Published by: Tracy Harris

Unmarried Couples - The Latest Case on Beneficial Ownership

In October 2015, the Court of Appeal gave Judgment in the case of Barnes v. Phillips [2016] WTLR 13, the latest in a line of cases involving the beneficial ownership of property by unmarried couples.

In this case, the property was bought by the parties in January 1996. The purchase price was approximately £135,000 of which approximately £25,000 was paid from the parties’ savings, the balance being raised by way of a joint repayment mortgage with HSBC. The property was registered in the parties’ names as joint tenants and they both contributed to the cost of improvements.

Mr Barnes subsequently purchased other buy to let properties in his sole name and, as a result of personal debt problems, he instigated a re-mortgage of the property.  The property was valued at £350,000 when it was re-mortgaged in May 2005 and the loan of £145,000 was used in part to redeem the mortgage with the HSBC, which stood at a little under £79,000.  The balance was intended to pay off Mr Barnes’ debts totalling around £65,000, although in the event Mr Barnes did not pay off two of the three debts he had incurred.

The relationship between the parties broke down in around June 2005. Mr Barnes moved into one of his other properties but continued to contribute to the mortgage repayments in respect of the property, as well as making payments for the maintenance of the parties’ two children. This continued until approximately January 2008.

An application was made for a declaration under Section 14 of the Trusts of Land and Appointment of Trustees Act 1996 as to the extent of the parties’ respective interests in the property. The Judge in the Central London County Court held that the parties owned the property as tenants in common, with Ms Phillips’ share being 85% share and Mr Barnes having a 15% share.

Mr Barnes appealed on various grounds; the main ground being that, because the Judge had found that there was no agreement between the parties to alter their beneficial interests, it was not open to him to impute a common intention that their shares were unequal. The Court of Appeal held that, in fact, the Judge had found that the parties had a common intention to vary their interests in the property and, having done so, the Judge imputed an intention as to their respective shares.

The Court of Appeal confirmed the principles in the case of Jones v. Kernott [2012] WTLR 125 which are that, where a family home is bought in the joint names of a cohabiting couple who are both responsible for any mortgage but have not expressly stated their respective beneficial interests, the starting point is that they own the property equally both as a matter of law and in equity. This presumption can be overcome by showing either that the parties had a different common intention at the time they acquired the property or that they later formed a common intention that their respective shares would change. The parties’ common intention can be objectively determined by reference to their conduct. If the parties formed a common intention to vary their respective interests in the property but did not reach an agreement as to what their respective shares in the property would be, the Court is able to impute an intention in order to determine their respective shares.

In this case, the Court of Appeal found that the parties’ conduct did demonstrate a common intention that they would vary their beneficial interests in the property as at June 2005. It noted that the property was re-mortgaged in May 2005, shortly after which Mr Barnes went to live in one of the other properties that he owned. Furthermore, although Mr Barnes continued to contribute to the mortgage repayments up to January 2008, during that period, Ms Phillips paid a total of just over £22,000 and Mr Barnes paid approximately £12,500. After January 2008, Mr Barnes made no further contribution to the mortgage repayments and Ms Phillips assumed sole responsibility for them. Although the Court did not place too much emphasis on them, there were also text messages between the parties which indicated that they were discussing what their respective shares in the property should be.

Having concluded that the parties did intend to vary the shares in which they held the property, the Court of Appeal went on to consider whether the Judge in the Central London County Court was correct to find that Ms Phillips’ share was 85% and Mr Barnes’ share was 15%. It held that the Judge’s conclusion was entirely appropriate, given that Mr Barnes received almost 25% of the equity in the property when it was re-mortgaged shortly before the parties’ relationship ended in 2005. The Judge took the view that, as a result, at that stage, Ms Phillips was entitled to 75% of the property and Mr Barnes was entitled to 25% of the property. The Judge then took account of the parties’ respective contributions from 2005 onwards and the Court of Appeal agreed that he was entirely justified in making a further adjustment of 10%.

The Court of Appeal also confirmed that, in principle, it was open to the Court to take account of financial contributions to the maintenance of children as part of the financial history of the parties, except where it was absolutely clear that to do so would result in double liability (namely where maintenance payments would be paid to the Child Support Agency).