Ownership of the family home

9 9

Nature and importance

W

henever a couple (married or unmarried, with or without children) have a family home, questions may arise as to who owns it. Sometimes this may be settled by express written agreement between them, but often this does not happen. One of the parties may have taken the lead when the property was bought and had it put into his or her name. This is especially common where only that person is working. Alternatively, the house may have been owned by one of them before their relationship started. This is particularly common when it was owned in an earlier (failed) relationship.

Why should the non-legal owner have a claim? The answer will vary from case to case.

They may have contributed part of the cost, paid some of the mortgage instalments, paid other household expenditure or borne responsibility for looking after the home and children. These activities may have carried on for a few months or several decades.

Although the discussion in this chapter concentrates on couples, most of the prin-ciples apply more generally. A quite common scenario is where a house is bought for parents and placed in the names of the parents or children. The other party may have contributed to the purchase and claim a share.

The financial significance of the home among the family assets makes this a very import-ant area. It applies to the most importimport-ant asset of hundreds of thousands of families.

Unsurprisingly, it has given rise to much litigation. Recently, the House of Lords has considered the area in Stack v Dowden.¹Though some issues have been clarified, the outcome in many situations remains uncertain.

When does ownership become important? The most obvious answer is that the rela-tionship between the couple may break down and they disagree as to who is entitled to what. A less obvious answer is that a third party may acquire an interest in the home.

Suppose Jane owns a house, burdened with quite a large mortgage. She meets Ken, who moves in with her. Soon after, she becomes pregnant and gives up work to look after the baby. Two other babies follow and she stays at home with them for the next eight years.

As Jane now has no significant income, Ken pays all the mortgage instalments. While she

1 [2007] 2 AC 432.

Main issues and rules

is at home, Jane succumbs to a gambling habit and borrows £50,000 from Limitless Bank, secured by a mortgage. Ken is quite unaware of this and Jane hides his existence from the bank. When the bank attempts to enforce its mortgage, a crucial question will be whether Ken has a share in the house binding the bank. On the facts, Ken’s contribu-tion is likely to lead to his having a share, which will bind the bank, preventing it from getting possession and selling the house. In this example, it does not matter that Jane and Ken are still (perhaps against the odds!) happily living together.

Where the parties are married, there has been since the early 1970s a statutory power² for the court to redistribute assets when the marriage breaks down. This means that it is unnecessary to work out the ownership of the home. It follows that ownership issues arise most frequently as regards unmarried couples, for whom there are as yet no equivalent statutory powers. However, the example involving Jane, Ken and the bank would arise even if they were married. The question there was as to who owned the house at the date of the mortgage. A court can adjust rights as between Jane and Ken, but it cannot do this retrospectively so as to affect third parties such as Limitless Bank.

Much of this chapter is devoted to discussing when the contributions of persons such as Ken give rise to shared ownership. The courts initially relied on resulting trusts, but more recent cases have employed constructive trusts. Two general observations may now be made. The first is that trusts, a tool of financial management, seem ill-suited to the family-based problems under dispute. The courts may have had no other tool available, but it is scarcely surprising that the results have been widely condemned. The second is that the trust gives a proprietary right to persons such as Ken. The uncertainties of the present law are particularly unwelcome because land law seeks to provide certainty for those dealing with the land. We might accept uncertainty as between Jane and Ken, but it becomes less acceptable when the bank is involved. Indeed the law is widely thought to produce neither fair results for the parties nor certainty.

The main topics considered in this chapter include the operation of express written agreements, transfer into joint names at law, transfer into the name of one of the parties and the remedy that will be awarded. Finally, we consider the links between these prin-ciples and proprietary estoppel; it was observed in Chapter 8 that the two areas substan-tially overlap. Nearly all the material under discussion has arisen over the past 40 years and it would be easy to describe the entire chapter as a critical and controversial issue!

Three particular topics are considered under that heading: the impact of Stack v Dowden on single name transfers, reform proposals and the estoppel comparison.

Main issues and rules

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Express declarations of trust

It will be seen in Chapter 12 that co-ownership always involves a trust of land. This means that a couple who want co-ownership should execute a declaration of trust.

Nearly always, this will be in the transfer document and thereby satisfy the need for writing.

2 Matrimonial Causes Act 1973, s 24.

Main issues and rules

Ownership of the family home

9

Let us consider two possibilities. In each of them, Charlotte starts with a half-share in a house, following a failed marriage. Her new partner, Dave, joins Charlotte in buying out her former husband’s share; they fund this equally. Some years later, their relationship breaks down. In the first possibility, the legal title is transferred to Charlotte. In the second, it is transferred to Charlotte and Dave expressly on trust for them equally.

In the first possibility, there will be a trust under principles discussed in later sections.

It is quite likely that the beneficial interests will reflect their contributions: Charlotte will have a three-quarters share (her original half, plus half the husband’s share) and Dave a one-quarter share. That looks fair.

The second possibility mirrors the facts in Goodman v Gallant.³ After a thorough review of the cases, the Court of Appeal concluded that the declaration of trust in the conveyance was conclusive: the parties each had a half-share. This result has the great merit of providing certainty and reducing litigation: everybody can rely on the words of the conveyance. Yet it may be seen as not entirely fair on Charlotte, who provided three-quarters of the money. That, however, is to take an unduly money-based approach. If Charlotte has formally declared that she wishes Dave to have a half-share, why should she not be held to that? One danger is that the lawyers may have failed fully to explain to Charlotte what she was agreeing to. Few people carefully read and understand all the documents they sign.

The result in Goodman has never been seriously challenged, though it can be sidestepped in limited circumstances. In particular, it can be avoided if there is a mis-representation or mistake such that the conveyance does not represent the parties’ true intentions. Suppose that Dave is contributing nothing, but that a lender tells Charlotte that the loan depends on there being a joint transfer to them, with a joint mortgage to the lender. The understanding between Charlotte and Dave is that the house is to belong to Charlotte alone; Dave’s name is included solely to satisfy the lender. Any declaration of trust in such circumstances is plainly a mistake and the conveyance can be rectified, removing Dave’s beneficial half-share.

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Transfer into joint names

Suppose that, in the example concerning Charlotte and Dave, the transfer is into their joint names, without any mention of beneficial interests. The statutory forms require modern transfers to state the nature of the beneficial rights in the transfer. Though this may not always be complied with, it means that problems should arise infrequently in registered land.

However, such a problem did arise in Stack v Dowden, in which the home had been bought before the transfer forms required beneficial interests to be specified. Traditional thinking was that a transfer into joint names gives rise to a resulting trust reflecting con-tributions. However, the House of Lords (Lord Neuberger disagreeing) held that, where a family home is involved, the presumption should be of equal beneficial interests. This was felt best to match the intentions of the parties, who are unlikely to be thinking in

3 [1986] Fam 106.

Main issues and rules

terms of financial calculations when a joint names transfer is used. This is supported by the widespread use of a joint tenancy when beneficial interests are expressly declared.

However, it is possible to reverse this presumption by showing a common intention that the shares should be unequal. Though this was said to require very unusual circum-stances, such a common intention was found on the facts in Stack. This was based on the almost total separation of the finances of the parties (other than the house), despite their living together for more than 20 years. On that basis a 65:35 split was upheld, reflecting their contributions. Critics have observed that such separation of finances is by no means rare, so the ‘very unusual’ case may be quite common.

Subsequently, the Court of Appeal in Fowler v Barron⁴has shown that joint ownership will apply even if one person has paid all the cost of the house: far more extreme circum-stances than in Stack. The court stressed that the separation of finances in Stack was lacking, so that the presumption of equal shares was to be applied. One problem in find-ing unequal shares in Fowler was in justifyfind-ing any figure when one person has paid all:

nobody argued that zero was appropriate.

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Transfer into a single name

This is the context of the great majority of the cases. As will be seen in ‘Critical and con-troversial issues’, Stack almost certainly liberalises the law in this area. Unfortunately, the extent of this is by no means clear – it remains necessary to consider the older ideas.

Background and early developments

The family homes cases originated in resulting trusts. Let us return to the Charlotte and Dave example. If they contribute in cash to the purchase of the husband’s share, this can be seen as a classic form of resulting trust. Almost always, however, couples buy land with a large mortgage loan. Cash will constitute a fairly small proportion of the cost, at least for first-time buyers. What happens if Dave helps to pay the mortgage instalments? A very strict analysis might say that Charlotte has raised the purchase money on mortgage and has paid the entire cost: Dave gets nothing. That has always been seen as far too strict.

As soon as we recognise mortgage instalments as contributions, problems abound.

Do we credit Dave with just the capital component of each instalment (usually very small, if anything at all)? What if Dave pays for the housekeeping so that Charlotte can afford the mortgage instalments? Our example is unusual in that it is the woman who is the major contributor. In most cases it is the man who has the legal title and the woman who is claiming a share. Frequently, she earns less than he does, especially if looking after children. An approach that stresses financial contributions is bound to favour men over women, given typical roles in families.

At one stage, it appeared that the courts might be developing a concept of family assets, sharing assets between the parties. That development was halted by the House of Lords in Pettitt v Pettitt.⁵A bare majority held that the cases had to be determined by

4 [2009] 2 FLR 831.

5 [1970] AC 777.

Main issues and rules

Ownership of the family home

9

conventional trusts concepts. There is no special family assets analysis, nor any judicial discretion. Pettitt is essentially backwards-looking: it rejects ideas put forward over the previous ten years.

It might be observed that a family assets approach is more difficult to contemplate today. Pettitt predated the statutory discretion for husband and wife and nearly all the early cases involved spouses. It seemed reasonable that husband and wife might share assets. Nearly four decades later, the cases involve very varied relationships. It is less easy to justify a blanket equal-sharing approach.

Gissing v Gissing

Soon after Pettitt, the House of Lords in Gissing⁶clarified the effect of their earlier deci-sion and established principles to be applied in future cases. Its facts involved indirect contributions and will be considered below in that context.

The essence of the Gissing approach, still applied today, is that we look for a common intention. As everybody appreciates, couples buying their first home together rarely thrash out the details of their rights in detailed discussions regarding their shares. If they do, then it is likely that the conveyance will contain an appropriate declaration of trust.

The courts will readily imply a common intention from their contributions to the purchase and to the mortgage. Many commentators have observed that this common intention is largely fictitious. It may indeed be appropriate for the law to recognise con-tributions, but common intention provides an insecure intellectual base. We will see that it has been widely criticised.

Alternatively, the courts may find that the parties have actually agreed what their shares should be: the express common intention. This cannot be effective without writing.

However, if a party acts to their detriment on the basis of the common intention, then it would be unconscionable for the legal owner to deny an appropriate share. It might be added that an implied common intention also requires some detriment. However, that is invariably provided by the contribution itself.

There has been much discussion whether the cases should be explained as based upon resulting trusts or constructive trusts. The resulting trust applies readily to capital con-tributions, but is very difficult to apply to express common intentions. More generally, the resulting trust is prone to produce arithmetical solutions and is difficult to fit in with non-financial contributions. In Stack, the House of Lords was clear that, for both joint names and single names transfers, the constructive trust provides the most appropriate analysis so far as the family home is concerned.

Contributions and implied common intentions Direct financial contributions

A capital contribution to the purchase of a home virtually always counts. In theory, it could be a gift to the legal owner, but that conclusion is rarely reached. In Midland Bank plc v Cooke,⁷the husband’s parents gave a wedding present of a 13 per cent contribu-tion to the cost of buying a house. It was found to be a gift to both husband and wife.

6 [1971] AC 886.

7 [1995] 4 All ER 562; Abbott v Abbott [2008] 1 FLR 1451 (PC) involved similar facts.

Main issues and rules

On that basis, the wife was able to claim a 6.5 per cent contribution to the purchase of the house (her only financial contribution). As we see later, the Court of Appeal went on to award her a half-share because they had agreed ‘to share everything equally’. It is an irony that her half-share was based on her husband’s parents’ present.

Contributions to mortgage instalments also readily justify finding an implied common intention. However, this is not automatic: there has to be some consistency in the making of payments. It follows that contributing one or two instalments (perhaps for some short-term reason, such as the legal owner’s illness) is very unlikely to count. In Gissing, the test employed by Lord Diplock was whether the contributions were ‘regular and substantial’.

There is likely to be contribution when the couple maintain a joint bank account and the mortgage payments are made out of the account. The courts are likely to reason that the money in the account is jointly owned and that this results in contribution by both.

In addition, the decision to have a joint account helps to prove a sharing of assets, and thereby a common intention. These factors were significant in the recent Privy Council decision in Abbott v Abbott⁸to uphold an order for equal beneficial ownership. The posi-tion where there is a joint account but the legal owner is the only person paying money into it does not appear to have been settled.

Indirect financial contributions

What is meant by an indirect financial contribution? It is best illustrated by an example.

Marion and Neill set up home together. Neill has savings of £50,000, which he puts into buying a house. He borrows £150,000 on mortgage and the house is registered in his name alone. Marion and Neill each earn (after tax) £1,300 a month. Neill pays the monthly mortgage instalments, amounting to £900. Marion pays household (food, elec-tricity, council tax, etc.) and car expenses, averaging £700 a month. They share personal expenses (including clothes, travelling and holidays). What these figures show is that Neill could not afford to pay the mortgage without the assistance provided by Marion:

their core expenditure exceeds what Neill earns. The direct payment of mortgage instal-ments all comes from Neill. However, Marion can be said to make indirect contributions because her expenditure on the family enables Neill to pay the mortgage.

The wife in Gissing relied on making indirect contributions. She had bought some household equipment and paid for her clothes. Lord Diplock (whose speech has been most influential) thought it would be relevant if the wife’s expenditure changed as a result of the house purchase and, in particular, made it possible for the husband to pay the mortgage instalments. However, the facts fell far short of satisfying these requirements.

Gissing might lead us to suppose that Marion would be able to claim a share.

However, doubts began to be expressed in the 1980s and then the House of Lords in Lloyds Bank plc v Rosset⁹ appeared to rule out indirect contributions. Nevertheless, a deputy judge in Le Foe v Le Foe¹⁰subsequently recognised relatively small indirect con-tributions. This has been welcomed by commentators and the Law Commission. Rosset

8 [2008] 1 FLR 1451.

9 [1991] 1 AC 107.

10 [2001] 2 FLR 970 (Nicholas Mostyn QC).

Main issues and rules

Ownership of the family home

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contained almost no reasoning to justify what was said and failed to reflect the dicta in Gissing. Leaving authority on one side, one can see the attraction of the argument that cases should not depend on the largely fortuitous question as to how a couple choose to divide family expenditure. It enables many more partners playing a full financial role within a family to share the one significant asset: the family home.

Following Stack v Dowden, it is very likely that indirect contributions will be recog-nised. Further discussion will follow when Stack is analysed below.

Non-financial contributions

Suppose a couple are living together. When the woman becomes pregnant with their second child, the man buys a house for them. The woman stays at home looking after the house and children for the next 12 years. After the relationship breaks down (after 19 years), does she have any right to the house? These were the facts of Burns v Burns.¹¹The Court of Appeal found no contribution to the purchase and dismissed the woman’s claim.

Burns represents a very financial approach to contributions. Consider two families, in both of which there are two young children. Andy and Briony decide that the children should go to a private nursery and that Briony should continue working. It takes all their joint income to pay the mortgage instalments, household and high nursery expenses. In the second family, George and Harriet decide that Harriet should stay at home to look after the children. As there are no nursery expenses, George can afford mortgage and household costs. Briony is very likely to have a good claim to a share in the house. Harriet, by contrast, clearly has no claim. Yet they have both contributed hugely to the family.

It cannot escape attention that it is almost always the mother who stays at home with the children and who loses out because such domestic activities are not recognised.

More than any other, this area demonstrates the failure of a trusts-based system to cope with family circumstances. Whether Burns is affected by Stack is unsettled; it will be con-sidered below.

Express common intentions

As an alternative to implying a common intention from contributions, a court may find that the parties actually agreed that they should share ownership. Its origins lie in Gissing, but Rosset highlights it as an independent route towards giving a share to the partner of the legal owner.

By itself, a common intention is not enough: there has to be some sort of detriment before the lack of writing can be overcome. It is this which renders the conduct of the legal owner unconscionable, thereby justifying a constructive trust. Financial contributions, even if indirect, clearly constitute detriment. It also seems that extensive work on the premises (going beyond normal day-to-day activities) will be recognised. In Rosset, a derelict house was being renovated. The wife spent much time supervising the work of the builders. The House of Lords regarded this as falling far short of what is required before an express agreement will be enforceable. Though some commentators have

11 [1984] Ch 317.