Nilsson v Cynberg: express trusts over property and the validity of subsequent oral agreements
11 September 2024
In the landmark case of Stack v Dowden, Baroness Hale famously said that an express declaration of trust is conclusive unless varied by “subsequent agreement” or affected by proprietary estoppel. But what did she mean by “subsequent agreement”?
Were such agreements intended to be confined to a subsequent express declaration of trust (i.e. another written trust deed), or did she mean to include a broader range of agreements, such as informal, verbal agreements?
The recent High Court decision in Nilsson v Cynberg ([2024] EWHC 2164 (Ch)) has provided significant clarity on the interpretation of “subsequent agreement” in the context of express declarations of trust.
The case considers whether such agreements must comply with the formalities of the Law of Property (Miscellaneous Provisions) Act 1989 (LP(MP)A 1989) or if they can include informal, verbal agreements capable of establishing a common intention constructive trust.
Common intention constructive trust
A common intention constructive trust arises when two or more people have a shared intention regarding the ownership of a property, even if this intention is not formally documented. A constructive trust does not require specific formalities and occurs automatically under certain circumstances.
Under a constructive trust, the court can declare that the beneficial shares in the property are held in a particular way as between the co-owners, based on their joint intentions. This can even grant a beneficial entitlement to a non-legal owner if that was the intended outcome.
The common intention of the parties can be determined either through their expressed agreement (however imperfectly remembered and even though the agreement was never documented), or through their conduct. By ‘conduct’, we refer to the financial and other contributions made towards the property.
Therefore, if someone has contributed financially or otherwise to a property with the expectation of having a beneficial interest, this could result in them acquiring a beneficial share in the property under a constructive trust.
However, to what extent could any such constructive trust displace the terms of a previous express declaration of trust?
Nilsson v Cynberg clarifies the position
On 23 August 2024, the High Court in Nilsson v Cynberg provided clarity on how Baroness Hale’s judgment in Stack v Dowden should be interpreted.
The case concerned a couple who bought a property in joint names with an express declaration of trust (contained in the transfer form) specifying equal shares. Upon separation, discussions were had between the parties, the gist of which was that Mr Cynberg did not wish to retain an interest in the property and was content for Mrs Cynberg to have the whole property, provided she left it to their children.
Following this, Mrs Cynberg paid for all expenditure relating to the property, without contribution from Mr Cynberg. Later, Mr Cynberg was declared bankrupt, and the trustee in bankruptcy sought to sell the property, arguing that 50% of the proceeds should go to Mr Cynberg’s creditors, based on the express declaration of trust.
Mrs Cynberg argued the express declaration of trust had been varied by their subsequent informal agreement, upon which she relied to her detriment. The trustee contended that only a subsequent written declaration of trust would suffice.
The High Court found that an express declaration of trust could be overridden by a subsequent agreement and that this did include a common intention constructive trust. As such, “subsequent agreement” was not limited to formal agreements complying with LP(MP)A 1989.
This meant that Mrs. Cynberg was the sole beneficial owner of the property, and the trustee in bankruptcy had no claim to it.
The Birketts view
This ruling has significant implications for property law, particularly in cases involving express declarations of trust. It clarifies that subsequent agreements capable of varying an express declaration of trust are not limited to formal written agreements but can include informal agreements that establish a common intention constructive trust. This broadens the scope for individuals to depart from previously documented trust deeds and rely on subsequent conversations / conduct to determine beneficial ownership.
The case underscores the importance of considering the parties’ intentions, offering a more flexible approach to determining beneficial ownership.
Our Home Ownership Disputes Team specialises in property trusts and resolving disputes under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA). To discuss your case, contact Birketts today. We would be delighted to see how we can help you.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2024.