Learning Outcomes
This article outlines the principles governing implied trusts, specifically resulting and constructive trusts, as they apply to ownership of the family home. It explains how the holding of legal title, whether in a sole name or joint names, affects the determination of beneficial interests. After studying this material, you should be able to identify the circumstances in which resulting and constructive trusts arise in a domestic context, understand the key factors considered by the courts, and apply these principles to SQE1 scenarios involving disputes over family property ownership.
SQE1 Syllabus
For SQE1, you are required to understand the application of trust law principles in the context of the family home. This involves differentiating between legal title and beneficial ownership and understanding how implied trusts arise and operate to determine parties' shares. Your revision should focus on:
- The distinction between legal and equitable interests in land.
- The nature and creation of resulting trusts, including the presumption of advancement and its rebuttal.
- The nature and creation of constructive trusts in the context of family homes, including the requirements of common intention and detrimental reliance.
- How the court quantifies beneficial interests when legal title is in a sole name versus joint names, considering the principles established in key case law.
- The effect of express declarations of trust regarding the family home.
Test Your Knowledge
Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.
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A couple, not married, buy a house together. Partner A contributes 70% of the purchase price, and Partner B contributes 30%. Legal title is registered in Partner A's sole name. There is no express declaration of trust. What type of trust is most likely presumed initially?
- Express trust
- Constructive trust
- Resulting trust
- Bare trust
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In the scenario above, what would Partner A's beneficial interest likely be under the presumed trust?
- 100%
- 70%
- 50%
- 30%
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If legal title to a family home is registered in the joint names of a cohabiting couple with no express declaration of trust, what is the starting presumption regarding their beneficial interests?
- They hold as tenants in common in shares proportionate to their contributions.
- They hold as joint tenants in equity (equal shares).
- The person who contributed more financially holds a larger beneficial share.
- A resulting trust arises based on financial contributions.
Introduction
When determining ownership of a family home, particularly upon the breakdown of a relationship between cohabitants, the name(s) registered on the legal title do not always reflect the true beneficial ownership. Equity may impose a trust to ensure a fair outcome based on the parties' contributions and intentions. These trusts, arising by operation of law rather than express declaration, are known as implied trusts. For SQE1, understanding how resulting and constructive trusts operate in the context of sole and joint legal ownership of the family home is essential. This article examines the principles applied by the courts to ascertain beneficial interests in these situations.
Legal Title vs Beneficial Interest
It is essential to distinguish between legal title and beneficial interest (also known as equitable interest).
Key Term: Legal Title
Formal ownership of property as recorded in official documents (e.g., Land Registry title). The legal owner(s) have the power to manage and deal with the property.Key Term: Beneficial Interest
The right to enjoy the benefits of property ownership (e.g., live in the property, receive rental income, or share in sale proceeds). This represents the true equitable ownership.
In many family home situations, especially with unmarried couples, the legal title may be held by one partner, while the other partner has contributed financially or otherwise, based on a shared understanding about ownership. Implied trusts address these scenarios where the legal title does not mirror the beneficial reality.
Implied Trusts: Resulting and Constructive
Implied trusts are not created by express intention but arise by operation of law in specific circumstances. They are exempt from the formality requirement of being evidenced in writing applicable to express trusts of land (s.53(2) Law of Property Act 1925).
Resulting Trusts
A resulting trust typically arises in two main situations relevant to family homes:
- Voluntary Conveyance: Where property is transferred to another without consideration (though this is less common with land due to s.60(3) LPA 1925).
- Purchase Money Contribution: Where one party (A) contributes financially to the purchase price of a property, but legal title is registered in the name of another party (B), either solely or jointly with A.
Key Term: Resulting Trust
An implied trust where the beneficial interest in property returns (results back) to the person who provided the purchase money, or reflects their proportional contribution.
The presumption is that the person providing the purchase money intended to retain a beneficial interest proportionate to their contribution, unless evidence shows it was intended as a gift or loan.
Worked Example 1.1
Anna contributes £50,000 and Ben contributes £150,000 towards a house purchased for £200,000. Legal title is registered in Ben's sole name. What interest does Anna likely have?
Answer: A resulting trust is presumed. Anna contributed 25% (£50,000 / £200,000) of the purchase price. She is presumed to hold a 25% beneficial interest in the property, with Ben holding the legal title on trust for both of them in shares of 75% (Ben) and 25% (Anna).
Presumption of Advancement
The presumption of a resulting trust can be rebutted by the counter-presumption of advancement (gift). This traditionally applied where a father provided money for a child or a husband for a wife, presuming a gift was intended. This presumption is now considered outdated and discriminatory (and will be abolished when s.199 Equality Act 2010 comes into force) but can still technically apply. Evidence of the actual intention (e.g., loan or gift) can rebut either presumption.
Limitations in Family Home Context
Resulting trusts primarily focus on direct financial contributions made at the time of purchase. They often fail to account for the complexities of shared lives, such as subsequent mortgage payments by a non-owner or non-financial contributions (e.g., childcare, significant home improvements). Consequently, courts increasingly favour constructive trusts in domestic contexts.
Constructive Trusts
A constructive trust is imposed by equity where it would be unconscionable for the legal owner to deny the beneficial interest of another. In the context of family homes, it arises from the parties' shared common intention regarding ownership, coupled with detrimental reliance by the claimant.
Key Term: Constructive Trust
An implied trust imposed by law based on the parties' conduct and common intention, where it would be unconscionable for the legal owner to deny another party's beneficial interest.Key Term: Common Intention
A shared understanding or agreement between the parties that the beneficial ownership of the property is to be shared, which can be express (e.g., through discussions) or inferred from conduct.Key Term: Detrimental Reliance
Action taken by the claimant, to their detriment, based on the common intention. This could include financial contributions, significant improvements to the property, or altering their life circumstances based on the shared understanding.
Establishing a Constructive Trust
The claimant (the party not on the legal title or seeking a larger share than presumed) must establish:
- A common intention that they should have a beneficial interest (or a different share than the legal title suggests).
- Detrimental reliance on that intention.
Common intention can be:
- Express: Evidenced by oral discussions between the parties regarding ownership (e.g., "This house is as much yours as mine", or excuses why title wasn't put in joint names – Eves v Eves).
- Inferred: Deduced from the parties' conduct, primarily direct financial contributions to the purchase price or mortgage instalments (Lloyds Bank plc v Rosset). Subsequent case law (Stack v Dowden, Jones v Kernott) suggests a broader range of conduct might be considered in quantifying shares, especially in joint name cases, but establishing the initial common intention in sole name cases often still relies heavily on financial contributions post-Rosset.
Detrimental reliance must be linked to the common intention. Significant financial contributions or substantial improvement works often suffice. Purely domestic contributions were traditionally insufficient (Burns v Burns), although Stack v Dowden suggested a wider view might be taken in quantifying shares once an interest is established.
Worked Example 1.2
Leo buys a house in his sole name. His partner, Maya, moves in. They discuss that the house is 'their home'. Maya gives up her job to look after their children and uses her savings to build a substantial extension, significantly increasing the property's value. Is Maya likely to have a beneficial interest?
Answer: Yes, likely under a common intention constructive trust. The discussions might constitute an express common intention. Maya's significant financial contribution to the extension, altering the property's value, likely constitutes detrimental reliance. Even if the discussion was ambiguous, her contribution might allow the court to infer a common intention.
Quantifying Shares under Implied Trusts
- Resulting Trusts: Shares are quantified strictly in proportion to the direct financial contributions to the purchase price.
- Constructive Trusts: Once established, the court quantifies shares based on what is fair, having regard to the whole course of dealing between the parties (Stack v Dowden, Jones v Kernott). This allows consideration of a wider range of factors beyond initial financial contributions, including subsequent mortgage payments, significant improvements, how finances were managed, and potentially non-financial contributions over the relationship.
Legal Title in Sole Name
Where legal title is held by one partner (A), the starting point is that A is the sole beneficial owner. The burden is on the other partner (B) to establish a beneficial interest through either:
- Resulting Trust: By proving a direct financial contribution to the purchase price. The share will be proportionate to the contribution.
- Constructive Trust: By proving common intention (express or inferred) and detrimental reliance. The court will then determine a fair share based on the whole course of dealing.
Legal Title in Joint Names
Where legal title is held in joint names, the starting presumption is that the beneficial interest is also held jointly and equally (as joint tenants in equity) - Stack v Dowden.
- Rebutting the Presumption: This presumption can be rebutted by evidence of a contrary common intention, either at the time of purchase or evolving later. Proving a contrary intention requires demonstrating that the parties intended their shares to be unequal.
- Quantification: If the presumption of equal shares is rebutted, the court quantifies the shares based on the whole course of dealing, similar to sole name cases once a constructive trust is established. Factors considered include financial contributions, discussions about shares, the purpose of the home, the nature of the relationship, and how finances were managed. Courts have stressed that unequal financial contributions alone are often insufficient to displace the presumption of equality in a domestic context; usually, evidence that the parties kept their finances rigidly separate is needed.
Worked Example 1.3
Chloe and Dan buy a house in joint names. Chloe pays the deposit (£30k) and Dan pays the balance (£170k) via a mortgage in his sole name (as Chloe has poor credit). They share household bills. There is no express declaration of trust. They separate. What are their likely shares?
Answer: The starting presumption is that they hold the beneficial interest equally (50/50) because the legal title is in joint names. Dan would need to provide strong evidence to rebut this presumption and show a common intention that their shares should be unequal, reflecting his larger financial contribution via the mortgage. Simply contributing unequally is often not enough to rebut the presumption in a domestic setting. The court would consider their whole course of dealing. Without strong evidence otherwise, the 50/50 split likely prevails.
Revision Tip
Remember the starting points: Sole legal owner = sole beneficial owner unless proven otherwise. Joint legal owners = joint and equal beneficial owners unless proven otherwise. The burden of proof dictates who needs to establish a different arrangement.
Express Declarations of Trust
If the parties explicitly declare how the beneficial interest is held in writing (e.g., in the TR1 transfer form or a separate trust deed), this declaration is generally conclusive, regardless of contributions, unless there is evidence of fraud, mistake, or undue influence (Goodman v Gallant).
Key Point Checklist
This article has covered the following key knowledge points:
- Legal title represents formal ownership; beneficial interest represents true equitable ownership.
- Implied trusts (resulting and constructive) arise by law to reflect parties' contributions or intentions where legal title is misleading.
- Resulting trusts arise from direct contributions to the purchase price, with shares proportionate to contribution (subject to presumption of advancement).
- Constructive trusts require common intention (express/inferred) plus detrimental reliance; shares are quantified based on the whole course of dealing.
- For sole legal ownership, the non-owner must prove an implied trust to claim a share.
- For joint legal ownership, equal beneficial ownership is presumed unless a contrary common intention is proven.
- Express declarations of trust in writing are generally conclusive.
Key Terms and Concepts
- Legal Title
- Beneficial Interest
- Resulting Trust
- Constructive Trust
- Common Intention
- Detrimental Reliance
