More than half of couples in the 16 – 44 age group are now co-habiting rather than being married and many of them will jointly own their property – but rarely with a formal agreement that clearly sets out how the property should be divided in the event of the relationship breaking down.
The Supreme Court has handed down their decision in Jones v Kernott [2011], a case that concerned the allocation of shares in a jointly owned property after the relationship ended. The decision sets out clear principles that should be applied when determining the shares that co-habitees hold in their home in the absence of a legal agreement. The Supreme Court has made it clear that, without legislation to clarify this notoriously difficult area, the courts will continue to decide difficult cases, often on sparse and conflicting evidence. This decision gives even more impetus to the message to co-habiting couples – get your house in order and make a declaration of trust or co-habitation agreement so that it is quite clear who owns what.
Facts of the case
Ms Jones and Mr Kernott bought a house in 1983 for £30,000 but did not make a declaration of trust. Ms Jones paid the 20% deposit with the balance funded by a mortgage. Ms Jones and Mr Kernott had two children together and contributed equally to the household expenses until Mr Kernott left the home in 1993 and made no further financial contribution towards the running and upkeep of the house. In 1995 the house was put on the market but failed to sell. A joint life assurance policy was cashed in to provide Mr Kernott with a deposit to buy his own home. In 2006 Mr Kernott claimed a beneficial interest in the house - despite having contributed nothing financially since 1993.
Earlier judgments
The County Court decided the case in line with the House of Lords decision in Stack v Dowden (2008). The Judge found that Ms Jones owned 90% and Mr Kernott 10% on the basis of what was fair and just, taking into account the whole course of dealing. Mr Kernott unsuccessfully appealed to the High Court; the Judge found there had been a change in the party’s original common intention to share the house equally, as inferred by Mr Kernott’s conduct from 1993. Mr Kernott successfully appealed to the Court of Appeal, the majority held that nothing inferred that the original intention had changed.
The Supreme Court decision
All five judges upheld the County Court decision and restored the County Court order. The main judgment speech, given by Lord Walker and Lady Hale, found that the common intention had changed in 1995 when the policy was cashed in and at this point Mr Kernott’s equal share crystallised. Based on the value of the house in 1995 this equated to approximately 10% of the value of the house at the time of the County Court judgment.
The principles to be applied
The judgment then sets out the principles to be applied in co-habitee joint ownership cases when a home is bought in joint names with no declaration of trust or co-habitation agreement.
The starting point is that the property is owned in equal shares by the co-habiting couple (the presumption). However, this presumption can be put aside if it is clear that equal ownership was not intended either at the time of purchase – or at a later date (a common intention). Likewise, if the behaviour and / or dealings of the couple demonstrate a common intention this will override the presumption. Finally, if the common intention cannot be determined from evidence the court will consider what is fair, having reviewed the dealings between the couple in relation to the property. Each case will turn on its facts and whilst financial contributions are relevant other factors will be taken into account.
For cases where the home is in a sole name the starting point is different. Firstly an intention for joint beneficial ownership must be established. Thereafter, there is no presumption of joint tenancy and the shares will be decided as above based on the common intention.
Commentary
The Supreme Court decision draws attention to the problems faced by the judiciary in resolving property disputes between co-habiting couples. Unfortunately the increasing trend for co-habitation is not matched by a corresponding trend for legal agreements to determine who owns what proportion of the property.
This decision brings a degree of clarity to the principles to be applied in these types of cases. Although the number being decided by the courts is unlikely to reduce, fewer should be the subject of multiple appeals. The likelihood is that, in cases where the common intention can not be readily determined from the evidence, going to court may be the first option in the hope that it will decide it is fair to give one party a greater share.
Whether this is a good or a bad thing remains to be seen. One view is that this approach brings the treatment of co-habiting couples more in line with that of divorcing couples whereas an alternative view is that it will result in protracted and expensive court cases.
To avoid potential litigation, co-habiting couples really should draw up a co-habitation agreement or declaration of trust which states clearly how they wish to share the property and ensure that the agreement is reviewed and amended to reflect any subsequent changes.
For a no-obligation discussion about property disputes between co-habiting couples, please contact Jane Senior.
