or came to an understanding that the property was to be shared, the court must rely entirely on the conduct of the parties to see if an intention to share can be inferred from the evidence. If an intention to share can be inferred from the conduct of the parties, the court may find a constructive trust.

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Qualification of the Shares 

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In cases of an express trust, the shares will be as agreed by the parties. If the Court finds or infers a common intention, it has a wide discretion when deciding the shares of the parties.

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Trusts of Land and Appointment of Trustees Act 1996

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A cohabitant with an interest in a property who is not a legal owner can apply under s14 TOLATA 1996 for an order to sell the property.

 

If an application is brought under s14 TOLATA 1996, the matters to which the court must have regard are found in s15 TOLATA 1996. These matters include:

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• the intentions of the person or persons who created the trust;

• the purposes for which the property subject to the trust is held;

• the interest of any secured creditor or any beneficiary.​​​

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kellygrigg@richardnelsonllp.co.uk

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