Property co-ownership disputes

In these straitened times, the risks of corner cutting on the acquisition of properties by joint owners is coming to the fore as owners now look to realise their investment only to find that the question of who owns what is not as clear as they had expected.

For dwellings owned by unmarried couples, the law is now found in Stack v Dowden, and applied in the subsequent case of Fowler v Barron [2008] All ER (D) 318 CA.

In the absence of a declaration of trust over the beneficial ownership, where the legal title to the property is in both the parties’ names, the law presumes that the beneficial ownership is shared equally between the parties.

This presumption can be rebutted by a party showing that there was a contrary intention and that, most importantly, it was not just the intention of that party but was, rather, a shared intention. A shared intention can be an actual, inferred or imputed intention concerning the beneficial ownership of the property, taking account of the parties’ entire course of dealings and not just the financial contributions (being, generally, the deposit money, improvements and mortgage servicing) made by the parties. The onus of proof is on the party claiming a greater than equal share.

Whilst the above applies to a property used as a dwelling of the parties in dispute, the same principles do not apply to co-owned investment properties, i.e., those properties acquired to be rented out rather than used as a dwelling of the co-owners.

This is becoming increasingly relevant as co-owners, many of who rushed into acquisitions, now look to offload buy to let properties, with arguments ensuing over how the profit, or in many instances, the loss, on disposal is to be shared.

Laskar v Laskar [2008] 2 FLR 589 concerned a council house purchase by a mother with the assistance of her daughter. The mother contributed her occupation discount and just over one half of the deposit. The daughter contributed the remainder of the deposit. The title and the mortgage were in both names. Shortly after the purchase, the mother moved out the property, which was then let with the rental receipts servicing the mortgage payments.

Mother and daughter then fell out. The daughter sought a one half share of the property but it was held that the presumption of equal shares does not apply where the property was acquired primarily as an investment. Rather, the traditional resulting trust principle continues to apply; with the respective shares of the co-owners being quantified on an arithmetical basis by reference to the co-owners respective financial contributions.

It has not been uncommon, in our experience, over recent years, for friends or work colleagues etc., to club together in haste to acquire rental investments, and with attention to the detail of beneficial ownership being overlooked in the greater expectation of profits. Often, the co-purchasers have contributed unequal deposits, with a view to a “squaring up” after a sale at a handsome profit, only to find that there is now no profit to be had.

With the mortgage on the property typically being covered by the rental income, rather than being serviced out of the owners’ other resources, the deposit arrangements will now often determine which of the co-owners has the larger share in the property.

A retrospective revision to the beneficial ownership shares of a dwelling only rarely impacts on the personal tax affairs of a co-owner; the most obvious instance being when a co-owner has ceased to use the property as a residence for more than 3 years prior to disposal.

For the co-owners of investment properties, there is often cause for revisions to be made to past tax returns, particularly in relation to the share of rental results previously declared.