When two (or more) unmarried people own or occupy a property together, disputes can arise as to their respective shares in the property. Such disputes will often arise between cohabitees who have separated. However, they can also arise between friends, family members and business partners.
Common property ownership disputes include the following scenarios:
- A property is held in two or more parties’ names, but there is an imbalance in the financial contributions they both made (“Joint ownership cases”). For example, a house might be legally owned by 2 people, but 1 party has made a higher contribution to the deposit or has paid all the mortgage repayments for a long period
- A property is held in one party’s name, but another party has made a financial contribution to it (“Sole ownership cases”). The party who is not a legal owner might have contributed to the deposit, mortgage repayments and / or renovations. A dispute can arise as to whether that party has acquired an interest in the property
These claims are dealt with under the Trust of Land and Appointment of Trustees Act 1996 (“TOLATA”). TOLATA is a statute which gives the court the power to determine the legal and beneficial ownership of a property.
Legal ownership – joint tenants vs. tenants in common
The legal ownership of a property can be established by looking at the Land Registry Office Copy Entries (“OCE”).
A jointly owned property can be legally held as either joint tenants in law and equity or as tenants in common (in equal or unequal shares).
The difference between these 2 forms of legal ownership is that joint tenants own 100% of the property in question. If one party were to pass away before the other, the survivor would automatically inherit their entire share in the property (and vice-versa). This is a common form of legal property ownership for married couples.
In contrast, tenants in common have a fixed legal interest in a property. If there are 2 legal owners who are tenants in common in equal shares, they both own 50% of the property. Tenants in common in unequal shares own a specified percentage of the property. If one party passes away before the other, the deceased’s share will pass in accordance with their Will (or the intestacy rules, if they die without making a Will).
If a property is held as tenants in common, the following restriction will be placed on the title:
“No disposition by a sole proprietor of the registered estate (except a trust corporation) under which capital money arises is to be registered unless authorised by an order of the court”.
The purpose of this restriction is to ensure that, following the death of 1 party, the survivor(s) cannot sell the property and therefore circumvent the Will of the deceased. The absence of this restriction on the title deeds suggests that a property is owned as joint tenants.
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Beneficial interests / implied trusts
As above, legal title is confirmed on a property’s title deeds i.e. the owner(s) named on the proprietorship register.
It is also possible to have a beneficial interest in a property. That can be in addition to or instead of a legal interest. Beneficial interests are not expressly stated on the legal title. They “sit behind the curtain” of the OCE.
The beneficial owners of a property are often the same as the legal owners. However, they can be different. The best illustration of this is that persons under the age of 18 cannot legally own property. On that basis, if a child inherits property, the legal title will be conveyed into the name of an adult who will hold the property on trust whilst a separate trust deed will confirm that the child holds 100% of the beneficial interest in the property.
There is a presumption that “equity follows the law”, i.e. that the beneficial title mirrors the legal title. The court will therefore assume that the OCE accurately reflects the ownership of the property. However, it is possible for an “implied trust” to arise, altering the beneficial title. An implied trust can mean that a person who is not a legal owner of a property develops a beneficial interest, or that a person’s share in a property is increased or decreased beyond their legal share.
There are different types of implied trust, including:
- Resulting trusts. A resulting trust can arise when one party makes a direct financial contribution to a property (usually a contribution to the purchase price, deposit or substantial renovations)
- Constructive trusts. A constructive trust can arise when one party contributes to a property and both parties had a common intention to share the property
- Proprietary estoppel. This can arise where one party is encouraged by another to make a contribution to a property, on the understanding that they will acquire an interest in the same; and in doing so, they act to their detriment
Implied trust claims are complex and highly fact specific. Whilst these disputes often arise between former partners / family members, they are determined by the civil court, instead of the family court. That carries greater cost risks because in the civil court, the usual position is that the unsuccessful party will pay the other parties’ costs at the conclusion of the case.
An implied trust claim might arise in the following circumstances:
- Two parties live together in a jointly owned property which is not subject to an express trust, and they have made unequal contributions to the property
- Two parties live together in a property held in one party’s sole name, and the non-legal owner has made significant financial contributions
In jointly owned property cases, the starting point for considering whether an implied trust has arisen is to request a copy of the conveyancing file relating to the purchase. It is particularly important to review the TR1 which was signed at the time of purchase. If the TR1 indicates that the property will be held as joint tenants / tenants in common in equal shares, that constitutes an express trust which cannot be replaced by an implied trust.
Top tips to protect yourself from a TOLATA dispute
TOLATA claims are notoriously complex. The outcome of civil court proceedings is uncertain. Each case is determined on its own facts, and it is often not clear what the outcome of a case will be until evidence has been given at a trial (by which point both parties will have already incurred significant legal costs). Running an unsuccessful claim can mean that you end up paying your own legal costs plus the other party’s costs. These risks can however be avoided with careful planning.
Couples who are buying or occupying a property should consider the following:
- Have open discussions about how they plan to hold the property, and what they envisage happening if they separate – and ideally keep a record of any text message / email exchanges about those intentions
- If there is an imbalance in financial contributions, or if financial contributions are being made by a party who will not be a legal owner of the property, the parties’ should enter into a Declaration of Trust which specifies how the legal and beneficial shares in the property will be apportioned between them
- Make sure that their intentions are clearly recorded in emails to their conveyancer
- Consider entering into a Cohabitation Agreement, which provides greater detail as to what will happen in the event of a separation
A non-legal owner should be very wary about investing any funds into another parties’ property unless a) there is going to be a Declaration of Trust or b) they consider the contribution to be a gift which they would not expect to recover in the event of a separation. That is because quite often the cost of pursuing a TOLATA claim will be higher than the amount that a potential litigant is seeking to recover (with no guarantee of success).
Whilst there will be some conveyancing costs associated with drawing up a Declaration of Trust, those costs will pale in comparison to the costs that will be incurred in running a TOLATA claim to trial in the civil court. A Declaration of Trust will not cost much to prepare but will be worth its weight in gold in terms of certainty and peace of mind.
The content of this page is a summary of the law in force at the date of publication and is not exhaustive, nor does it contain definitive advice. Specialist legal advice should be sought in relation to any queries that may arise.
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