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Cohabiting Property: Problems and Proposals for Rights of Cohabitees

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About The Author

Ulrike Ebner (Guest Contributor)

Ulrike grew up in Austria and studied English and American Studies at Karl-Franzens University, Graz. Following her studies she moved to London, where she studied the GDL and BPTC. Ulrike is a double Major Scholar of the Inner Temple and will be called to the Bar of England and Wales in November 2018.

Many couples deal with each other more by trust and collaboration than by organised thinking about their respective rights.

Simon Gardner

The law in relation to unmarried cohabitation has escaped much-needed reform for many years, despite efforts by the Law Commission to introduce a statutory scheme. Instead, judges have faced the rather difficult task of balancing legal certainty and fairness by combining precise property law rules with the variable realities of contemporary social relationships.

By adopting a more flexible approach when deciding property disputes between cohabitees, judges have undoubtedly developed this area of law in order to achieve legal fairness. However, cohabitees are still largely unprotected by the law due to its uncertain and inconsistent application. This was also recognised by the Law Commission when it, rather drastically, described the law as:

[U]nduly complex, arbitrary and uncertain [and] ill-suited to determining the property rights of those who, because of the informal nature of their relationship, may not have considered their respective entitlements.

Furthermore, its uncertain nature and inconsistent application has become more problematic in recent years as the proportion of couples cohabiting has increased significantly. Reasons for this, as neatly expounded by Baroness Hale in Stack v Dowden [2007], range from ‘conscious rejection of marriage as a legal institution to regarding themselves as “as good as married” anyway,’ to there being evidence of a wide-spread myth of the “common law marriage” in which unmarried couples acquire the same rights as married couples after a period of cohabitation.’

It is therefore time to revisit this controversial area of law. The topic of cohabitee disputes has previously been explored by Connor Griffith for Keep Calm Talk Law, but this article elaborates further on the argument that legal fairness in these disputes has only been achieved at the cost of legal certainty. It then concludes by outlining a practical solution to current deficiencies in this area.

The Current Law

While married couples and couples in a civil partnership are protected by the Matrimonial Causes Act 1973 and the Civil Partnership Act 2004 respectively, property disputes between cohabitees are still governed by the common law. Thus, whenever such a dispute arises between cohabitees one must first determine which of the parties holds the legal title. This is because, as explained by Stack v Dowden [2007], ‘equity must follow the law’.

Consequently, in cases of single legal ownership  such as Gissing v Gissing [1971] – the person holding the legal title will also have sole beneficial interest in the property. Meanwhile it was confirmed in Jones v Kernott [2011] that, in cases of joint legal ownership, both parties enjoy a presumption of a 50/50 share whereby in the event of a break-up each cohabitee is entitled to half of the property value. These rules apply to any form of cohabitation, such as cohabitation between friends or other family members, so long as all parties concerned are of full age.

So far so good. However, problems arise when one party claims a beneficial interest other than what they are entitled to under strict property law rules. In cases of single legal ownership, for example, the non-owner may claim to have an interest in the house due to having been responsible for all domestic expenditure for many years, as was the case in Le Foe v Le Foe [2001]. In addition, an example of this issue in the case of joint legal ownership can be seen in Fowler v Barron [2008]: B had covered the entirety of the deposit payment as well as all mortgage payments and therefore attempted to claim a beneficial interest of more than 50%. 

There are countless circumstances whereby one party may feel that they deserve more than they are entitled to under property law because of the ways in which they have contributed to the shared home. Paying household expenses, staying at home to look after the children, carrying out improvements to the house and so on; the list of contributions is long but the ways in which one party can claim some or a greater beneficial interest in the house, as the case may be, are limited and often problematic.

Express Trusts

One way for cohabitees to guarantee a beneficial interest in the property is by way of an express trust which can be constituted by the parties at any stage. Rather unsurprisingly, however, express trusts are very rare in the context of cohabitation. This is because such a trust must comply with the statutory requirements under Section 53(1)(b) of the Law of Property Act 1925, which requires that an express declaration of a trust must be in writing, signed by both parties and demonstrate a clear intention to create a trust.

Furthermore, cohabitees are often unaware of their need for legal protection; even if they are, it was recognised in Stack v Dowden [2007] that couples may find it difficult to talk about the potential consequences of a break-up while their relationship is going well. Hence, uncomfortable conversations like the above are frequently avoided and express trusts are rarely created.

Implied Trusts

In the absence of an express trust, cohabitees usually resort back to the use of implied trusts that can arise without the need for any formal requirements. However, a lack of formality means a lack of certainty and the application of implied trusts in the family context has, at times, been problematic.

Before Stack v Dowden [2007], a cohabitee without legal title could only gain a beneficial interest in the property by way of a resulting trust. This was found to apply in cases like Bull v Bull [1955] [1955] 1 QB 234, where one party paid money for the purchase price but did not hold the legal title. Unless the presumption of a resulting trust could be rebutted by way of gift, loan or presumption of advancement, the party without legal title held a beneficial interest in the property under a resulting trust that was in direct correlation with financial contributions. For example, if A paid 30% of the purchase price but only B held the legal title, A would have a beneficial interest of 30% of the property under a resulting trust.

However, since Stack v Dowden [2007] the way in which the courts have approached cases of cohabitation has changed dramatically. Here, the House of Lords held that:

In law, context is everything and the domestic context is very different from the commercial world. Each case will turn on its own facts. Many more factors than financial contributions may be relevant to defining the parties’ true intentions.

According to the majority, the rigid finance-based approach applied under a resulting trust failed to reflect the often-complex realities of modern day relationships and a constructive trust allowing for monetary as well as non-monetary factors to be taken into account was held to be favourable.

Constructive trusts are flexible in that they are concerned with the common intention (CI) between the parties in respect of their ownership in the property. A so-called common intention constructive trust (CICT) therefore exists where there was a common intention that A had an interest in the property and A acted in reliance on that common intention to their detriment but the property is legally owned by only B. Thus, in Lloyds Bank v Rosset [1991], it was held that, if A now wants to obtain an interest in the property, they must:

  1. Prove that a common intention existed between the parties whereby the non-owner should have some beneficial interest, and
  2. Demonstrate how much beneficial interest each party owns (a process commonly referred to as quantification).

As far as identifying a common intention between the parties is concerned, the courts have developed three different ways whereby this can be achieved.

Express Common Intention Constructive Trusts

Firstly, proof of express discussion regarding the ownership of the shared home can give rise to an Express Common Intention Constructive Trust (ECICTs). Examples of such an express discussion from case law are ‘everything is shared fifty-fifty’ in Clough v Killey [1996] 72 P&CR D22 and ‘it will be half-yours’ in Hammond v Mitchell [1992] 2 All ER 109

ECICTs are problematic, however, in that they are not always an accurate representation of the common intention between cohabitees, as is demonstrated by the so-called ‘excuse cases’ that were previously discussed for Keep Calm Talk Law by Connor Griffith. Further, from an evidential standpoint it may be difficult to prove both that an express discussion took place and the specifics of the wording. 

Implied Common Intention Constructive Trusts

Secondly, in the absence of any express discussion the courts can infer a common intention and thereby give rise to an Inferred Common Intention Constructive Trusts (ICICTs). Initially, only direct financial contributions were taken into account when inferring a common intention, with examples including mortgage payments or payments towards a deposit. Lately, however, case law has developed this doctrine so that indirect financial contributions are considered as well.

Examples are payments for outgoings in Burns v Burns [1984], or being jointly liable for mortgage payments in Abbott v Abbott [2007]. The decision in Graham-York v York [2015] confirmed that the courts should look at the ‘whole course of conduct’ when inferring a common intention.

Imputed Common Intention

Thirdly, in cases where a common intention cannot be inferred judges can impute a common intention. For example, in Graham-York v York [2015], the Court of Appeal did not have sufficient facts available to them from which they could have inferred a common intention on the part of G-Y and Y. Consequently, the Court of Appeal took into account the violent nature of their relationship as well as the fact that, generally, non-financial contributions proportionally increase with the length of the relationship.

The couple in question had been together for many years. It was therefore found that G-Y must have contributed in some ways to the home (even if nothing on the facts suggested that that was the case). This, so it was held, had to be set off against the modest financial contributions that G-Y had made compared to Y's. Having taken these factors into account the court imputed a common intention that G-Y was entitled to a beneficial interest of 25%. 

Arguably the judges’ decision to impute a common intention enabled them to arrive at an outcome that appeared fair in the circumstances. However, the flexible approach adopted by the courts does not provide sufficient protection to cohabitees as the law remains uncertain. Lord Neuberger recognised the danger of imputing a common intention in his dissent in Stack v Dowden [2007], stating that it:

[W]ould be difficult because the judge would be constructing an intention where none existed at the time, and where the parties may well not have been able to agree. It would be subjective for obvious reasons. It would be uncertain because it is unclear whether one considers a hypothetical negotiation between the actual parties, or what reasonable parties would have agreed.

The unsuitability of a common intention approach is further demonstrated by the shocking inconsistency of the case law in this area. For example, in the case of Fowler v Barron [2008] a presumption of 50/50 could not be rebutted even though one party had contributed significantly more to the purchase price. In James v Thomas [2007] contributions to a business were not taken into account and in Thomson v Humphre­y [2009] giving up work, looking after children, and buying chattels was also not taken into account.

These cases are in stark contrast with the idea that consideration must be given to the whole course of conduct, causing the Law Commission to find that:

[A] strong argument can be made to the effect that the current law discriminated against those who do not earn income from employment.

Proprietary Estoppel

Finally, a cohabitee can gain some beneficial interest in the home by way of proprietary estoppel. Proprietary estoppel, although somewhat similar to an ICICT, can be distinguished in that it is not concerned with finding the ‘true owner’ of the home. Instead, it recognises that a promise was made followed by detrimental reliance which would render it inequitable if the promisor was allowed to use their strict legal rights against the other party. Although proprietary estoppel provides a safeguard for the ‘disadvantaged’ cohabitee in limited cases, its scope lacks clarity and certainty. It is therefore not an appropriate alternative to ICICTs.

A Practical Solution

The practical solution proposed by this article is largely based on a statute envisaged by the Law Commission in 2002, albeit with some slight amendments. A so-called ‘trust statute’ is considered an effective solution to current problems in the law governing cohabitation as it sidelines the common intention approach and instead focuses on parties’ contributions only. Such a contribution based approach enables an objective valuation of all contributions and thus removes the uncertain and unpredictable nature of the current law.

Furthermore, as the name suggests, under the trust statute the parties’ respective interests are protected under a trust (unless explicitly overridden by a contrary express declaration of trust). Importantly, only people sharing a home for the purposes of living together qualify as beneficiaries under the trust. Minors, people in commercial relationships, tenants, employees, lodgers, or boarder of the legal owner are not eligible. A threshold of at least two years of cohabitation and relevant contributions or, alternatively, a shorter period of cohabitation but significant contributions (for example, initial refurbishment of the home) has to be reached. This is to avoid abuse of the statute by way of expressing the anger and resentment felt due to the break-down of a relationship, for example.

Contribution-Based

Financial as well as non-financial contributions are relevant contributions under the trust statute. As for financial contributions, similar factors to those that have already been identified by case law are given consideration. For example, direct contributions, such as the capital sum paid into the deposit, mortgage payments, or money spent on refurbishments are taken into account. Indirect financial contributions, although more difficult to valuate, are considered as well. These include general household expenditure, such as paying for food, bills, valuable chattels, or holidays.

As far as non-financial contributions are concerned, home-making and caring contributions such as staying at home to look after children, home-educating children, carrying out some retention work, looking after the garden, and taking care of the cleaning are also relevant contributions under the statute. 

It is important to note that under the common intention approach, a beneficial interest from nonfinancial contributions is usually only obtained in cases where these contributions are necessary to enable the other party to go to work and cover all financial expenditure. For example, if A stays at home to look after the home and the children so as to enable B to earn money to pay off the mortgage, then under the current law A is usually granted a beneficial interest in the home. However, if B is in a financially strong position and therefore does not rely on A to give up work to look after the home and children, then A’s non-financial contributions are less likely to result in a beneficial interest. Whether A will obtain a beneficial interest in the home under the common intention approach is therefore often dependent on B’s financial means, as made clear in Thomson v Humphries [2009].

Under the contribution-based approach, however, A would be entitled to some beneficial interest regardless of B’s financial means. That is because a cohabitee’s non-financial contributions are relevant contributions under the trust statute and the financial disposition of one party has no bearing on whether or not the other party’s contributions will result in a beneficial interest. Thus, an independent valuation of all contributions is achieved allowing for more objectivity and certainty.

Furthermore, in cases where A has to stay at home because the couple are unable to afford child and house care, regard should also be had to any economic loss incurred by A due to staying at home. Sacrificing the opportunity to earn one’s own living is therefore a relevant contributing factor under the statute. Importantly, however, any contributions by the financially weaker cohabitee have to be set-off against any countervailing benefits, which usually take the form of free accommodation. 

Quantification

In terms of the valuation of contributions, it was suggested by the Law Commission that a ‘broad brush’ approach should be adopted which would enable an ‘approximate valuation [that] would have the merits of being neither arbitrary, nor over-precise. Based on the value of the contribution the contributor would then gain a beneficial interest that is proportionate to the contribution. This is favourable to the lengthy and expensive processes involved in finding (often unreliable) proof of a common intention.

Proprietary Estoppel 

Contrary to the proposal by the Law Commission, it is argued that the doctrine of proprietary estoppel shall still take effect in certain situations. If, for example, A’s contributions amount to 20% beneficial interest but B promised that A would own ‘half of the house’ if A made said contributions and A relied on that promise to his/her detriment, then B should be estopped from enforcing strict property law rules against B.

Proprietary estoppel is particularly important as in the absence of a common-intention approach the nature of the relationship between cohabitees will take a back seat in court. It is therefore important to have a safeguard in place whereby the financially weaker cohabitee is protected from suffering a detriment by way of making contributions based on false promises by the other cohabitee.

Conclusion

Despite great efforts by the judges to develop the law to the best of their abilities and to ensure fair legal outcomes by way of looking at the ‘whole course of conduct’, the law remains uncertain and unpredictable. At present, judges are in a position where they can (and must) pick and choose which factors they will take into account when deciding a cohabitee’s beneficial interest.

However, judges shall not be condemned for doing so. When presented with a choice between legal certainty and legal fairness it is indeed fairness that should trump certainty. As argued by Andrew Summers, the only blame judges may carry in this is that they have done so somewhat covertly:

[T]hereby preserving the political impression that all is well, and arguably stifling the impetus for change.

As far as constructive trusts are concerned, the common intention approach appears unsuitable for this area of law as cohabitees tend to not think about their shared home in such legalistic terms.A contribution based approach, on the other hand, would enable the courts to objectively valuate various contributions by the parties independent of one another. Thus, not only a fair but also an objectionable and therefore more certain outcome is achieved.

Furthermore, the process of searching through past correspondence  which in most cases did not appear to be of any importance at the time but somehow assumes, as stated in Hammond v Mitchell [1992] 2 All ER 109, an ‘unforeseen significance many years later when… brought under equity’s microscope  is a painfully detailed retrospectIt is therefore questionable whether such express correspondence accurately represents the parties’ intention at the time.

Finally, uncertainty of the law as it stands causes lengthy and costly litigation whereby court time, public funding, and parties’ own resources are being wasted. For as long as fairness and certainty continue to do the battle in the courtroom, Andrew Summers writes it will be the cohabitees shrinking sale proceeds of the parties’ former home that will cover the spiraling costs’.

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Tagged: Housing Law, Land Law, Property Law, Trusts

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