The law on cohabitation and property: who owns the house? By guest blogger Paul Read.
October 1, 2010 13 comments
Cohabitation is a complex area of family law and one that becomes more confused and murky by the week. Take property ownership. Very often cohabiting couples do not equally hold property, with one party having complete legal ownership. In other instances they do have shared legal ownership, but the proportion in which the property is held has not been made clear.
In short, the law for cohabiting couples in dispute over property is something of a mess and in urgent need of clarification. But as it stands, and to gain a full picture of the situation, there are several issues that need to be explored.
So last week, as I prepared for a hectic day in London with Mrs Stowe, my phone reminded me that Professor Rebecca Bailey-Harris was about to deliver an update on cohabitation disputes in the Stowe Family Law boardroom, I was there in a shot. Professor Bailey-Harris has a gift for explaining complex legal issues with clarity, and I knew she would describe events in practical terms that we could immediately draw upon for our clients’ benefit.
Cohabitation and marriage: the difference
Cohabitation usually relates to an unmarried couple, either straight or gay, living together as partners without entering into a marriage or civil partnership.
English and Welsh law draws a sharp distinction between those in a marriage or civil partnership, and those not in one. But what does this distinction mean?
Where a couple have been married or entered into a civil partnership, the breakdown of the relationship and the distribution of any assets is dealt with by the Matrimonial Causes Act 1973 and The Civil Partnership Act 2004 respectively. These two pieces of legislation incorporate very similar provisions that give the court discretion to reach an outcome which is fair for both parties.
However, where a couple have not been married or entered into a civil partnership and the relationship breaks down, the court is only interested in trust law. And in these instances the results can be far from fair.
Not an issue of fairness
This unfairness has not gone unnoticed, and there are a number of judges who have questioned the law as it stands. In James v Thomas  EWCA Civ 1212 judge Sir John Chadwick said that property disputes resulting from cohabitation must be:
“Determined by applying principles of law and equity, which (however inadequate to meet the circumstances in which parties live together in the 21st Century) must now be taken to be well established.”
This point was reinforced in Thompson v Humphrey  EWHC 3576 (ch) where Mr Justice Warren said:
“Cases of this nature are to do with the application of some quite strict legal principles, and not with imposing some standard of fairness.”
So if these disputes are not considered on the basis of fairness, what are the legal principles that decide them?
Beneficial ownership v legal ownership
Where property is in the name of a single party, Baroness Hale said in the central case of Stack v Dowden  UKHL 17 that:
“The onus is on the person seeking to show that the beneficial ownership is different from the legal ownership. So in non-owner cases, it is upon the non-owner to show that he had any interest at all.”
Therefore the person who has no legal ownership of the property needs to show they have a beneficial interest. In legal terms this means:
1) That there was a common intention to share beneficial ownership (including evidence to support this claim) and;
2) If they can show this, what are the parties’ respective shares?
This has been described as the dual hurdle that a claimant must clear in order to prove a case.
So how do you show that you do have a beneficial interest? Well, guidance is given in the case of Lloyds Bank Plc v Rosset , where two methods of beneficial ownership are described:
1) By express discussions evidencing an agreement or understanding between the parties.
2) Alternatively, by drawing inferences from the conduct of the parties.
Any express discussions as outlined above must be presented in court with detail, however long ago they took place or poorly remembered they might be.
Inferences are much more difficult to prove in court. The words of the Law Commission in its Sharing Homes report were adopted in the case of Abbott v Abbott . The report simply said that the court’s task 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”. But as Professor Bailey-Harris pointed out, recent cases do not make it any clearer as to what conduct will be considered as evidence of shared ownership.
Shared legal ownership
Shared legal ownership is when both parties have their names on the deeds but there is nothing expressly setting out what proportion of the property is owned by either party. In this instance the courts presume that beneficial ownership follows legal ownership. If the deeds make no reference to beneficial interests of the parties, it is necessary to look behind the legal interests to establish the beneficial interests.
This sounds complicated, and indeed it is. We were told by Professor Bailey-Harris that the vast majority of these cases settle before trial because the law is so inconclusive and the losing party runs the risk of liability for the winning party’s costs. This is normally not a risk encountered in family litigation because there is a presumption of no order for costs, except where misconduct can be proved.
So how do you show what beneficial interest you have? In other words, how do you show what proportion of the property you actually own?
Proving beneficial interest
Judicial opinion in this area is pretty difficult to understand, but a recent case (Kernott v Jones  EWCA Civ 58) does help to shed some light on the issue.
In this case a cohabiting couple had bought a family home in joint names for £30,000. The woman supplied a deposit of £6,000 and the rest was funded by an interest only mortgage. A year later the man built an extension to the property with the help of a £2,000 loan, paid for largely by the man; the extension enhanced the property’s value by about £14,000. The couple had two children together and during the relationship the household bills, including the main mortgage payments, were shared.
After the couple had lived for more than eight years in the property, the relationship broke down and the man moved out. All the payments were then met by the woman, who maintained the property and supported the children with little or no contribution from the man. The parties agreed to cash in a life insurance policy, dividing the proceeds, in part to enable the man to buy a property in his sole name.
After both properties had increased in value the man served a notice of severance for the property held in joint names. The equity in the shared property was around £218,000 and the equity in the man’s sole property was about £167,000.
The woman responded by bringing a claim for both properties under the Trusts of Land and Appointment of Trustees Act 1996. She claimed that she owned the entire beneficial interest in the shared property, or that if her former partner retained an interest in that property she in turn had an interest in his new home (the second part of which she later dropped).
In the initial ruling the woman was said to be entitled to 90 per cent of the value of the property held in joint names, on the basis that this was fair and just. The man appealed to the High Court, saying that it was not legitimate for the court to take account of what was fair and just in this case.
Sitting as a Deputy High Court Judge, Nicholas Strauss QC upheld the first decision and relied heavily on Stack v Dowden in reaching his decision:
“[Where] there is no express agreement as to the amounts of the parties’ interests, the court will quantify them by reference to the whole course of dealings between the parties, taking account of all conduct which throws light on the question of what shares were intended. The court has to assess in the light of their conduct what the parties must be taken to have intended and had not to impose what the court would itself consider fair and just.”
The man again appealed this decision. But in dismissing it once more The Court of Appeal took a very different view and criticised Baroness Hale in Stack v Dowden. Lord Justice Rimer said:
“As for Baroness Hale’s statement (in Stack v Dowden) that the court must or can also look for the parties’ imputed intention, I do not, with the greatest respect, understand what she meant.”
So the outcome in this case changed three times during litigation. For obvious reasons this is far from satisfactory. Prof Bailey-Harris suggested that if the case is appealed again and proceeds to the Supreme Court, it would be a good opportunity to provide much needed guidance. Not least on how strong the presumption of equal beneficial ownership is in cases of properties registered in joint names, and what the true nature of the parties’ intentions must be in the eyes of the court.
How to protect yourself
The case law does make for alarming reading and is filled with any number of cautionary tales for cohabiting couples. But if you take the proper preventative steps and protect your interests you are never likely to face the same set of problems.
If you purchase a property with someone else, make absolutely sure your respective beneficial interests are recorded on the deeds. In addition, it is also a good idea to enter into a separate deed of trust with the co-owner.
If you are not registered as a legal owner of a property but feel that you should have a beneficial interest, try to address the situation before it is too late. Ask the legal owner to enter you as a co-legal owner with an expressed beneficial interest. If this is not possible for whatever reason, consider a cohabitation agreement which states what your beneficial interest in the property should be.
Until new legislation is introduced by Parliament, cohabiting couples are not well protected by the law unless they themselves make a declaration of trust. Remember, there is no such thing as a common law marriage!
Perhaps it is time for new legislation equivalent to the French Pacte civil de solidarité. This permits any two people to enter into an agreement that subsequently allows for the distribution of their assets to be carried out in line with set principles that are based upon fairness.
Cohabitation law has now become so confusing and inexact that legislation seems the only way to provide clarity for the millions of the couples who are unmarried.
Paul Read was awarded an Honours Degree in Law by the University of Leeds and studied the Bar Vocational Course at the Inns of Court School of Law in London, specialising in civil and commercial litigation before being called to the Bar in 2004. He joined the in-house legal department of a global finance and media company in the City, before embarking on a successful sojourn into private business and developing a keen interest in family law.
Paul joined as a trainee solicitor in 2009 after completing the Legal Practice Course at BPP in Leeds, where he specialised in family law and advanced commercial litigation. Having already gained much experience with the firm’s high net worth cases, Paul is very much involved running the London office of Stowe Family Law.
October 1, 2010
Categories: Cohabiting Couples