Fair and loathing

There were great expectations that the judgment of the Supreme Court in Jones v Kernott would reformulate and clarify the principles set out in Stack v Dowden in 2007, particularly as justice minister Jonathan Djanogly announced on 6 September 2011 that the government would not be undertaking any reform of cohabitation law before the next general election.

Cohabitees '“ in this context, people who purchase and live in a property together as a family home but are not married or in a civil partnership '“ have always been able to formalise the terms on which they own the beneficial interest in a jointly owned property by entering into a declaration of trust. Unless such trust is in some way invalid, that document will generally be accepted as proof of the cohabitees' common intention. In practice, however, few cohabitees enter into declaration of trusts or even seek legal advice at the outset of a relationship.

In Stack Lady Hale said the court's approach in such cases was 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. First, it emphasises that the search is still for the result which reflects what the parties must, in the light of their conduct, be taken to have intended. Second, therefore, it does not enable the court to abandon that search in favour of the result which the court itself considers fair.'

Rather than providing greater certainty to cohabitees, the explanations in Stack gave rise to an intense debate culminating in the case of Jones (the facts of which are set out in the news on page 2).

On the basis of the Supreme Court's ruling in Jones, the principles to be applied in future cohabitation disputes where there is no express declaration of beneficial interests are that where property is held in joint names the presumption or starting point will be that equity will follow the law so that joint tenants receive equal shares. This presumption can be displaced if there is evidence showing a different intention when the property was purchased or the common intention was later formed that their shares would be changed. If the presumption is displaced then the common intention of the parties is, if possible, to be deduced by inference of the court from the parties' conduct. If not possible, then each party is entitled to what the court considers to be 'fair', taking into account all facts and factors relevant to the particular case (see page 2 for details).

Though the courts should only look into the issue of fairness in cases where: (i) there is no express declaration of beneficial interests; (ii) the joint names' presumption has been displaced; and (iii) there is no evidence available to the judge that is probative of the couple's common intentions, it is to be expected that judges will now feel that questions of what is 'fair' will be central to many (perhaps most) cohabitation disputes where the couple did not formally address what was to happen if their relationship ended.

As Lord Walker and Lady Hale indicated in their judgment, this will mean that 'there will continue to be many difficult cases in which the court has to reach a conclusion on sparse and conflicting evidence'.

It will also not be surprising if a slew of cases come to court testing the redefined margins of the law in years to come. Family and property lawyers may receive clients who want to use Jones to help change the terms on which their beneficial interest is held. The client may point to some evidence (persuasive or otherwise) as proof of a change in circumstances and financial contributions amounting to a change of common intention and seek a declaration from the court that there is a trust on unequal terms to the disadvantage of the non-contributing cohabitee by way of displacement of any earlier agreement or presumption of a 50/50.

Another not unlikely future scenario is where the cohabitees' relationship ends but they cannot each afford to buy separate properties. In such circumstances, the equity in the jointly held property could be the most valuable financial asset each cohabitee owns but if one of them moves out there is a risk that the court will decide that his interest in the property crystallised at this time, or soon afterwards. This cohabitee now faces the following options: (a) move out and run the risk of his assets being locked in the property for an indefinite period of time; (b) try to sell the property, which may not be either possible or straightforward if the other former cohabitee does not want to sell and/or there are children living there; or (c) continue to live together in the property after the relationship has ended. None of these options are going to be very attractive to such a client, but that is part of the landscape that lawyers and clients now have to face.

Cold calculation

Resolution '“ formerly known as the Solicitors' Family Law Association '“ continues to press for comprehensive reform to cohabitation law. Advocates of reform will probably view Jones as a small step in the right direction as it gives the courts more power to protect the position of the more vulnerable cohabitee (who may have greater responsibility for caring for any children) than the financial remedies provided by schedule 1 of the Children Act 1989, which are expressly only for the benefit of the children of an unmarried couple.

It is, though, only a very small step and will do little to sate the appetite of campaigners seeking a comprehensive scheme of protection for cohabitees. The Law Commission has proposed such a scheme and there are such schemes in place in Scotland (under the Family Law (Scotland) Act 2006), New Zealand and Australia. Until there is legislative reform of cohabitation law, cases where there is no express declaration of beneficial interest will continue to be decided by courts by reference to difficult and conflicting evidence and this will inevitably result in expensive and risky litigation. In a domestic and social context, and with increasingly limited access to the courts because of the withdrawal of legal aid, many families may have to take the pragmatic approach of settling their disputes on what could be disadvantageous terms to find a resolution that avoids disproportionate legal costs.

Property practitioners should ensure they provide and record clear advice to cohabitee clients about the way in which their beneficial interest will be determined in the future and the importance of entering into a declaration of trust if anything other than an equal split is proposed at the time of purchase or at any date thereafter. Should the cohabitees change their intentions then that change should be reflected in a properly drafted variation to the declaration of trust or a new trust document. Even though it may, in certain situations, now be possible to draw upon ideas of 'fairness', if these basic steps are not taken to protect the position of a cohabitee who paid most towards the property, that party will still be left with the choice of accepting a 50 per cent beneficial interest in the property or the prospect of an expensive, drawn-out and quite possibly fruitless dispute with the other cohabitee.

The difficulty for both practitioners and clients is that such a cold calculation about how to deal with differing financial contributions in the future is usually the last thing that a happy couple wants to contemplate when buying their home (often their first home). If they fail to do so, however, the trauma of a broken relationship may be compounded by the difficulties faced in trying to get a 'fair' share of the beneficial interest in the jointly owned property.