Financial Interests in Joint Property

Co-habitees interests in jointly owned property – how do you work them out?

Where co-habitees purchase a property together in joint names and execute a trust setting out their respective interests in the property it’s simple – the trust deed will give you the answer.

Problems arise where co-habitees purchase a property together and say nothing about their interests in the property. In such cases ‘equity follows the law’¹. Put simply if the property is purchased as joint tenants the parties will have indistinguishable interests in the property (so that on the death of one the entire property passes to the other) until the tenancy is severed to make them tenants in common with their own respective shares.

This outcome is very often problematic where people contribute differently to the purchase of the property, to the cost of improvements and maintenance or to the mortgage repayments. The simple answer is to get a full advice from the conveyancing solicitor when the property is purchased, but often people either don’t want to think about it or tell their solicitor they aren’t bothered – often the case when the relationship is going well….

Where one party to the joint purchase feels they should have a larger interest in the property than the other the leading authorities set the burden of proof on the party claiming the higher interest¹.

The situation becomes even more complex where the parties have had no discussions, let alone record anything in writing which amounts to an agreement between them that one will have say 75% interest in the property while the other is to have 25%. So how is the question of their respective interests to be resolved?

The search – in legal terms –  ‘is to ascertain the parties’ shared intentions, actual, inferred or imputed, with respect to the property in the light of their whole course of conduct in relation to it’¹.

So how is this to be done? If the question really is one of the parties’ ”common intention”, there is much to be said for adopting what has been called a ”holistic approach” to quantification, undertaking a survey of the whole course of dealing between the parties and taking account of all conduct which throws light on the question what shares were intended¹.

The authorities give some help as to the types of factors to be taking into account when surveying the course of dealing between the co-habitees. These may include: any advice or discussions at the time of the transfer which cast light upon their intentions then; the reasons why the home was acquired in their joint names; the reasons why (if it be the case) the survivor was authorised to give a receipt for the capital moneys’ the purpose for which the home was acquired’ the nature of the parties’ relationship; whether they had children for whom they both had responsibility to provide a home; how the purchase was financed, both initially and subsequently; how the parties arranged their finances, whether separately or together or a bit of both; how they discharged the outgoings on the property and their other household expenses. When a couple are joint owners of the home and jointly liable for the mortgage, the inferences to be drawn from who pays for what may be very different from the inferences to be drawn when only one is owner of the home. The arithmetical calculation of how much was paid by each is also likely to be less important. It will be easier to draw the inference that they intended that each should contribute as much to the household as they reasonably could and that they would share the eventual benefit or burden equally.¹

However the final conclusion on the point is that ‘cases in which the joint legal owners are to be taken to have intended that their beneficial interests should be different from their legal interests will be very unusual’.¹

In some cases however the parties will separate and the question of their respective interests in the property is not addressed for months, or even years – often when there are young children at the time of separation.

In such cases parties will often seek to frustrate the the other’s claim by saying that they have been meeting mortgage repayments, outgoings, maintenance and repair costs for years without any contribution from the other. There may seem to be some sense in that argument, and many might think it fair that the party who says in the property and maintains it, sometimes also raising the parties children in it, should have a larger share.

Not so says Lord Justice Wall in the recent case of Kernott v Jones. In referring to situations where the application of the principles above would result in the parties having equal shares and ‘the parties agreed that when they separated they had equal interests. There has to be something to displace those interests, and I have come to the conclusion that the passage of time is insufficient to do so, even if, in the meantime, [one party] has acquired alternative accommodation, and the [other] has paid all the outgoings’.²

Co-habitees who are joint owners of property in equal shares who retain the property on separation, either because they agree to keep it for the benefit of the children or because the party staying there cannot afford to buy the other out would be well advised to execute a deed of trust altering their shares in the property to account for the higher contributions made to the property by one of the parties after separation.

In the absence of some evidence to show that the parties no longer intend to have equal shares in the property after separation a co-habitee who has paid the mortgage and other outgoings sometimes for years would still only have a half share in the property!

If you are totally confused by the summary of legal principles above you could be forgiven, often lawyers struggle with them! If you have any doubt about your situation please contact us for early advice.

1 Stack v Dowden [2007] 2 All ER 929 para 54
2 Kernott v Jones [2010] EWCA Civ 578