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We have already looked at the beneficial ownership of property of cohabiting couples. Here, we address how the courts determine the beneficial ownership of a property purchased as an investment – rather than a family home.
The general rule is that, where property is purchased as an investment, in the absence of an agreement between the parties regarding their beneficial interests in the property, their respective beneficial shares should reflect the size of their contributions to the purchase price.
In the case of Laskar v Laskar [2008] EWCA Civ 347, the Court of Appeal provided useful confirmation as to the rules that apply when the property is purchased as an investment (as opposed to a family home for the parties to live in).
In this case, a mother and daughter purchased the property together. The mother was a secure tenant and exercised her right to buy the property, however, she was unable to fund the purchase price on her own, and so joined her daughter to the purchase. Both parties contributed towards the deposit and they obtained a mortgage to fund the balance of the purchase price. The mother lived in the property by herself at the time. The transfer document did not include any express declaration as to how the beneficial interest in the property was owned. Not long after the property was purchased, the mother moved out of the property and rented it out. She used the rental income to pay the mortgage payments. The relationship between the parties broke down, and the daughter brought a claim regarding her interest in the property.
The purchase price of the property was £79,500. The property was funded as follows:
- £29,415 discount under the right to buy scheme
- £3,600 paid by the mother
- £3,400 paid by the daughter
- £43,000 mortgage in the name of the mother and the daughter
The County Court held that the daughter had a beneficial interest in the property based on her contribution to the purchase price. Using the purchase price of £79,500 as the value of the property, the court calculated the daughter’s interest to be 4.28%.
The daughter appealed the decision, and argued that the presumption of joint ownership applied on the basis that both parties owned the legal title to the property. This presumption was established in the landmark case of Stack v Dowden [2007] UKHL 17, where the House of Lords unanimously held that if a property was transferred or registered in joint names, there is a presumption that the beneficial interest in the property is also held jointly.
The daughter argued that she had severed the joint tenancy and the parties’ interests were therefore 50/50. In the alternative, she argued that if the presumption of joint ownership did not apply, the discount under the right to buy scheme should have been apportioned equally between the parties, rather than being solely attributed as her mother’s contribution to the purchase price, and that the mortgage should also be apportioned equally between the parties as a contribution of £21,500 from each of them toward the purchase price.
The Court of Appeal considered it unlikely that the House of Lords intended that the presumption of joint ownership applies in this type of case. This was because, although the parties were family and not in an arms’ length commercial relationship, they had independent lives and they did not purchase the property to provide a home for them. The property was primarily purchased as an investment. In such a case, the reasoning from Stack v Dowden [2007] UKHL 17 would not be appropriate, and the resulting trust presumption would apply. The resulting trust presumption is that, in the absence of any relevant discussion between the parties, their respective beneficial shares should reflect the size of their contributions to the purchase price, subject to any subsequent actions or discussions which might have the effect of varying those shares.
It was held that the discount secured by the right to buy scheme should be solely attributed to the mother – because the discount only arose because she was entitled to it. With regards to the mortgage, because the parties were jointly and severally liable for the mortgage repayments, it was held that the mortgage should be considered to be equal contributions from the parties. It should be noted that this will not always be the case – and it is important to look at the facts of the relevant case.
The Court of Appeal held that the daughter had a 33% interest in the property. This was based on her contribution to the purchase price of £3,400 and half of the mortgage in the sum of £21,500.
If you need any advice in respect of a dispute in relation to your beneficial interest in a property, please contact Davis Blank Furniss LLP on 0161 832 3304 and ask to speak to a member of the Property Litigation Department.
