Payne Hicks Beach

Payne Hicks Beach

04 May 2012

Fair’s Fair for Cohabiting Couples?

The Dispute Resolution department consider the judgment in Jones v Kernott [2011] UKSC 53.


The Supreme Court has handed down the long-awaited judgment in Jones v Kernott [2011] UKSC 53. The case deals with the all-too-common situation where the legal title to a property is held in joint names by an unmarried couple with there being no express statement of how the property is to be shared if, for example, the relationship sours.

In the case of a married couple, or where one of the joint owners dies, a claim could be made under the Inheritance (Provision for Family and Dependants) Act 1975. Should, however, a dispute arise between a living unmarried couple, then the likely recourse is to make a claim under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA) for an order declaring the nature or extent of a person's interest in the property.

The Facts

The facts of the case are helpfully set out in the Supreme Court's Press Summary:

Ms Jones and Mr Kernott met in 1981. They had two children together. In 1985 they purchased a house in Thundersley, Essex in their joint names. The price paid was £30,000 with a £6,000 deposit paid exclusively by the proceeds of sale from Ms Jones's previous home. No declaration was made as to how the beneficial interest in the property was to be held. The mortgage and upkeep on the house was shared between them. In 1986 they jointly took out a loan of £2,000 to build an extension. Mr Kernott did some of the work himself.

The relationship deteriorated and in 1993 Mr Kernott moved out. From that point onwards Ms Jones lived in the Thundersley property with both children. In 1996 Mr Kernott bought his own house in Benfleet, Essex. Over the years, the value of the Thundersley property increased and in 2006 Mr Kernott indicated that he wished to claim a beneficial share in it. In response, Ms Jones, in 2007, applied to the county court for a declaration under section 14 of the Trusts of Land and Appointment of Trustees Act 1996 that she owned the entire beneficial interest in the Thundersley property. By 2008 the property was valued at £245,000.

It is important to note that once Mr Kernott moved out, he paid nothing towards the outgoings of the property and made only very limited contributions towards the support of his two children.

The Case History

Both parties accepted that had their beneficial interest in the property been calculated in 1993, the date of their separation, it would have been 50:50 in conformity with their joint legal ownership. The court had to decide, in the absence of any express agreement as to how their beneficial interest in the property was held, whether their intentions had changed over the course of 14 years and whether that was sufficient to alter the proportions in which each held the property.

The judge in the County Court adopted a holistic approach and in considering the conduct of the parties over the course of their relationship, he concluded that their intentions must have changed. The judge ruled that Ms Jones was entitled to 90% of the value of the property, with Mr Kernott being entitled to the remaining 10%.

The decision seems to have turned upon similar considerations to those that would be adopted had the claim been brought under the Matrimonial Causes Act 1973 (i.e. divorce proceedings), as opposed to under property law, despite the fact that Ms Jones and Mr Kernott were unmarried.

Mr Kernott appealed to the High Court, but lost. He then appealed to the Court of Appeal. His argument essentially was based on the fact that the court was not entitled to award property rights based on fairness and at the time of purchase it was their presumed intention that they would hold the property equally. As Lord Neuberger expressed it in Stack v Dowden [2007] 2 A.C. "Fairness is not the guiding principle". The Court of Appeal agreed with Mr Kernott and ruled that the property was held 50:50.

Ms Jones appealed to the Supreme Court, who reinstated the judgment of the judge in the County Court (90% Ms Jones, 10% Mr Kernott). The judgment is not without its difficulties; three of the judges felt the facts following their separation provided clear evidence of a change to the parties' common intention that the property was held 50:50, while two of the judges considered there to be insufficient evidence of that change but instead preferred to impute an objective view of what they deemed to be fair.

The judgment does however contain a useful checklist of those factors the court will consider when reaching its conclusion. These principles apply to a case where:

  1. A family home is bought in joint names;
  2. The joint names are those of a cohabiting couple;
  3. Both parties are responsible for mortgage repayments (if any); and
  4. There is no express declaration of their beneficial interests.
  1. "The starting point is that equity follows the law and they are joint tenants both in law and in equity" (i.e. they hold the property both legally and beneficially 50:50).
  2. That presumption can be displaced, by showing that either (a) at the time of purchase the parties had a different common intention, or (b) they later changed their intention.
  3. Their common intention is to be deduced objectively from their conduct. This will require the judge to infer what the parties intended from their actions and dealings with one another.
  4. Where, on the evidence, the court is unable to infer an actual intention (but it is clear that the parties did not intend to hold the property 50:50 as in 2(a) or 2(b)) "the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property". In other words, the court is entitled to impute an intention.
  5. Each case will turn on its own facts. Financial contributions (such as payments to the mortgage, council tax, utilities, repairs, insurance and housekeeping) are relevant but there are many other factors which may enable the court to decide what shares were either intended or fair.

Examples of evidence which might be relevant for paragraphs 3, 4 and 5 are set out in the House of Lords Judgment in Stack v Dowden: "These include: any advice or discussions at the time of the transfer which cast light upon their intentions then; the reasons why the home was acquired in their joint names;..the purpose for which the home was acquired; the nature of the parties' relationship; whether they had children for whom they both had responsibility to provide a home; how the purchase was financed, both initially and subsequently; how the parties arranged their finances, whether separately or together or a bit of both; how they discharged the outgoings on the property and their other household expenses".

The case of Jones v Kernott deals with the situation where the property is held in joint names. The court also considered the position where the property is put in a sole name; "The first issue is whether it was intended that the other party have any beneficial interest in the property at all. If he does, the second issue is what that interest is". Unlike the position where the property is held in joint names, there is no presumption of joint beneficial ownership (50:50) where the property is in a sole name. The parties' common intention has once again to be deduced objectively from their conduct using the principles at paragraphs 3, failing which the court will then use the principles at paragraphs 4 and 5.

The judges made it clear that these considerations would apply to the domestic home, which is very different from property transactions in the commercial world.

Lord Wilson was very critical "...of the continued failure of Parliament to confer upon the courts limited redistributive powers in relation to the property of each party upon the breakdown of non-marital relationship[s]".

Advice

Following the Court of Appeal's judgement, litigators advising on cohabitation cases would have advised that documents evidencing title are conclusive and in the absence of any express variation as to how the beneficial interest in the property is held, arguments on financial contribution or other factors which might go to show intention were irrelevant. The Supreme Court's judgement makes clear that in cohabitation cases the courts will adopt a more holistic approach and where necessary give weight to the principle of fairness.

If you are planning to buy a home as cohabiters (whether unmarried or in a civil partnership) you should seek legal advice and instruct a solicitor to draw up a cohabitation agreement which deals with the parties' interests in the event of the relationship breaking down. Failure to do so is likely to open up arguments as to the parties' behaviour at the time of purchase and thereafter, which may involve the courts having to infer or impute what the parties intended, even if this was not what they actually intended. Lady Hale conceded, "...there will continue to be many difficult cases in which the court has to reach a conclusion on sparse and conflicting evidence".

When purchasing a property the section in the Land Registry form TR1 that deals with the parties' beneficial interest in the property should always be completed, notwithstanding that its completion is not compulsory. It is also advisable to draw up a declaration of trust document in any event. Matters regarding the ownership of the parties' beneficial interest in the property should also be reviewed from time-to-time and in particular when circumstances change, for example should one party make a substantial lump sum payment to reduce the mortgage.

It is estimated that there are around four million cohabiting couples in England and Wales. The Jones v Kernott judgment is likely to bring about increased litigation as cohabiters seek to assert beneficial rights in properties based on behaviour over time.

Should you require assistance in relation to the purchase of a property or a cohabitation agreement please contact Peter Black in the first instance. If you need to determine a beneficial interest in a property by seeking a declaration from the court please contact Stephen King.


10 New Square, Lincoln's Inn, London WC2A 3QG

DX 40 London/Chancery Lane
Tel: 020 7465 4300 Fax: 020 7465 4400 www.phb.co.uk 

This publication is not intended to provide a comprehensive statement of the law and does not constitute legal advice and should not be considered as such. It is intended to highlight some issues current at the date of its preparation. Specific advice should always be taken in order to take account of individual circumstances and no person reading this article is regarded as a client of this firm in respect of any of its contents.

The firm is authorised and regulated by the Solicitors Regulation Authority: SRA Number 00059098

© 2013 Payne Hicks Beach

10 New Square, Lincoln's Inn, London WC2A 3QG

DX 40 London/Chancery Lane
Tel: 020 7465 4300 Fax: 020 7465 4400 www.phb.co.uk

This publication is not intended to provide a comprehensive statement of the law and does not constitute legal advice and should not be considered as such. It is intended to highlight some issues current at the date of its preparation. Specific advice should always be taken in order to take account of individual circumstances and no person reading this article is regarded as a client of this firm in respect of any of its contents.

The firm is authorised and regulated by the Solicitors Regulation Authority: SRA Number 00059098

© 2017 Payne Hicks Beach

 

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