A House Divided

An increasing number of people are buying property with someone who is not their spouse, and unless there is a declaration of trust in place to determine their beneficial shares of the property, problems could arise when they come to sell, or if they die.

Executing a declaration of trust between co-owners of a property is becoming increasingly important. People are more likely to buy with unmarried partners or, especially first-time buyers struggling to get on the property ladder, with family or friends. This is leading to a variety of non-traditional co-ownerships, where the division of sale proceeds may be unequal. All of this is further complicated if improvements are later made to the property that are not funded by all of the co-owners (or, if they are, not in identical proportions to the original purchase price).

Pankhania v Chandegra [2012] EWC A Civ 1438 shows both the robustness of a declaration of trust, and what can happen if co-owners do execute one, but fail to update it. In this case, the Court of Appeal had to determine the beneficial shares of a residential property, and whether to uphold a declaration of trust executed by the two co-owners stipulating the shares each was entitled to.

Background

The property in question was a residential freehold property in Leicester, which was purchased by a nephew (the claimant) and his aunt (the defendant) in 1987. The aunt's brother had initially wanted to purchase the property, but was unable to obtain a mortgage, so the aunt and nephew stepped in to help, obtaining a mortgage and securing the property. It was claimed that the long-term intention was for the aunt's brother to purchase the aunt's and nephew's interests, although this never happened.

The aunt and her brother contributed the vast majority of the £18,500 purchase price and between them made all of the mortgage payments on the property, save for some contributions made by the nephew between August 2005 and December 2008, amounting to £2,650. The aunt lived at the property with her husband for some of the period of ownership. The nephew did not live there at any point.

At the time of the purchase, the transfer contained a declaration of trust setting out how the equity was to be divided in the event of a sale. This stipulated that each of the nephew and aunt had a beneficial interest of 50% of the property.

The nephew sought an order for sale of the property, seeking his 50% beneficial share of the sale proceeds. The aunt...