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Beneficial Ownership of Property: Equitable Principles through Case Law

English property law distinguishes between legal ownership and beneficial ownership, which is an equitable interest in the economic benefit of the property. The latter may or may not be documented and will therefore not always be clear at the outset. Legal owners, which are not always the same as the beneficial owners, hold the beneficial ownership on trust for the beneficial owners. Beneficial owners have a right to income from the property and the proceeds of sale or a percentage thereof.

Many disputes relating to the beneficial ownership of property arise between cohabitees. Depending on the facts there may be a number of different applicable principles and routes to follow in establishing a beneficial interest. These include whether there is an agreement to marry, if an express declaration of trust can be identified, whether proprietary estoppel can be claimed and if a resulting trust or a constructive trust can be established.

Agreements to marry

The beneficial interest in property held during an engagement is dealt with in the same way as married couples on the termination of the engagement. S.2 of the Law Reform (Miscellaneous Provisions) Act 1970 applies, as confirmed in Dibble v Pfluger [2010] EWCA Civ 1005, which in turn provides for the application of s. 37 Matrimonial Proceedings and Property Act 1970. S. 37 states that where a spouse contributes in money or money’s worth to the improvement of real or personal property in which either spouse has a beneficial interest, the contributing spouse acquires a share in the property subject to contrary agreement.

Declaration of trust

The first step in a dispute between cohabitees is to establish whether there is an express declaration of trust by checking the transfer deed and any Cohabitation Agreement the parties may have entered into. A constructive trust cannot be imposed in place of an express declaration of trust as the latter is conclusive of the parties’ intentions. In Pankhania v Chandegra [2012] EWCA Civ 1438 it was held that courts have to give legal effect to an express trust unless there is a vitiating factor such as fraud or mistake. In Pankhania the Defendant sought to argue that the transfer to the Claimant was a sham but the judge clarified that what must be shown is that both parties never intended to create a trust but wanted to give that false impression to third parties or the court.

Proprietary estoppel

Proprietary estoppel is an exception to the general rule that an express declaration of trust is conclusive but it can also be claimed independently or in addition to constructive trust. It is an equitable doctrine, which creates proprietary interests in lands where strict adherence to legal rights and formalities may create an unconscionable outcome favouring the party with the superior bargaining power. To succeed in such a claim the Claimant must prove the following:

  1. Assurance – the property owner must have induced the Claimant to believe that they will acquire an interest in the property;
  2. Detrimental reliance – the Claimant must have relied on this belief, acted to their detriment and the owner was aware of this reliance. This creates a rebuttable presumption that the Claimant has relied on the owner’s assurances to their detriment;
  3. Unconscionability – the owner denies the Claimant of the property right.

Proprietary estoppel was successfully claimed in the recent case of Southwell v Blackburn [2014] EWCA Civ 1347. The Claimant and Defendant cohabited in a home solely owned and financed by the Claimant. The Defendant claimed that the couple intended to buy the house together so that she would also be an equal owner but could not travel to sign the deeds at the time and therefore the parties agreed to subsequently transfer the property in their joint names, which did not occur. The Claimant argued that it was always intended for the purchase to be in his sole name and that the Defendant was to stay for the duration of the relationship. The First Instance judge rejected Ms Blackburn’s claim to be a beneficiary of a constructive trust as there was no clear promise that she would become an equal owner but upheld her other claim of proprietary estoppel. Mr Southwell assured her that she would have a home and Ms Blackwell relied on this promise giving up her accommodation. The Court awarded £28,500 based on her financial loss which was upheld on appeal.

The Court of Appeal largely agreed with the first instance decision but provided some further guidance. The Court clarified that detriment is not necessarily financial but must be something financial following an earlier decision in Gillett v Holt & Anor [2000] EWCA Civ 66 and should be assessed and evaluated over the course of the relationship (Walton v Walton [1994]). The test for ‘sufficiently substantial’ is whether it is inequitable to allow the assurance to be disregarded, which is the test for unconscionability.

Proprietary estoppel and declaration of trust

In Clarke v Meadus [2010] EWHC 3117 (Ch) the Defendant executed deeds and a conveyance in favour of her daughter, the Claimant, to retrospectively sever the Defendant’s and her deceased husband’s joint tenancy. This was done for inheritance tax purposes and would result in Claimant and Defendant being tenants in common. The Defendant promised the Claimant her share of the property upon her death so the Claimant sold her family home, moved her family to live with the Claimant, raised money to buy adjoining land and made various contributions to the maintenance, mortgage and refurbishment of the property. However, the Defendant changed her will and left her share in the property to the Claimant’s sister. At First Instance the judge held that proprietary estoppel did not apply as the Claimant failed to show detriment and her share in the property covered any possible detriment she would have suffered. The Court of Appeal held that even though the parties declared their interests, they are not immutable and incapable of being affected by proprietary estoppel, which is therefore an exception to the rule that a declaration of trust is final. The Claim would have only been prevented if there was no promise by the Defendant, the Claimant had not relied on it and acted to her detriment as a result and the equity which can be established does not exceed the current interests held.

Resulting trusts

The beneficial interest can be claimed via a resulting trust if the Claimant contributes to the purchase price of the property but their name does not appear on the title. The equitable interest can therefore be held as a tenancy in common in proportion to the contribution. The contribution must be made to the acquisition of the property not merely to its repair (Bank of India v Mody [1998] 12 LSG 29) and the interest will not arise if there was no intention as to joint ownership (First National Bank v Wadhwani [1998] EWCA Civ 682). The equitable interest can arise when the contribution is made over a period time therefore mortgage contributions can be treated as a form of deferred contribution to the purchase price. The view of the majority in Stack v Dowden [2007] UKHL 17 was that due to the narrowness of the resulting trust it should not be used in evaluating beneficial interests.

Constructive trusts

As equity follows the law, a rebuttable presumption is created so that a sole registered proprietor is presumed to solely own the beneficial ownership and joint registered proprietors are presumed to hold the beneficial ownership jointly and equally. This presumption can be rebutted by evidence of contrary intention with the standard of proof being the balance of probabilities. A joint tenancy can also be severed via a declaration of trust which is generally conclusive as abovementioned or having a trust which deals with future severance (Goodman v Gallant [1985] EWCA Civ 15)

Evidence of the express common intentions of the parties and their conduct can be established before the acquisition or at a later date even if it is not clearly remembered and is in imprecise. If there is no such evidence the conduct of the parties should be considered, as there may be evidence of an inferred intention established in Lloyds Bank v Rosset [1989] Ch 350 House of Lords. The Claimant must show that they acted to their detriment in reliance. If it is clear that the beneficial ownership is to be shared but it is impossible to ascertain the parties’ common intention as to the proportions the court can make a finding of imputed intention so that each party is entitled to the share which the court considers fair having regard to the whole course of dealing between the parties (Jones v Kernott [2011] UKSC 53).  The two-stage test applies as follows:

  1. The Claimant must show there was an agreement that they should have a beneficial interest even if there is no agreement as to the extent of that interest and the Claimant acted to their detriment in reliance of this common intention. It is imperative that an actual agreement between the parties can be established so the court cannot impute an intention of an agreement (Capehorn v Harris and Another [2015] EWCA Civ 955).
  2. The Court will then either infer the parties’ intentions or impute an intention that the Claimant is to have a fair beneficial share and assess the extent of this interest.

Express Common Intention

Informal oral discussions may give rise to a constructive trust or estoppel. In Ely v Robson [2016] EWCA Civ 774 the parties informally reached an oral agreement which the Court of Appeal held to be sufficiently certain and binding upon them.

Inferred Common Intention

The whole course of dealing between the parties includes arrangements made from time to time to meet outgoings and make living possible, such as mortgage, utilities, repairs and insurance (Oxley v Hiscock [2004] EWCA 546). Baroness Hale in Stack v Dowden listed some non-exhaustive relevant factors to be assessed when determining an inferred common intention. These included advice or discussions at the time of the transfer, the reason why the home was acquired in joint names, the purpose for which the home was acquired, the nature of the parties’ relationship, whether they had children and a responsibility to provide a home for them, how the purchase was financed, how the parties arranged their finances and others.

In Graham-York v York [2015] EWCA Civ 72 the court held that domestic contributions such as preparing family meals and providing for a child’s care and upbringing are also relevant factors. The Claimant was found to have 25% beneficial interest in the home she occupied with her deceased former cohabitee and which he owned. Although the financial contribution was insignificant the Claimant had made domestic contributions during 27 years of cohabitation at the home.

Investment property

In Laskar v Laskar [2008] EWCA Civ 347 the secure tenant of a property exercised her right to buy nominating her daughter to join in the purchase which was funded by a joint loan and contributions by each of them. The property was rented out and the rental income used to pay the mortgage. The Court held that the daughter had an equitable interest in the property solely based on her contribution towards the deposit quantified to 4%. On appeal the Court of Appeal ruled that she had a 33% interest based on both the sum contributed for the deposit and also the mortgage contributions as the liability applied to both parties. The judge also clarified that the presumption that beneficial interests reflect legal interests as laid out in Stack v Dowden did not apply as the property was bought as an investment and not as a home.

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