Can I establish a share in a property if I have entered into an arrangement to purchase it illegally?


22 June 2018

The recent High Court case of Kliers v Schmerler and Anor (2018) shows that the answer is yes, depending on the circumstances.

The claimant, who belonged to the Hasidic Jewish community, asked the High Court to make a declaration that she had a share in the equity of the property in which she lived. She contributed 75% towards the purchase price and her husband contributed 25%. However, her name did not appear on the title deeds.

As explained in our article from 28 November 2017, 'Cohabiting couples, property and the 'common law myth', not having your name on the title deeds does not necessarily mean that you do not have a share in the property. What matters is what was agreed or understood between you and the person/people on the title deeds.

The real obstacle facing the claimant in this case was that the arrangement to purchase the property was illegal. The purpose of the arrangement was to allow the claimant’s brother to obtain a mortgage and housing benefit unlawfully, in that the mortgage declarations made by the brother were false. The claimant had been aware of this unlawful purpose, however, she claimed that she had been pressured into accepting the arrangement by her family and religious leaders.

There is a general legal principle that a claimant will be prevented from pursuing a civil claim if the basis for the claim arises from some illegal act by the claimant. The exact application of this principle depends on the circumstances.

Historically, when considering whether to recognise a person’s rights in a property where there has been illegal activity, the court has not been interested in the underlying justice of the case. In Tinsley v Milligan, for example, the House of Lords focused instead on a technical issue. Did Milligan (the person claiming the share in the property) need to 'rely' on her illegal conduct (fraudulent benefits claims, assisted by the fact that she was not on the title deeds) to prove her claim? If the answer was yes, then her claim would fail. If the answer was no, her claim would succeed.

Fortunately for the claimant in Kliers, Tinsley is no longer good law. It was overruled by the Supreme Court case of Patel v Mirza (2016). The Supreme Court held that courts should focus on the justice of the case, together with policy considerations underlying the classification of certain actions as 'illegal’.

Following Patel, the High Court in Kliers held that neither justice nor public policy would be served by refusing the claimant’s claim. The claimant had been put under unfair pressure from family and religious leaders to enter into the arrangement. Although public policy against the unlawful acquisition of mortgages was strong, it was not strong enough to prevent the claimant from obtaining the remedy which she sought, namely, a declaration that she had an interest in the property. Furthermore, leaving matters as they stood would allow the fraud to continue, when it should be undone.

In summary, entering into an illegal property transaction will not necessarily prevent you from establishing that you have a share in the property. However, the facts of this case were quite unusual (particularly that the claimant claimed that her religious community had placed her under social pressure to accept the arrangement), so a case turning on slightly different facts might have been decided differently. 

If you suspect that a property transaction that you are entering into is illegal, you should seek advice from a solicitor. Birketts is well placed to advise you on all elements of a proposed property transaction. If you require any further information in relation to property disputes with an ex-partner or cohabitee, please contact Laura Tanguay on 01473 299188 or [email protected]. Law covered as at June 2018.