How do you establish an interest in your former cohabitee’s property?

The recent judgment of the Court of Appeal in Capehorn v Harris [2015] EWCA Civ 955 which clarifies the test for former partners to satisfy when claiming a beneficial interest in a former cohabitee’s solely owned property.

According to the Office of National Statistics, cohabiting couple families are on the increase; they are the fastest growing type of family in the UK and have seen a 29.7% increase between 2004 and 2014. It is estimated that there are now close to 6 million cohabiting households in the UK. Clearly this is an upward trend.

However, unlike married couples, cohabiting couples have no legal protection should their relationship sour and they part. Whilst this position has split the judiciary and academics alike, this is no doubt a blog topic for another day.

Many cohabitees therefore find themselves in some difficulty when their relationship ends and they have to move out of the property solely owned by the former partner. The question is, does the partner moving out have any rights over that property?

Unfortunately, I see and hear this question on a near daily basis. Helpfully, the Court of Appeal in Capehorn v Harris [2015] EWCA Civ 955 has clarified the application of the two stage test where a party seeks to establish a beneficial interest, by way of common intention constructive trust, in a property which is solely owned by the former partner.

Splitting this legal jargon down, a beneficial interest means some form of share or financial interest in the property. A constructive trust arises by operation of law where it would be “unconscionable” or unfair for person ‘A’ who holds an asset, in this case a property, to deny another person ‘B’ a benefit in that asset. The common intention part refers to person A and B sharing an intention that B should have an interest in the asset, and then B acts to his detriment on the basis of that intention. To cite a typical cohabitee arrangement I have encountered, A buys a house in his own name but the intention is that B will also own it, and B then starts contributing to the mortgage or utility bills, but there is no paperwork to document this intention.

Whilst the facts of Capehorn v Harris are somewhat involved and date back over 30 years, for the purposes of this blog it serves to say that the Court of Appeal was quick to reaffirm the principles laid down in Oxley v Hiscock [2005] Fam 211, Stack v Dowden [2007] AC 432 and Jones v Kernott [2011] UKSC 53:

1. the person claiming the beneficial interest must show that there was an agreement that they should have a beneficial interest in the property owned by their partner even if there was no agreement as to the precise extent of that interest; and
2. if such an agreement can be shown to have been made, then absent agreement on the extent of the interest, the court may impute an intention that the person was to have a fair beneficial share in the asset and may assess the quantum (amount) of the fair share in the light of all the circumstances.

In this case, the Court of Appeal confirmed and clarified the differing approach the court must take when looking at each head.

Under the first head, an actual agreement has to be found to have been made by the court, which can be inferred from the parties’ conduct. Returning to my earlier example, this could be that the court finds that person A and B agreed that each would own a share of the property on the basis that A holds the property in their sole name legally i.e. on the Land Registry title but that person B pays a contribution towards the mortgage and utility bills.

Under the second head, assuming the first head has been satisfied, the court is entitled to impute an intention (i.e. assign a value) that each person is entitled to the share which the court considers fair, having regard to the whole course of dealing between them in relation to the property. Expanding on my example, if person B contributed £200 per month towards monthly mortgage and utility bills totalling £800, then in the absence of any other detriment, it is likely that the court would consider finding that person B has a 25% interest in the property.

The court at first instance in Capehorn v Harris looked at the matter in the round and imputed that an agreement had been reached between the parties, rather than finding an actual agreement had been reached. According to the Court of Appeal this was not correct and it therefore overturned the original decision of the first instance court.

The case serves to highlight two important issues: first, that an actual agreement has to be found before the court can decide what share is fair to allocate to each party and, secondly, the importance of drawing up appropriate legal documentation (for example a declaration of trust) which sets out the respective parties’ intentions and shares, thereby avoiding the need for time consuming and costly legal proceedings.