Unwritten agreements behind property transfers

Last month, the High Court handed down judgment in a complex case concerning a claim to the equity (the beneficial interest) in two properties, one in Southgate and one in London. The claim was brought by Mr Ali (the previous registered owner of the properties) against Mr Dinc (the current registered owner of the properties). The properties had been transferred by Mr Ali to Mr Dinc for nil consideration.

Ali v Dinc [2020] EWHC 3055 (Ch)

To enable the transfer to Mr Dinc, it was necessary to redeem a mortgage with Santander for £67,500. It was accepted by both parties that Mr Dinc provided the funds for this.

Although the properties had been transferred to Mr Dinc, Mr Ali continued to live rent-free in the Southgate property, and continued to receive the rental income from letting out the London property. Mr Ali also continued to pay the relevant utilities bills, insurance premiums and council tax for the properties.

The reason for transferring the properties to Mr Dinc was disputed between the two men. Mr Ali claimed that the transfer was subject to an oral agreement in which Mr Dinc would pay £1.35m for the property and redeem the Santander mortgage.  Although the mortgage had been redeemed, Mr Ali was yet to receive the £1.35m, which he sought to recover. Mr Dinc, on the other hand, claimed that Mr Ali intended to gift the properties to him so that Mr Dinc could in turn raise finance against the properties to pay to Mr Ali.

The court found that neither Mr Ali nor Mr Dinc had presented sufficient evidence to establish the truth of their version of the arrangement. However, both had in mind as part of the arrangement that the properties would be transferred to Mr Dinc exclusively for raising funds to be transferred to Mr Ali. Mr Ali’s claim to £1.35m failed because, without clear written terms, the alleged contract was void for uncertainty, and even if the terms had been clear it would have been of no effect because it failed to comply with Section 2 of the Law of Property (Miscellaneous Provisions) Act 1989, which requires property contracts to be in writing.

To unwind what had happened, the court ordered Mr Dinc to re-transfer the properties to Mr Ali and, similarly, required Mr Ali to repay Mr Dinc the £67,500 that he had paid to clear the mortgage.

The court also heard evidence about a sizeable loan which Mr Dinc had taken out and secured against the properties. Despite Mr Dinc’s case that he had been gifted the properties in order to raise finance for Mr Ali’s benefit, the court found that Mr Dinc had kept the loan money for himself and did not pay it to Mr Ali.  Where a property is conveyed on the basis that it can only be used for a specific purpose, a ‘Quistclose’ trust arises. The court found that a Quistclose had arisen in this case, as Mr Ali had transferred the properties to Mr Dinc for a particular purpose, namely, that the property would be used to raise funds for Mr Ali. As Mr Dinc failed to transfer the loan money to Mr Ali, Mr Dinc was in breach of that Quistclose trust and personally liable to pay Mr Ali a sum equivalent to the loan.

This case illustrates the difficulties which can arise when people fail to set out their agreements in writing. If the only document is a conveyance of a property for nil consideration (as in this case), lengthy and costly litigation may ensue to understand why the property was so transferred, what was intended by the parties, and the trusts that arise as a result. In the absence of clear documentary evidence, the court must establish what was intended based on each person’s recollection of what was said and understood at the time.

If you require any further information in relation to property disputes of this nature, please contact Laura Tanguay on via email or on 01473 299188.