Ownership of land in England and Wales is dealt with in two ways: the legal ownership and the economic benefit (also known as the beneficial ownership). Extensive discussion of beneficial ownership is outside the scope of this article, but more information can be found in our earlier article: ‘Cohobbitation’ disputes – trouble in the Shire!
This article explores the stage at which a beneficial interest crystallises between parties. In so doing, we will consider the recent case of Allen v Webster[2024] EWHC 988 (Ch), decided in April 2024 in the High Court.
The facts of the case
Ardley and Joan Webster bought a house together in Peckham in 1988 as joint tenants, with the intention to hold it equally. They paid just under £69,995 for it and moved into the property that year. Peckham, at that time, was considered ‘Del Boy Trotter’ territory. However, the property market in Peckham improved considerably after 1988. Despite the Webster’s house being in a dilapidated state in need of repair, it was professionally valued at £600,000 in 2023.
Initially, Ardley and Joan each paid 50% towards the monthly mortgage repayments, and it was clear they intended their respective beneficial shares to be 50%.
In 1990, Ardley moved out of the property following a dispute, but continued to pay towards the mortgage.
In 1992, Ardley ceased contributing to the mortgage and maintenance and Joan took on full responsibility for these payments. The mortgage was later paid off in full by Joan.
Years later, Ardley reappeared, claiming a 50% share in the house (which, as aforementioned, had increased in value significantly and was no longer encumbered with the mortgage), leading to a dispute over the beneficial interest. The dispute was referred to the court to determine under the jurisdiction of the Trusts of Land and Appointment of Trustees Act 1996 (‘TOLATA’).
Judgment
In the County Court, Ardley was awarded an 8% share of the equity on the basis that he paid 48 out of the 600 mortgage payments made (i.e. 8% of the total number of payments). The County Court’s decision reflected Joan’s continued contributions, but Ardley appealed to the High Court, arguing that the common intention to hold the property equally had not changed, or alternatively, that his interest should crystallise at the value in 1992.
The High Court disagreed with the County Court’s approach to the case. Quantifying Ardley’s share with reference to what he paid was to apply resulting trust principles to the case. This, the High Court said, disregarded the focus on the common intention of the parties that the law requires.
As such, the High Court’s analysis instead focused on the parties’ common intention, and the extent to which their original intention to hold the property in equal shares changed over time. This was to be preferred over a resulting trust analysis, in which shares are calculated mathematically with reference to who paid what. While a resulting trust analysis can still be seen in a commercial context, it is widely accepted as being inappropriate in a domestic consumer context, such as in this case.
The High Court found it permissible to conclude, from Ardley’s cessation of mortgage payments, that the common intention had changed. It would be extraordinary, the Judge said, if the common intention to hold equally could survive these changes: in effect, Joan would be paying for Ardley’s interest and that – given an acrimonious split – is just not likely. Considering this change of intention, the High Court concluded that Ardley’s interest should be quantified as a fixed monetary amount based on the property’s value as at 1992, when his contributions ceased. In other words, his beneficial interest in the property crystallised in 1992 and was not continuing. At that time, the value of the house was £74,000, so Ardley had a crystallised interest worth £37,000. That amount was fixed, such that he did not get the advantage of any increase in the property’s value after 1992.
Analysis
Adopting the 2023 valuation of the property of £600,000, Ardley’s £37,000 fixed share represented a 6.25% share of the property. As such, Ardley’s appeal resulted in him receiving a smaller share than the initial County Court decision – in addition to a sizeable legal bill for costs.
The High Court did, however, consider it fair and appropriate for Ardley’s £37,000 share to be released to him without delay. It would not be right for Ardley to be ‘kept out of his money’ until Joan decided to sell the property, as the value of Ardley’s interest would diminish in value over time. As such, Joan was ordered to pay Ardley the £37,000 within three months. A failure to do so would result in the property having to be sold.
The facts of this case were unusual. The property was bought jointly by the parties 34 years ago. Ardley moved out of it 32 years ago and stopped making financial and non-financial contributions to it 30 years ago. These cases are very fact specific, and a different outcome is likely to have been arrived at if the parties had signed up to an express declaration of trust at the time of purchase, for example.
These cases are technical in their nature and, to avoid being caught out, are best led by property litigators specialising in trust disputes under TOLATA.
At Birketts, our Property Litigation Team is ranked in the top tier by legal commentators, and we can help you to bring or defend claims involving beneficial shares, as in Allen v Webster.
For further advice relating to TOLATA and property litigation, please contact Sunday Aladetoyinbo, Laura Tanguay, or another member of the Home Ownership Disputes Team.
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 July 2024.