What is the best way of preventing litigation?
Put simply, it is important to set out what each party’s intention is right from the beginning.
If someone wishes to protect their interest within a property that they intend to purchase or if both parties to a purchase wishes to establish the extent of their ownership, the best way of ensuring this would be for both parties to enter into a document called a Cohabitation Agreement and/or a Declaration of Trust.
The Cohabitation Agreement is a document that evidences the legal agreement reached between a couple who have chosen to live together. This could not only set out the terms of their cohabitation but can also extend beyond separation and can therefore include an intention as to what should happen with the children and maintenance etc.
Whilst there is no guarantee that the court will support the terms of the cohabitation agreement, there is more chance of this if there is provision that the agreement will be reviewed should there be a change in the couple’s circumstances. Further, it would help if both parties were legally represented at the time it was drafted and that both intended for the terms of the cohabitation agreement to be binding.
What can we do if we don’t agree? Court procedure
These issues can be dealt with through Mediation or the Collaborative Law process. If however all avenues have been exhausted, an application under the Trusts of Land and Appointment of Trustees Act 1996 can be made to the Court.
The application is made by drafting and submitting a claim form to the Court with a sworn statement in support. There is a court fee payable with the application. The person making the application is called the Claimant and the person on the ‘other side’ is called the Defendant who must be served with the application. Upon service, the defendant must file an Acknowledgment of Service Form within 14 days and thereafter a document called a ‘Defence’ within 21 days if he or she should wish to defend the case.
If the application is defended then the matter will be listed for a court hearing where the judge will give ‘directions’ i.e. a timetable as to what evidence is needed and by what time. At this hearing, the usual directions will be house valuation evidence, when disclosure would be exchanged, statements of evidence and then the matter will be listed for a final hearing.
At the final hearing, evidence will be heard from both parties and any relevant witnesses and the judge will deliver a judgement setting out reasons for the decision. Parties are encouraged to arrive at an agreement as litigation can be very expensive and the general rule in respect to costs is that the winner pays the loser’s costs.
Who owns what?
For most lawyers who practice in this area, clients invariably either fall into one of two camps:
The joint ownership is registered with the Land Registry (i.e. legal ownership) but there is no evidence of what shares they own and there is a dispute as to what the shareholding should be,
Only one party to the relationship is the legal owner and the other feels beneficially entitled to a share of that property.
In either case, an application can be made to the court under section 14 of the Trusts of Land and Appointment of Trustees Act 1996. It is a matter for the applicant to prove that he or she has a beneficial interest and/ or the extent of his or her beneficial interest in the property.
A beneficial interest will afford a person the right to occupy, prevent a sale or obtain a share of the proceeds of a sale equal to the extent of their beneficial interest. Therefore it is important to establish the existence of a beneficial interest.
Establishing the extent of a beneficial interest is always tricky and complex. Unlike marriage where the courts will divide the proceeds in accordance with the principles of fairness, this doesn’t apply to cohabiting couples. Where a property is now bought in joint names, joint owners are required to indicate how they wish to hold their property. This wasn’t the case previously and therefore there has been a raft of cases before the court where couples are in dispute as to beneficial ownership.
The key to establishing the existence and extent of a beneficial interest is by looking at the intention of the parties. The best way of doing this would be with reference to documentary evidence. In the absence of documentary evidence, the Court will look at the legal ownership and whether the home was bought in joint names. If not, the court will look to evidence of a common intention which can be inferred from the parties conduct and dealings between each other. If the property was owned in joint names but the extent of the ownership is not clear then the courts will presume an intention to share 50/50 but which can be displaced if there is evidence that the common intention is different either when the property was purchased or later on (again which can be deduced from the parties conduct and dealings with one another). Interestingly, where it is clear that there was a different intention either at the start or there was a change as time went on and the court can’t infer an actual intention, the court is entitled to infer an intention from their conduct and dealings with one another that is fair to both of them.
What is property ownership?
There are two types of ownership of land. The first type of ownership is ‘legal ownership’ meaning ownership recognised by law because a person’s name is on the title. The second type is ‘beneficial ownership’ meaning ownership of the equity which can differ from legal ownership. Legal ownership does not necessarily mean that that person is entitled to the proceeds of the sale of the land and could in fact be holding the property on trust for the beneficiaries.
Consequently, couples who jointly own property registered at the land registry where their shares have not been defined can sometimes have a different understanding as to who owns what. Similarly, just because a property is registered in only one person’s name and not the other, it doesn’t mean that the other party to the relationship does not own a share of that property.