Workshop: Beneficial owners and occupiers

A beneficial interest is an interest in the economic benefit of property, which is also known as beneficial ownership. Legal ownership and beneficial ownership are separate and a legal owner will not always be the same as the beneficial owner. ? The beneficial owner will have the right to income and proceeds of sale of a property which will be held ‘on trust’ by the legal owner. Of course, this is a very simple explanation as to the difference between the two types of interest in property and there are many ways of establishing a beneficial interest whether expressly or not.

An occupier may claim a beneficial interest in a property, depending on specific circumstances, and it is for this reason that we conveyancers need to be extra vigilant. The rights of a person in actual occupation of a property can be an overriding interest and, if so, a buyer will take the property subject to these rights.

The interest of an occupier in actual occupation will override a registered disposition unless: the person with the interest fails to disclose it when asked; or where the person to whom the disposition is made does not have actual knowledge of it (reasonable careful inspection at the time of the disposition is required).

Therefore, you should always advise your purchaser client to inspect the property before the exchange of contracts; for example, before they are bound to the transaction and before completion. It is the occupation of the property which must be obvious and not the interest of the occupier.

Details regarding who is in occupation of the property are requested in pre-contract enquiries, but how many of us actually go on to then make enquiries of the occupier? Do we take it for granted that when replies to enquiries state that there is a tenant and an assured shorthold tenancy agreement (AST) is produced that that is the end of it?

Sometimes, circumstances will determine how you proceed. For example, an occupier within the same family as the seller over the age of 17 will be asked to sign the contract ?for sale to relinquish their rights, or your ??client may wish vacant possession and request that the tenant is given notice to quit the property before completion.

However, take note of HSBC Bank plc v Dyche and another [2009] EWHC 2954 (Ch). ?Here an occupier’s beneficial interest under a constructive trust overrode the interest of the lender. It was decided that the property was held on trust by the legal owner for the occupier and when the legal owner sought a mortgage from HSBC she forged an AST document claiming that the occupier (her father) was actually her tenant. Because there was a constructive trust between the legal owner and the occupier, the mortgage with HSBC did not overreach the occupier’s interest as it was made in the sole name of the legal owner and not two trustees. The court held that the property should be transferred to the occupier free from the HSBC mortgage.

What lessons can we learn from HSBC? The Council of Mortgage Lenders’ handbook requires a lender’s solicitor to obtain a signed deed or form of consent from any adult occupier, unless the lender instructs otherwise. So, by making enquiries direct with the occupier the bank can avoid the risks outlined in HSBC and avoid being left without security.

Establishing beneficial interest

How do we establish whether an occupier has a beneficial interest in a property? The principles for establishing a beneficial interest were set out in the case of Stack v ??Dowden [2007] UK HL 17 as follows:

? A conveyance into joint names will result in a legal and beneficial joint tenancy, unless the contrary is shown.

? The person seeking to show that they intended to hold the property as tenants in common will bear the burden of proof.

? The court must ascertain the intentions of the parties in context to their conduct towards the property; for example:

? advice and discussions at the time of the transfer;

? the reasons for joint purchase;

? the purpose for the property;

? the nature of the parties relationship;

? how the purchase was financed; and

? how the parties arranged their finances and how outgoings are paid.

It is not always possible for us to educate clients on all the technicalities surrounding how trusts, beneficial interests and occupiers may affect the property that they have or are looking to buy. However, there are some key points to consider:

1. Keep a close eye on how clients are financing a purchase and their intentions for the property.

2. Make sure they are aware of the difference between joint tenants and tenants in common.

3. During pre-contract enquiries be sure to? make enquiries of the occupier!