Benefit and Burden: Share and share alikePrint publication
In the recent case of Graham-York v York (1) and Leeds Building Society (2)  the Court of Appeal clarified how a party’s beneficial interest in a property in which she had lived with her partner should be assessed, and whether or not her interest took priority over the mortgagee’s.
Kamarah Graham-York (“Kamarah“) and Norton York (“Norton“) had lived together since 1975. Norton purchased the property with the assistance of a mortgage in 1983 and later remortgaged to Leeds Building Society (“the Society“). The property was registered in Norton’s sole name. Kamarah had no income of her own and did not contribute to the purchase price, mortgage payments or maintenance costs of the property.
In 2009, Norton died and substantial arrears accrued on the mortgage. The Society issued possession proceedings against Norton’s estate. Kamarah was later joined to the proceedings and claimed she had a beneficial interest which took priority over the Society’s mortgage.
Following a five day trial, the court ordered, at first instance, that Kamarah’s beneficial interest in the property equated to a 25% share. The court also held that Kamarah’s share should be paid from the remaining sale proceeds after the Society’s mortgage had been redeemed. That had the practical effect of substantially reducing the sums due to Kamarah and she appealed. Kamarah argued that her beneficial interest amounted to a 50% share in the property which took priority over the mortgage.
The Court of Appeal (“CA“) rejected the appeal on both grounds. The CA held that it was bound to consider the entire course of dealing between Kamarah and Norton to properly determine her beneficial interest. Kamarah and Norton had a relationship of many years and Kamarah had made significant non-financial contributions to the property. However, her financial contributions were small and where a property had been purchased in the name of one party only, there was no presumption of joint equal interests. As such, the CA decided that Kamarah’s beneficial interest in the property was correctly calculated to be a 25% share.
The CA also held that Kamarah had not suggested or demonstrated that an “equity of exoneration” applied. That is, she had not shown that the mortgage debt was incurred for Norton’s sole benefit, such that she was entitled, in equity, to be exonerated from it. In reality, the evidence indicated that the mortgage was for their joint benefit. Having shared the benefits of the mortgage and Norton’s income and having been awarded a 25% interest in the property, it would be artificial and unjust for Kamarah to not share the burden of the mortgage.
As well as confirming case law on how the courts should assess the beneficial interests of third parties in solely owned property, this decision will also be of comfort to lenders facing claims of overriding beneficial interests from cohabitees and occupying spouses. In circumstances where a third party has enjoyed the benefit of the mortgage, the courts have stated that the value of any beneficial interest will nevertheless be subject to the mortgage. The lender can attach proceeds of sale before distributing any surplus according to the parties’ respective shares.
It is worth noting, however, that this may not be the case where a solely owned and previously unencumbered property is then mortgaged solely for the benefit of the owner, for example to fund a business or other venture from which the cohabitee/spouse derives no benefit. In these circumstances, the cohabitee may be able to plead an equity of exoneration if their beneficial interest arose before the mortgage was taken out, which means the lender may only be able to attach their borrower’s share of the sale proceeds.
The case serves as a reminder to lenders (and their legal representatives) that when deciding to lend, they should make thorough investigations into occupancy of the property and any contributions made by cohabitees and spouses, and they should obtain occupancy waivers where appropriate.
Lenders should consult with their legal practitioners now to ensure that pre-lending policies and enquiries are sufficient to determine the answers to these questions, or otherwise risk suffering the consequences.
  EWCA Civ 72