No exoneration

Cohabitee claims to a beneficial share of property are on the rise. This has largely been fuelled by the informality of living arrangements, a persistent belief that unmarried couples have a ‘common law marriage’ and an increase in cohabiting.

The Office for National Statistics (ONS) records that cohabitation is the fastest growing family type in the UK, with the number doubling between 1996 and 2012 to 5.9m households.

Personal representatives should therefore be aware of such claims. A recent case on the area (Graham-York v Adrian York & Ors [2015] EWCA Civ 72) helps to do that.

The Modern Approach

Before looking at Graham-York, it is worth reminding ourselves of how the courts determine claims to a beneficial interest, developed in a triumvirate of decisions: Oxley v Hiscock [2004] EWCA Civ 546; Stack v Dowden [2007] UKHL 17 and finally Jones v Kernott [2011] UKSC 53.

In the absence of an express declaration of trust, the law presumes beneficial ownership follows the legal ownership. Joint legal ownership presumes joint beneficial ownership in equal shares and sole legal ownership presumes sole beneficial ownership.

The parties’ presumed intentions can be varied informally by agreement or conduct, to create a ‘common intention constructive trust’ as to how they held the beneficial interests at the time they acquired the property, or later. In the absence of being able to deduce or infer actual intention, the parties’ intentions will be determined by looking at ‘the whole course of dealing’ in relation to the property to come up with a ‘fair’ division of the beneficial ownership.

In determining what shares were intended and what is ‘fair’, the financial contributions of the parties will be relevant. However mortgage contributions, council tax, utilities, repairs, insurance and housekeeping, and the domestic basis for the purchase and arrangements and obligations in the relationship will be taken into consideration.

Graham-York

Norton York (the deceased) owned a property registered in his name with a mortgage in his favour with Leeds Building Society. Adrian York was the deceased’s son and the sole beneficiary and personal representative of the estate. Miss Graham-York lived in the property and was the deceased’s surviving partner.

Following the deceased’s death and following a possession claim after judgment for £450,000 in respect of the unpaid mortgage, Miss Graham-York brought a claim, alleging a beneficial interest in the property on the basis of a common intention constructive trust.

She was awarded a 25 per cent beneficial interest in the proceeds and possession. The proceeds were to first be utilised to discharge the mortgage debt and only then applied to pay her interest, effectively reducing it to 12.5 per cent.

Appeal

Miss Graham-York appealed on the grounds that:

• she was entitled to a 50 per cent beneficial interest, on the basis that the deceased had an abusive relationship with her; and

• her interest should be paid out before the building society discharged its interest.

Tomlinson LJ found the award of 25 per cent appropriate. In sole ownership cases, the starting point is not equality of interests. Further, applying the factors above, the court will not seek redistributive justice in relation to the alleged abusive relationship, so as to compensate the claimant. The court is confined to awarding what is fair, having regard to the parties’ dealings only in relation to the property.

The court dismissed the second element of the appeal. For the equity of exoneration to be established, Miss Graham-York would have to show that the mortgage represented lending, which was not incurred for the benefit of the joint household, but solely for the benefit of the deceased, which she could not.

The deceased was responsible for generating almost all of the income and thus the assets, which the family unit enjoyed: “Miss Graham-York shared the benefit… and it would be unconscionable that she should do so without sharing the burden of the mortgage.”

All such cases are fact specific and cohabitees do not an have an easy run of it, as shown in Graham-York. But personal representatives should be aware that the estate can be significantly depleted by a cohabitee’s claim which can take some time to resolve.

Lloyd Junor is a senior associate at Thomas Eggar

He writes the regular in-practice article on wealth structuring for Private Client Adviser