In the current market it is not uncommon for friends or family members, as well as married and co-habiting couples to purchase property jointly. It is important that joint buyers are clear at the outset how property is to be held. Property disputes can arise when parties disagree how a property is held. See our page on joint property ownership for details of how a property may be held.
In addition to the details on the joint property ownership page, properties can also be held on trust. A trust is a legal relationship where assets are placed under the control of a trustee for the benefit of a beneficiary, not necessarily the legally registered owner. For example, Fred may have bought a property for £200,000 using a deposit of £100,000 which was paid by Frank. The money paid by Frank can be protected by Fred and Frank agreeing that the property, or a share of the property, is “held on trust” for Frank. In other words, Frank would also be a beneficial owner of part of it, even if it is not registered in his name. In order to avoid future disputes, the parties could agree to document this in a Declaration of Trust. However, although highly advisable, this is not necessarily essential.
There is therefore a difference between legal ownership and beneficial ownership. The legal ownership is separate from the beneficial ownership and the legal owner will not necessarily be the same as the beneficial owner. The beneficial owner of the land will have a right to the income from the property or a share in it, and a right to the proceeds of sale of the property or part of the proceeds. A beneficial interest in property is an equitable interest.
Under the Trust of Land and Appointment of Trustees Act 1996, trusts of land can be express, implied, resulting or constructive. The Law of Property Act 1925 requires an interest in land to be evidenced in writing, except for an interest created by resulting, implied or constructive trusts. Under S14, any person who is a trustee of land, or has an interest in a property subject to a trust, may make an application to the Court for an order declaring the nature or extent of a person’s interest in the property. The Court will again look at, among other things, intention and purpose for which property is held.
In some situations property will be regarded as subject to a trust despite the absence of any express intention on the part of the land owner.
Constructive Trusts: A constructive trust is used where it would be morally wrong to allow a legal owner to retain beneficial ownership of property. There is a presumption of joint beneficial ownership of a property held in joint names. If there is no Declaration of Trust staying otherwise, it is for the person asserting that it is not held in equal shares to prove it. The basics of a constructive trust is that a promise was made, which was relied on, and in reliance on that promise a person acted to their detriment.
Resulting Trusts: A resulting trust may exist where one party makes a direct financial contribution to the purchase of a property conveyed into another party’s name, or into their joint names and where a Declaration of Trust is not made.
Under the resulting trust principle the presumption was that that person would be entitled to a share in the property commensurate with the contribution made. However, because of changes in case law it can no longer be presumed that cohabiting couples intend their beneficial interest to be proportionate to the amount of their contribution to the purchase price. The presumption of the resulting trust does still have relevance outside of cohabiting couples in a more commercial context. Where there is a more commercial context, when parties are not related or cohabiting, consideration may be given to direct financial contributions to the initial purchase price of a property, or any discount one party has obtained under the right to buy scheme.
Proprietary Estoppel: In order to successfully establish a claim for proprietary estoppel you will need to establish the following:
- The owner of the land has given a clear assurance that the claimant has acquired, or will acquire, rights in that property, and
- The claimant has reasonably relied on that assurance, and based on that reliance has subsequently acted to his detriment, and
- The owner has unconscionably denied the claimant’s right to the property
All of the above elements need to be present to persuade the court to grant this remedy. Throughout the years, there have been numerous cases, particularly involving farms, where a claimant has worked on a farm for years in reliance on assurances made by the owner of the farm that he would one day inherit the farm, only to be disappointed when the owner dies. This provides a remedy in those circumstances where such promises have not been well documented and it would be unconscionable to go back on those representations and assurances.