Constructive trusts and property law

It is a common scenario these days, with unmarried couples, for one party to move into a  property which is solely owned by the other party. The relationship becomes a long term relationship lasting years or even decades and then the relationship breaks down. In these circumstances, what is the position of the party that

Home » James Swede » Constructive trusts and property law

It is a common scenario these days, with unmarried couples, for one party to move into a  property which is solely owned by the other party.

The relationship becomes a long term relationship lasting years or even decades and then the relationship breaks down.

In these circumstances, what is the position of the party that isn’t the owner of the property ?

In law, the party that is recorded as the Land Registry has full legal title and can deal with the property as he or she wishes. However, in certain circumstances, the body of law known as equity will enable the non-owning occupier to assert a right to a proportion of ownership in the property.

The basis for such an argument by the non-owning occupier is that he or she has contributed to the property whilst occupying and that this has created what is known as a constructive trust, whereby the owning party holds the value in the property in trust for both him or herself and the non-owning occupier.

On the face of it, this is reassuring information for the non-owning party but the above is all subject to being able to prove a contribution and this may mean litigation, which is always inherently expensive and uncertain.

The need to assert that a constructive trust is in place should be remembered not just when a couple split up. Take for example the situation where the owner heavily remortgages the property, possibly pulling out almost all of the equity in the property. If he or she then spends that money, trust or no trust, at a later stage if there is no equity, the non owner, in practical terns would be entitled to share but a share of nothing. This again creates an awkward situation – as a anon-owner, still with your partner, do you raise the issue or not ?

The common issue of the non-owning occupier is also the reason why if you are a non-owner, when a property is remortgaged you will be required to sign a deed of postponement by the new lender, who recognises that you may assert a right in the property and will therefore insist that you agree to postpone that right to the financial and other rights the lender will have in the property.

Practical advice

Whilst equity, subject to discretion and proof, will, in effect, protect a long term non-owning spouse who contributes to the property, it is far better, for both owner and non-owner, to record an agreement as to their intentions at a time when it is clear that the relationship is ongoing and may be a long term relationship. Such agreements are in fact surprisingly affordable to have drawn up. Ignoring the issue is only likely ti be storing up trouble and expense for the future.

jswede-sbGet in touch with me to find out more about how we can help, whether in drawing up a declaration of trust for co-ownership or if you face a litigation issue based on a dispute as to beneficial ownership.

 

James Swede

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