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No common law spouse; any common intention trust?

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02/11/2015

The question often arises, when a relationship breaks down and cohabitees go their separate ways, whether a party whose name is not on the deeds to a property nevertheless owns a share. Today the issue arises not only between couples whose relationships have ended, but also between friends, family members, business partners and others, who have shared living or working space on all sorts of informal, quasi-legal arrangements, perhaps with a view to stepping on to the property ladder, or getting a business off the ground.

Despite the fairly widespread continued misconception of the common law spouse, the law is clear:

  • “…the starting point where there is sole legal ownership is sole beneficial ownership…The onus is upon the person seeking to show that the beneficial ownership is different from the legal ownership. So in sole ownership cases it is upon the non-owner to show that he has any interest at all.” [1]. So, the party who is not named as legal owner has to demonstrate, somehow, that he or she is nevertheless entitled to a share.
  • Where there is an express declaration of trust, that is generally conclusive as to beneficial ownership.
  • Where there is no express declaration, a claimant must adduce evidence of an implied trust or, more specifically in the case of cohabitees, a ‘common intention constructive trust’, to establish his or her beneficial interest.

In Capehorn v Harris [2] the Court of Appeal has provided welcome, practical clarification of the two-stage test which the court will deploy in personal relationship cases to determine the existence, and extent, of a common intention constructive trust.

  1. First, the claimant must show that there was an actual agreement that he or she should have a beneficial interest in the property (even if there was no agreement as to the precise extent of that interest). The Court of Appeal confirmed that, whilst an agreement can be inferred by conduct, nevertheless it does actually have to exist – the court is not entitled to impute an agreement or any intention of the parties to agree.
  2. Second, the claimant must establish the extent of its interest. In the absence of agreement as to the extent of the interest, the court may impute an intention that the person was to have a fair beneficial share in the asset and may assess the quantum of that fair share in view of all the circumstances of the case. The Court of Appeal was careful to explain that it is only at this second stage of the test that the court has any ability to impute an intention of the parties, and to assess the value of the claimant’s share accordingly.

In the context of investment properties or other sharing arrangements, the legal position can be more complex. Where a property is purchased by one family member for him/her to live in along with another member of the family, the Capethorn common intention constructive trust analysis is likely to govern any beneficial ownership dispute. Where, however, a party or parties has/have purchased a property not as a home but with the primary purpose being investment and another family member, friend or partner claims an interest or a dispute arises as to the extent of any beneficial ownership, a resulting trust analysis may apply instead [3]. In those circumstances, any beneficial ownership may be quantified by reference to the parties’ respective contributions to the purchase price, or otherwise/subsequently to the value of the property.

WM Comment

Following the downturn in the global and national property markets post-2007/2008, people have increasingly purchased, shared and invested in properties in ever more wide-ranging and varying circumstances. As relationships and familial and business arrangements come to an end or change over time, it is likely that the courts will encounter beneficial ownership disputes pursuant to myriad different arrangements and so any clear case law, which can assist with the timely and cost-effective resolution of disputes, is to be welcomed by lenders and lawyers alike.

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[1] Stack v Dowden [2007] UKHL 17, para. 10
[2] [2015] EWCA Civ 955
[3] Laskar v Laskar ([2008] EWCA Civ 347