This recent case demonstrates how complicated the law is in this area and how essential it is to ensure that conveyancing documentation reflects the express intentions of the parties.
Mr C bought a property in his sole name for the occupation of his father (Mr C senior) and his stepmother (SM) and the 3 children of that marriage.
The property was purchased in 1996 for the sum of £65,000 and financed by a mortgage of £59,850 with the balance as a cash payment from Mr C senior and SM. It was common grounds that Mr C senior and SM had obtained loans from friends and family which they repaid in the following 2 – 3 years.
Mr C senior and SM then entered into sham landlord and tenant short hold relationships with a Mr Singh who claimed to be their landlord. This enabled them to claim housing benefit which was used to discharge the mortgage.
Mr C senior died in 2003 but SM continued to claim housing benefit until 2005. Predictably Mr C then required the return of the property.
At first instance HHJ Birtles found that SM did not have a beneficial interest in the property. Housing benefit alone had serviced the mortgage and not her own resources. He went on to find that the deposit was akin to an arrangement fee.
On appeal SM lawyer’s argued that this finding was wrong and that the deposit represented 8% of the total purchase price which created a resulting trust in favour of Mr C senior and SM.
The Court of Appeal found no evidence of any contrary intention between Mr C and Mr C senior and no conversations to justify the finding that this was an arrangement fee. A key finding in the Court below was that Mr C senior at some stage hoped to purchase the property from Mr C. In those circumstances a deposit would certainly have been taken into account in determining an appropriate purchase price.
Accordingly the appeal was allowed and Mr C was ordered to account to SM for 8% of rent and profits from the date of purchase less any rent arrears in the agreed sum of £42,790.
On the key issue the Court of Appeal declared that SM had an 8% beneficial interest in the property.
And the moral of the story is that the parties would have benefited from a detailed Declaration of Trust which reflected their intentions at the time of purchase. Instead they were left with the horrors of litigating in this complex area of law.