Purchasing a property together is a significant event for any couple during their relationship. Despite its importance very few understand how property can be owned in this jurisdiction.
Ownership of property in England and Wales
When purchasing a property it is important to be aware that there are two forms of property ownership in England and Wales, which co-exist alongside each other. There is “legal” ownership and “beneficial” ownership. “Legal” ownership refers to the registered owner of the property, i.e. the name(s) on the title of the property. “Beneficial” ownership can arise in various ways and may not be reflected on the title of a property. A party may gain a beneficial interest in a property as a result of certain circumstances, conduct or actions arising either when the home was purchased, or thereafter.
Establishing a beneficial interest in a property following a relationship breakdown
On divorce married couples are able to rely on the protection of statute. There is wide discretion given to the Court under the Matrimonial Causes Act 1973 when determining whether a party has a beneficial interest in a property. When considering the issue the Court will have regard to the needs of the parties and any children.
The position for unmarried couples is not the same. There is no such thing as a ‘common law marriage’, and consequently unmarried couples are not protected by the matrimonial statutes. Instead it is open for either party to apply under the Trusts of Land and Appointment of Trustees Act 1996 (“TOLATA”) for a declaration as to the beneficial ownership of a property.
The law in this area has been developing over the years as Judges make decisions in cases that expand or change the law. In general, however, it is accepted that an unmarried party may acquire a beneficial interest by virtue of an ‘implied trust’. There are two types of implied trusts known as ‘resulting trusts’ and ‘common intention’ or ‘constructive trusts’.
Case law provides that a resulting trust will arise where the applying party made a direct financial contribution towards the purchase price of a property. The contribution may take the form of a lump sum paid when the property is purchased, or ongoing payments towards a mortgage. Under a resulting trust, the applying party will usually receive a beneficial share in the property in line with their total contribution.
‘Common intention’ constructive trusts do not rely on the existence of a financial contribution, and are therefore more complicated. In essence, a constructive trust may arise where the parties exhibit, either by way of actual discussions or by conduct, a ‘common intention’ to share beneficial ownership in a property. The applying ‘party’ must then have relied on this intention to their own detriment. The actions required to establish a 'detriment' have may vary from payment of a mortgage and household bills, to famously undertaking extensive DIY to the property. Once a constructive trust is established, the Court will then decide the size of the applying party’s beneficial share, by reference to their actions.
Although the case law regarding beneficial interest is of some assistance to unmarried couples, it is nonetheless true that dealing with this issue through the courts is a long, tiresome and expensive process.
Is it possible to avoid a dispute over the beneficial ownership of a property?
It is possible to avoid a dispute at an early stage by making an express declaration of trust when purchasing a home. This declaration would set out each party’s beneficial entitlement, as mutually agreed. This should eliminate any possibility of an implied trust situation. The declaration can be made when registering a purchase or transfer using a simple Land Registry form. Although the declaration is recorded the form itself is confidential which means that the details of a couple’s beneficial ownership will not appear on the title.
If you require further advice about property ownership, or need help in drafting a trust deed then please make an appointment to see one of Freemans specialist financial and property law solicitors by calling 020 7935 3522 or emailing firstname.lastname@example.org