How much trust should be relied on in cohabitation arrangements?

This post discusses the concept of equitable trusts in the context of a relationship breakdown of unmarried couples. I consider which approach courts should take when a couple changes their mind about how to divide their assets.

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Equitable trusts. Often the source of much frustration for law students and often misunderstood by the public due to their complex nature. However, they are an invaluable tool when dealing with a relationship breakdown and attempting to divide property when intentions have changed.

Let’s put this situation into context. An unmarried couple decides to buy a property together (there are currently 3.3 million unmarried cohabitants in the UK in this very position). The couple live in the property for let’s say 10 years. They then, unfortunately, break up.  The couple may have entered into clear agreement as to how to divide the property before completion (cohabitation agreements are highly recommended here). But often they will not have and there will have to be a determination by the courts into how the couple intended to divide the beneficial interest (monetary value) of the property. There are also situations, where a couple may have agreed something at the beginning of the relationship, but then over the years have changed their intention on what to do with the property.  How do the courts proceed then?

The conflict is whether the courts should approach these situations in a purely formalistic way, looking only at what the parties have written down, disregarding any actions which might show a different intention subsequently. Or should the courts be more holistic, looking at the whole span of the relationship and working out both parties’ true intentions when it comes to who gets what at the end of the 10 years? I explore which approach is more preferable in this post.  

The seminal cases of Stack v Dowden [2007] 2 AC 432, Jones v Kernott [2012] 1 AC 776 and Oxley v Hiscock [2004] 3 WLR 715 have provided a robust framework for the courts to infer parties’ intentions in a holistic manner:

Constructive Trust

Express Declaration of Trust

An express declaration is seen to confirm the extent of each party’s beneficial interest of the property and also sets out any express terms that the co-owners want to include e.g. Person A gets full amount of deposit back, Person B keeps all the furniture. It is on the whole considered conclusive evidence.

However, as the HM Land Registry acknowledges in their guidance of joint ownership: “Recording the joint owners’ intentions in panel 10 of the transfer or in a separate form JO … may help to avoid such disputes later on. However, this is only a starting point, as the joint owners’ intentions may change over time”

  1. Liability

The starting position for jointly owned property will be 50/50. However, if this is disputed, the claimant must prove a common intention to divide the beneficial entitlement in a different way, coupled with detrimental reliance on this intention. This intent can either be express (based on discussions between the parties) or inferred (based on direct contributions or their entire course of conduct in relation to the property in question e.g. paying the mortgage or DIY improvements to the home). 

2. Quantification

The court assesses the parties’ respective beneficial interests based on what the parties have agreed or what the court considers fair when looking at the whole course of dealing between the parties in relation to the property.

So which approach prevails and in what circumstances? In his article, “To Write or Not to Write?” [2013] Conv. 1, Dr Martin Dixon writes:

“That quintessential expression of equity’s conscience—the constructive trust in the family home—must yield to the formalism of the law.”  

But I must disagree.

Comment

I would argue that on the whole, an express declaration of trust made by its beneficiaries, should have primacy over “common intention” constructive trusts that might otherwise have arisen between them. If couples have had the wherewithal to think about a possible break up, and decide amicably how they would like to proceed on this basis – then this should be honoured.

However, life is rarely this simple. Where there is clear evidence of changing intentions either through words or conduct, then this should be recognised by the courts – after all, timing is everything. What if one party had quit their job throughout the course of the relationship in order to start a new business and therefore did not contribute to the property for 1-2 years? Should they still get half? What if both parties paid the mortgage each month, but one gave up their weekends to complete DIY work which added an extra 25% to the value of the property? Is half fair their? Ideally, this is an arrangement to be worked out by the couple themselves, but when feelings are involved it can be difficult to make rational decisions. In these situations, the role of the courts is to accurately honour what the parties intentions actually are, not just what they said they wanted to do 10 years ago. Things change, feelings change and overall circumstances change – equitable trusts are a convenient and necessary tool to reflect this.

Of course, some critics suggest that the injection of a holistic, equitable approach is ‘dislocating a fundamental tenet of property law that holds that express party intentions…cannot be dislodged on the basis of subsequent informal dealings or conduct’ (Chris Bevan, ‘The search for common intention: the status of an executed, express declaration of trust post-Stack and Jones’). This was also the approach taken in the case of Pankhania v Chandegra [2012] EWCA Civ 1438.

This conflict between the two approaches is a clear demonstration of a deeper clash “between the oxymoronic tectonic plates of property law: of common law versus equity; of formality versus informality and of certainty versus fairness” (Bevan, above). Formalism requires adherence to prescribed rules and a dismantling of legal issues in a thoroughly logical and mathematical way – exactly how most property lawyers would like to approach it. However, when dealing with domestic affairs, rising emotions and changing intentions, formalism can rarely be achieved. The purpose of a constructive trust is to deal with facts and find the accurate truth as it stands today, not to rely on expressions made years ago. This will often produce fictional results.

To conclude, the courts have at their disposal two routes of determining the beneficial interest of non-married couples. However, in situations of a clear change in intentions and conduct, the court should use the more flexible option of a constructive trust. This ensures accurate establishment of the parties’ intentions as it stands now. My response to Dixon’s claim is, at times:

“the fictional struggle for formalism must yield to the factual, soothing balm of equity’s conscience. “

After all, when dealing with relationships, a little trust can go a long way…

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