Property Disputes between Cohabitees

30/11/2011

The long awaited decision of the Supreme Court in the case of Kernott v Jones [2011] UKSC 53 is extremely important for cohabiting couples, especially where they are purchasing or have purchased a property together. This article seeks to set out briefly the facts of the case and details of the judgement; for detailed advice on your rights as a cohabitee please contact a member of our Family Team.

Ms Jones and Mr Kernott began their relationship in 1981 and had two children together. The property in question was purchased in 1985 in their joint names for £30,000.  The deposit of £6,000 was paid for from the proceeds of sale of Ms Jones’s previous home. Although they registered the legal title to the property in joint names they did not enter into any declaration as to how the beneficial interest in the property would be held.  During their relationship Ms Jones and Mr Kernott shared the mortgage and upkeep on the house between them. In 1986 they did some improvement work at the house by building an extension.  They jointly took out a loan to pay for this and Mr Kernott did some of the work himself.

The relationship broke down and eventually Mr Kernott moved out in 1993.  Following his departure, Ms Jones continued to live in the property with the parties’ children, paying all the mortgage and bills and with little financial contribution from Mr Kernott towards the children’s care.  In 1996 Mr Kernott bought his own property, and an insurance policy was cashed in shortly prior to this to enable him to make this purchase.  The property was placed on the market in 1995 at £69,995 but was then withdrawn.  Subsequently the value of the house increased considerably and by 2008 it was valued at £245,000.

In 2006 Mr Kernott had indicated that he wished to claim his share of the property and an application was made to the County Court in 2007 for a declaration as to their respective shares, Ms Jones seeking a declaration that she owned the entire beneficial interest.  The County Court judge, noting that the house was purchased as a family home initially, decided that Mr Kernott was only entitled to a 10% share.  Mr Kernott appealed this decision to the High Court, who refused to overturn that decision.  A subsequent appeal was made to the Court of Appeal where the decision was overturned and a judgement given that the property was to be shared equally. 

Ms Jones then appealed to the Supreme Court who heard the matter in May 2011 and, after lengthy consideration, gave judgement on 9 November 2011.  They allowed the appeal, reinstating the decision of the earlier Court that Mr Kernott was only entitled to a 10% share in the property.  This decision is an interesting one as it moves away from previous interpretations of bare trust law principles and allows some scope for the Courts to introduce an element of fairness into their decision.  It builds on the earlier Court decision in Stack v Dowden [2007] UKHL 17 where an equal division of the property was departed from even thought the legal title was held in joint names.  The division of the net sale proceeds in that case broadly equated to the parties’ respective financial contributions to the property during the period of ownership.

During the proceedings Ms Jones conceded that, at the time of their separation in 1993, there was no evidence to suggest that they owned the property anything other than equally.  The question was whether the parties’ intentions as to their respective interests in the property had differed following their separation.  It was for the Court to try to deduce what those intentions were, looking objectively at the evidence.  It was concluded that when Mr Kernott purchased his own property in 1996, using his half share of proceeds from a joint insurance policy, it was intended that his interest in the jointly owned property would crystallise.  He would not have been able to fund or maintain this property had he still been contributing to the jointly owned property.  Mr Kernott would have the benefit of any capital gain in the value of his solely owned property, and Ms Jones would have the benefit of any increase in value of the jointly owned property.  As a calculation on this basis, taking the value of the property in 1993 as £60,000 and in 1995 as £70,000, would produce a division so similar to the percentage figures ordered by the County Court the Supreme Court held it would be wrong to interfere with the result.  The Supreme Court therefore confirmed the decision that Ms Jones owned 90% of the property and Mr Kernott 10%.

If the Court cannot deduce exactly what shares were intended, then it may have to impute an intention on the parties.  In doing so the Supreme Court said that the correct approach would be “to ask what their intentions as reasonable and just people would have been had they thought about it at the time.”  The Court set out certain principles which would apply where a family home is bought in joint names, with joint responsibility for the mortgage, but no express declaration as to their intentions as what their shares should be:-

(1) The starting point is that equity follows the law and they are joint tenants both in law and in equity.

(2) That presumption can be displaced by showing (a) that the parties had a different common intention at the time when they acquired the home, or (b) that they later formed the common intention that their respective shares would change.

(3) Their common intention is to be deduced objectively from their conduct;

(4) Where it is not possible to ascertain by direct evidence or by inference what their actual intention was as to the shares in which they would own the property, “the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property”: as per Chadwick LJ in the case of Oxley v Hiscock

(5) Each case will turn on its own facts. Financial contributions are relevant but there are many other factors which may enable the court to decide what shares were either intended (as in (3) above) or fair (as in (4)).

The starting point is different in a case where the family home is in the name of one of the parties only.  It that case there is no presumption that the property will be jointly shared, and you must first look at whether the common intention was that the other party should have any interest at all, and then look at what that interest should be.  It is also worth noting that whilst the Supreme Court judges were unanimous in their verdict, their reasoning differed slightly, particularly when it came to deciding what should be inferred as the parties intentions.

This case emphasises how important it is to take the time and effort to ensure that your intentions as to how you will share the property are properly recorded.  If you do not do so it is clear that the Court has the power to not only draw an inference from your conduct during the ownership of the property as to how it should be shared, but also to impute (i.e. attribute) an intention on you if such an inference cannot be drawn.  In doing so the Court will focus on what is deemed to be fair.  These intentions can change over time and so it cannot be assumed that the paperwork completed when purchasing the property will tell the whole story.  It would be advisable for couples to seek legal advice about entering into a cohabitation agreement, otherwise known as living together agreements, to formalise their financial arrangements and to review these following any changes in circumstances.  In addition, legal advice should be sought on separation to protect your position and to endeavour to avoid the considerable costs and delay which can be caused by contested Court proceedings.

Should you require further advice about the issues raised in this article please contact a member of our specialist Family Team.