GDL Answered - Equity & Trusts - Implied Trusts of the Home PDF

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GDL Answered - Equity & Trusts - Implied Trusts of the Home...

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Sample Notes from our Equity & Trusts chapter – Implied Trusts of the Home

GDL Answered is a comprehensive set of revision notes for the Graduate Diploma in Law. It covers the Contract Law, Tort Law, Criminal Law, Constitutional & Public Law, Land Law, Equity & Trusts Law, and European Union Law modules. Each topic is structured in a step-by-step format for answering problem questions. Please visit www.gdlanswered.com if you wish to purchase a copy. Comprehensive notes for the Legal Practice Course are also available at www.lpcanswered.co.uk

This chapter is provided by way of sample only. It is provided for marketing purposes and does not constitute legal advice. It is intended solely for prospective customers who are students or prospective students of the law of England and Wales. All information contained within is correct to the best of the author’s knowledge. ALL RIGHTS RESERVED. COPYRIGHT © 2014 LAW ANSWERED

www.gdlanswered.com IMPLIED TRUSTS OF THE HOME STEP 1: Identify the issues: State that an express trust would clearly outline who held the legal title to the property, and who held beneficial interests in the home, and in what shares. However, given the formalities required, this is unrealistic. Instead, it is likely that the property will be held under an implied trust. Implied trusts can be resulting or constructive. We therefore need to consider whether an implied trust has arisen. What is the issue here? Who is claiming a beneficial interest? Issues can arise (1) where the property is registered in the names of both parties, but there has been no declaration of the extent of their beneficial interests, or (2) where the legal title is registered in the name of one party only, and the other wants to establish that they have a beneficial interest in the property. Both issues could also be present.

STEP 2: Explain how the legal title is held. Is it joint ownership? If so, a 50:50 split is likely. If not (i.e. just one legal owner) then the other party will have to establish whether a beneficial interest exists in favour of them:

STEP 2(a): Is the property registered in the names of both parties (joint legal ownership)? Pettitt v Pettitt: If the partes have expressly declared exactly what their interests are (e.g. a declaration in the conveyance or a separate declaration of trust), that will be deemed conclusive. Note the formalities: any declaration of the beneficial interests needs to be evidenced in writing to comply with s.53(1)(b) Law of Property Act 1925, or it will be unenforceable (per Diplock in Gissing v Gissing). Where there has been no express declaration of the size of the beneficial interests, Stack v Dowden outlines the principles which apply to ascertaining the size of the beneficial interests of the co-owners of the legal title: o

The normal rule is that equity follows the law, so where the legal title is in their joint names, the beneficial interests will be of equal size (50:50 split). However, this is only a presumption and can be rebutted if the parties intended the beneficial interests to be different from the legal interests.

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The House of Lords confirmed that it would be very unusual for the equal split presumption to be rebutted. However, in Stack v Dowden, the majority of the court were influenced by the fact that Ms Dowden had contributed significantly more to the acquisition of the property and parties had kept their finances separate, so did not split the property equally.

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The presumption is fairly hard to rebut: in Fowler v Barron, the Court of Appeal held that a man who had paid the deposit, all the mortgage repayments and all the bills on 2

www.gdlanswered.com the property was unable to rebut the presumption that the beneficial interest was equally split with his partner. Apply: Is the presumption likely to be rebutted in your case?

STEP 2(b): Or is the property registered in the name of one party only (one legal owner)? State which party is on the legal title, and which is not. Can that other party prove that he/she has any beneficial share under an implied trust? There are 3 possible trusts: 1) Purchase-money Resulting Trusts: A presumed resulting trust (PRT) may arise where the other party paid part of the deposit or is liable for the mortgage repayments (Bull v Bull; Cowcher v Cowcher), although later mortgage contributions are more likely to be interpreted as forming a constructive trust (Samad v Thompson). PRTs are not appropriate for the family home (Kernott v Jones) unless it is being used for commercial purposes such as being completely let out. Also, in some circumstances a constructive trust may be more appropriate than a resulting trust for friends and even business associates (Gallarotti v Sebastianelli). PRTs are only relevant for commercial situations. In domestic situations, you should instead discuss express or inferred common intention constructive trusts. 2) Express Common Intention Constructive Trusts (ECICT): The requirements are set out in Lloyds Bank v Rosset: i.

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An express agreement about sharing ownership. o As a general rule this must be before or at the time of purchase (Lloyds Banks v Rosset), though can exceptionally be later (Clough v Killey). o

What words are used by the parties in the question? The following are examples of discussions that are not about ownership per se but about rights to reside generally:  “Let’s share a family home” (Lloyds Bank v Rosset)  “Your financial future is secure” (Walsh v Singh)  “For the benefit of both of us” (James v Thomas)  “You and the children will be looked after” (Thomson v Humphrey).

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Examples of discussions that are about sharing ownership:  “Everything’s 50:50” (Clough v Killey)  “Half yours” (Hammond v Mitchell)  When excuses are made, such as “you’re too young” (Eves v Eves) or “it will prejudice your divorce” (Grant v Edwards).

Detrimental reliance on that agreement: o Detrimental reliance is conduct that is otherwise inexplicable unless the party thought that they had a proprietary interest, and is a material contribution or sacrifice (Gissing). 3

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Examples of detrimental reliance:  Heavy DIY (Eves v Eves)  Paying for renovations (Clough v Killey)  Paying substantial expenses that allowed the husband to pay off a mortgage that would not have otherwise been affordable (Grant v Edwards). o

The following are not examples of DR, but are just personal benefits:  Decorating (Lloyds Bank v Rosset)  Paying for furniture and running expenses (Lalani v Crump)  Performing the role of a “traditional wife”, giving up a job, and caring for the husband’s mother (Thomson v Humphrey).

3) Inferred Common Intention Constructive Trust (ICICT): Discuss ICICTs where there has been no express agreement. o

An ICICT requires evidence of a common intention for the claimant to have a beneficial interest in the property. This is generally evidenced by a direct contribution to the acquisition of the property.  Note: the intention must be for the claimant to gain an interest in the property. See Geary v Rankin where there was evidence of an intention that the guesthouse be run jointly but nothing to suggest Geary should have a beneficial interest in the property.

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Examples of direct contributions:  Lloyds Bank v Rosset: initial or later mortgage payments only. An initially strict approach, but this was relaxed in later cases:  Stack v Dowden; Burns v Burns & Le Foe v Le Foe obiters: also enabling the other person to pay the mortgage. A more holistic and flexible approach than in Lloyds Bank v Rosset.

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The following examples do not count as direct contributions:  Gissing v Gissing: household expenses.  James v Thomas: working for the family business.  Burns v Burns: looking after children.  Pettitt v Pettitt: DIY, even very extensive DIY (but note the recent case of Aspden v Elvy).  Abbott v Abbott: the court must look at the whole course of conduct (flexible – but note non-binding – a Privy Council decision!), but conduct alone will only create a beneficial interest in “exceptional circumstances” (James v Thomas).

Draw an interim conclusion: it is likely to be the case that it will only be exceptionally that conduct other than direct contributions to the purchase price will suffice. Even though in principle courts are prepared to take a more flexible approach, in practice it is still difficult to say what types of conduct beyond direct contributions to the purchase price or mortgage will create a beneficial interest under an ICICT. 4

www.gdlanswered.com STEP 3: If you have established that there are beneficial interests, next quantify their size: Ascertaining the size of the beneficial shares for non-legal owners and legal owners claiming more than 50%: 1) For an ECICT where the size of shares have already been agreed: follow the agreement (Clough v Killey) 2) For an ECICT where the size of the shares has not been agreed (Holman v Howes): apply the Stack v Dowden holistic approach to infer the parties’ intentions, or if inferring is not possible, impute, i.e. award “fair” shares (as in Kernott v Jones). Consider: contributions, discussions, the relationship, outgoings, personalities, any children and finances. Apply the holistic approach: A party that is not on the legal title, but has contributed to DIY, renovations, paid all the bills, the mortgage repayments, brought up the children, kept their finances separate and/or given up a career to do so will be entitled to up to 50%. A party that is not on the legal title and has done very little towards the upkeep of the household will only be entitled to a small share. 3) For ICICTs: apply the Abbott v Abbott holistic approach to infer the parties’ intentions, or if inferring is not possible, impute, i.e. award “fair” shares (as in Kernott v Jones). Consider: contributions, discussions, the relationship, outgoings, personalities, any children and finances. STEP 4: Conclude: Who is the legal owner? Who has a beneficial interest? What size is that beneficial interest likely to be?

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