> BUYING & SELLING PROPERTY
TIPS AND ADVICE
Cohabitation and co-ownership are becoming ever more common these days, with unmarried couples and individuals owning property and living together, sometimes with extended members of the family.
The law is different for unmarried couples and individuals who own property together. A Court generally only has the power to order a sale of the property, and it will do this after considering what was expressly agreed by the parties when the property was purchased and their ongoing intentions during their period of ownership. By way of example and to put this into context, if two people purchase a property together to live in as a family, when the relationship breaks down, the purpose for owning the property has come to an end and a Court will often order a sale of the property, subject to a number of considerations. By way of further example, if a property is purchased for an elderly relative to live out their old age, when that relative passes away, the purpose for owning the property also comes to an end. People often purchase property together as a business investment. There is an overlap here with the law of partnership, but in essence, when the business comes to an end, so does the purpose of owning the property and a Court will almost certainly order a sale of it unless a proper partnership deed has been drawn up which says what is to happen. Unlike divorcing couples, the Court does not have the ability to award ‘shares‘ of a property. It can order what is called an ‘equitable account’ of particular sums when a property is sold, however. Of course, a sale of the property is not obligatory. If the people who own the property together choose to do something else with it, then they are entitled to do so. If there is going to be a change in the amounts that the parties receive from the proceeds of sale when the property is sold, then this is also achievable with a deed of trust. However, when there is a dispute about what is to happen to the property and what was intended at the time of purchase about who gets what on a sale, the Act which applies is the Trusts of Land and Appointment of Trustees Act 1996 (known as “ToLATA”). You can read the legislation here: http://www.legislation.gov.uk/ukpga/1996/47/contents.
Joint Ownership
Where two or more people own property jointly, there is always a “trust” in place. This is called a “trust for sale”. There are really only two ways in which co-owners can own property together and this is either as joint tenants or tenants in common. They will normally be both trustees and beneficiaries of their own and the other party’s share in the property. This is a complicated concept, but the most important thing to understand is legal ownership of property (i.e. who is named as the legal owner) does not always reflect the beneficial ownership of the property (i.e. who is entitled to what when the property is sold). The Court will apply a number of presumptions and the starting point, in the absence of any evidence to the contrary, is a 50/50 split in the equity. The parties may have chosen to enter into a deed of trust which sets out the shares in it and this is normally the best evidence to show what the parties intended to happen to the proceeds of sale when the property is sold.
What happens if the relationship breaks down?
Notice of Severance
Where property is owned as joint tenants, the first thing that should be done is to sever the tenancy so that if the property is then held as tenants in common. This can be done by serving a Notice of Severance on the other party which can then be registered at HM Land Registry. This is important because if property is held as joint tenants and one party dies, their share of the property automatically passes to the remaining owners, irrespective of what any Will says. If the relationship has broken down, this might not be what the deceased owner wanted. With tenants in common, there is a share of the property which will pass with the deceased’s Will and will not automatically pass to the other owner or owners.
Order for Sale
Section 14 of ToLATA allows either party to apply to the Court for an order for sale where the trust for sale (i.e. the intention behind owning the property) has come to an end. In deciding whether or not to order a sale of the property, the Courts will look at a number of things. There are set out in Section 14 of ToLATA. You can read this here: http://www.legislation.gov.uk/ukpga/1996/47/section/14. Broadly, the factors the Court take into account are the purposes for which the property was owned, the welfare of any children living in the property and the interests of any creditors or other owners. A leading case in this area is Stack v Dowden [2005] EWCA Civ 857. You can read this by going to https://www.bailii.org/ew/cases/EWCA/Civ/2005/857.html. Courts will apply strict legal principles and ignore fairness in determining the position. Someone claiming to have an interest in a property must show that it was jointly intended that he or she should have a share. A common intention that a person provides a home for another and children is not in itself sufficient to prove that it was intended that this person should have a share in the property.
Division of the Net Proceeds of Sale
The question then arises as to how much should each party receive when the property is sold. The starting point where there is joint ownership is that the parties are entitled to 50% of the net proceeds of sale after the costs of selling to property and paying off any mortgage.
Equitable Accounting
As well as an order for sale, either party can also ask the Court to take an equitable account. This is the process whereby the Court takes into account the various items of expenditure related to the property, such as mortgage payments and expenditure on improvements or repairs. To that end, equitable accounting can drastically affect the ultimate division of the net proceeds of the sale. Capital mortgage repayments increase the equity available on a sale, and so it is often unfair if the non-paying party receives the benefit of the paying party’s capital repayments. Often the paying party will, therefore, be given credit in respect of the capital repayments. Expenditure on Improvements (not general repair or maintenance) undertaken with the other party’s consent will often be credited to the payer. Generally the payer may seek to be credited with the lesser of:
- 50% of the increase in the value of the property resulting from the expenditure or
- 50% of the actual expenditure.
Occupational Rent
Occupational rent is a notional rent usually based on market rental values or the cost of alternative accommodation (Stack v Dowden [2007] UKHL 17). This is charged against the occupier of a property in favour of the non-occupier. For example, if a relationship breaks down and one part is excluded from the property by the other, the Court might make an order that the occupier pay to the other occupational rent. It would not generally happen if one party leaves voluntarily. This is rarely an exact science and is normally ordered where this is necessary to do broad justice between the parties. Byford v Butler [2003] EWHC 1267 (Ch) is a leading authority on occupational rent. You can read this at https://www.bailii.org/ew/cases/EWHC/Ch/2003/1267.html. Section 13 of ToLATA sets out what the Court takes into consideration when deciding whether or not to make any order in relation to occupational rent. Broadly, it will have regard to the ongoing intentions of the parties from when they bought the property and their circumstances and wishes. The responsibility of both parties to continue to house their children may provide a good defence to a claim for occupational rent. The occupying party will often continue to pay the mortgage and will usually successfully set off the mortgage payments against the occupational rent claimed by the non-occupying party. The cases of Re Gorman [1990] 1 WLR 616 and Leake v Bruzzi 1 WLR [1974] are primary authorities.
Rent received and other payments
If one party receives rental income for the property, the Court will normally expect this to be accounted for to the other party. An account may also be taken of buildings insurance premiums and perhaps contents insurance premiums if the contents remain both parties’ property.
Resolving disputes
It is important to understand that an attempt to resolve the dispute must be made before going to Court. Most of the time, cases will settle and the Courts expect parties to engage in reasonable pre-action conduct to try and achieve this. This does require compromise on the part of all parties, but this is often preferable to stressful, expensive and time-consuming litigation. There are also alternative methods of dispute resolution which do not involve Court proceedings. Proper consideration of these is not just expected by the Court but often worthwhile, as they can be quite effective.
Mediation
Mediation is one form of alternative dispute resolution and the Courts like to see parties engage in mediation. In some cases, an unreasonable refusal to do so can have severe financial consequences for the refusing party. ToLATA claims, where assets need to be split and children are involved, are well suited to mediation as the parties can come up with their own solution to the dispute which can involve agreements on matters which the Court has no power to order, such as division of personal possessions or a postponement of the sale of the property for a period of time. This article is for information only. It is not a precise statement of the law and should not be relied upon as or for a substitution for proper legal advice. The circumstances of every case are different. We are always happy to discuss your circumstances to see if we can assist, so please comment below if you would like to know more.