Law Commission on Shared Homes Law - Case Study Example

1 Law Commission’s paper on Shared Homes Law The Law Commission Discussion Paper on Sharing Homes, first published online on July 18, 2002 and presented to the Parliament of UK in November 2002, points out the complex nature of the law guiding the Shared Homes (Sharing Homes, a discussion paper). Covering a broad range of people including married and unmarried couples, friends, relatives or others who share homes for any reason, the discussion paper closely examines the difficulties experienced by the partners in money matters or by the banks or financial institutions in recovery of loans in relation to shared homes where there are no registered agreements between the sharing couples. The paper says that the person sharing the shelter may sometimes pay the mortgage instalments or bear the expenses for the extended portion of the home. Sometimes the person may bear the household expenditure in lieu of the shared shelter on some understanding. Over a period of time, it is creating problems over the ownership of the house when the sharer dies or leaves the shared home for another place (Sharing Homes, The problem). The discussion paper sources these problems to the ambiguity of the current law guiding these shared homes. The present law is not very clear on payments made by the sharer on behalf of the owner. For instance, mortgage payments made by the sharer are enough for staking a claim on the home. But, sometimes, the sharer regularly pays the household bills enabling the owner to pay the mortgage instalments. Sometimes, the sharer may look after the household work like 2 looking after the children or attending to some other jobs of domestic chores. In such cases, it is doubtful whether the sharer can stake a claim on the home (Sharing Homes, the current law). As per the law detailed in the discussion paper, a person who is not a legal owner but sharing the shelter in a home can claim an interest on it only when there is an equity arising by proprietary estoppel, when a resulting or constructive trust has arisen in his / her favour or when the sharer becomes a beneficiary under an express declaration of trust. In any of these circumstances, the sharer has to prove his / her right with sufficient proof. Because of these limited options available to the sharer, the law is termed as complex, arbitrary and uncertain in application. It is also ill suited to determining the proprietary rights of the home sharers. The discussion paper is of the opinion that the rules of implied trusts and proprietary estoppel are not as clear as they should be (Sharing Homes, Part I, introduction). Trusts and proprietary estoppel An express trust arises when a person expressly declares that he or she holds property on trust for another or transfers property to another expressly subject to a trust. A resulting trust or constructive trust is part of an implied trust. A resulting trust arises when a person purchases property in somebody’s name or makes direct financial contribution to the acquisition of property in somebody’s name. A constructive trust arises with an agreement, arrangement or 3 understanding between two people with a common intention that a property should be shared beneficially through which one person relies to his or her detriment. Proprietary estoppel arises when a person is encouraged or allowed to believe by an owner of land that he or she has certain rights in or over it and the former acts in that belief to his or her detriment (Sharing Homes, Part II, the current law). Case studies Several case studies relating to the shared homes highlight the ambiguity in the law. For example, let us discuss the case, Burns Vs Burns in which the plaintiff’s claim to stake a beneficial interest in the house on grounds of constructive trust was dismissed by the court. The facts of the case are as follows (Facts and 2.75). Valerie Burns, the plaintiff and Patrick Burns, the defendant lived together for 19 years , 17 years in the disputed home, without a marriage. Defendant bought the house in his name and paid the purchase price without any funding from the plaintiff. The mortgage instalments were regularly paid by the defendant. For 14 years, the plaintiff looked after the children at home and then acquired a job. She then started paying from her salary for the telephone bills and other household expenditure. She also bought some furniture and fittings from her earnings. When the relationship broke down, she left him and started living separately but claimed a beneficial interest in the house on the grounds of 4 constructive trust. Judge Fox ruled that a constructive trust did not arise in this case as there was no evidence of any discussion between the two when the house was purchased to indicate a common intention and rejected the claim. The court made it clear that either the household expenditure incurred or the homely services rendered by the plaintiff would not allow her to stake the claim for a beneficial interest in the home. The court here opined that a constructive trust arises only when there is an evidence of discussion to cause a common intention, though the law did not specify that. The rules relating to the constructive trust should have been defined more clearly and in more detail to suit certain specific circumstances. The Law Commission’s assertion that the law has been lacking in clarity is confirmed by this judgement. If we analyse the ruling, it raises lot of legal questions and doubts. Even assuming that the sharing couple discussed things to express common intention to cause a beneficial interest in the home for either of them, it is very difficult to prove it, as discussions between couples, whether married or not, are never recorded normally with the intention of producing it in a court of law as a witness in the future. It could have been better if the court had provided much more details in this regard. Lloyds Bank Vs Rosset In Lloyds Bank Vs Rosset case, the couple were married but separated later on. As per the case 5 details, Mr and Mrs Rosset purchased a farm house with the entire money coming from the family trust of Mr Rosset. On the insistence of the trust members, the house was registered in the name of the husband (Sharing Homes, Part II, the current law, Lloyds Bank Vs Rosset). When the house required renovation, the couple decided to work together and accordingly, Mrs Rosset spent longer hours at the renovation work coordinating the entire activity until her husband insisted that he would personally coordinate (Lloyds Bank plc v. Rosset). As the funds were insufficient to carry on the renovation, Mr Rosset had obtained an overdraft of £ 18000 from the Lloyds Bank under mortgage but later on failed to repay the instalments to the bank. When the bank sought possession of the house as per the mortgage rules, Mrs Rosset objected claiming a beneficial interest under constructive trust and binding the bank by virtue of her actual occupation of he house under the Land Registration Act 1925, s.70(1)(g). In the court of Appeals, Mrs Rosset won as per s.70 (1)(g) but House of Lords avoided all discussion under this section and held that she had no beneficial interest in the house. According to Claire Archbold, Lord Bridge held that “a constructive trust could arise from a direct contribution to the purchase price, whether at the time of acquisition or by payment of mortgage instalments, which would give rise to an inference of common intention” ( Archbold, 1998, 308). 6 The judgements in the Burns Vs Burns and Lloyds Bank Vs Rosset cases are throwing the light on the inadequacies of the law governing the shared homes. In the Burns case, the ruling depended on the lack of evidence for a discussion between the sharers to prove the common intention for a beneficial interest while in the Lloyds Bank case, Mrs Rosset lost the case because she did not make any financial contribution towards the purchase price or mortgage payments. This conflicting situation has arisen because of the lack of clarity in the provisions of law guiding the shared homes. In the Lloyds Bank Vs Rosset case, the bank was forced to waste its time and money in a legal battle with Mrs Rosset for taking possession of the house. Midland bank Vs Cooke The judgements in the cases of Midland Bank Vs Cooke and Drake Vs Whipp have proved that the law of the shared homes was arbitrary too. As per the facts in the Midland Vs Cooke case, Mr Cooke purchased a house in 1971 and later married in the same year ( Midland bank Vs Cooke). Cooke obtained mortgage to purchase the house. Out of the total purchase price of £ 8500, £ 6540 was raised by way of mortgage, £ 1000 from Mr Cooke’s personal savings and the reminder by way of wedding gift from the parents of Mr Cooke (Sharing Homes, Part II, the current law, Midland bank V Cooke). When the bank tired to take possession of the house to recover its mortgage instalments, Mrs Cooke objected saying that 7 she had a beneficial interest of 50% in the house. The judge ruled that she can lay claim on the property in proportion to her contribution of the half of the wedding gift presented by her in-laws. The court held that the wedding gift presented by Mr Cooke’s parents also belonged to Mrs Cooke and as she had invested that amount into purchasing the house, her beneficial interest in the property equalled to an amount of her contribution i.e. 6.47% of the total property value. But, again demanding 50% share in the property, she appealed and succeeded. In the court of appeal, the bank argued that there was no discussion or any type of arrangement between Mr Cooke and Mrs Cooke regarding the property shares. It contested the claim on the basis that there was no proof of agreement between them to support quantum of beneficial interest but the court of appeal ruled that an equal equitable interest in the home was very much inferred without the proof of explicit words, saying “I would therefore hold that positive evidence that the parties neither discussed nor intended any agreement as to the proportions of their beneficial interest does not preclude the court, on general equitable principles, from inferring one” (Midland Bank -v- Cooke and Another ). In the opinion of the court, cash contributions were not the sole determining factors in deciding equity value of a share in the home. Here, the point to be noted down is that Mrs Cooke invested a share equalling to 6.47% of the property but retained the share in the home equalling to 50 %. We will however find the law arbitrary when we study the case of Drake Vs Whipp. 8 Drake Vs Whipp In Drake Vs Whipp case, the court ruling was completely different. As per the case details, Mrs. Drake and Mr Whipp, an unmarried couple, jointly bought a barn with an amount of £ 61,254 and later converted it into a dwelling house with an additional cost of £129,536 (Sharing Homes, Part II, the current law, Drake V Whipp). The property was registered in the name of Mr. Whipp. Mrs. Drake contributed £ 25,000 and £ 13,000 at the time of purchase and conversion of the house respectively. Both of them worked hard in making a good house. But, shortly after the conversion, their relationship broke down and the problem started. The plaintiff appealed against a lower court finding that she had only 14. 9% interest in the house in the resulting trust (Drake -v- Whipp). She complained that under the principles of resulting trust, undue emphasis was given to the cost of acquisition. The court of appeal ruled that a constructive trust had existed in this case with undisputed evidence that furthered her interest in the property but allowed her to obtain only one third of the property value. Now, compare this case with the ruling in the case of Midland Bank Vs Cooke. In the Midland case, Mrs Cooke had invested only 6.47% on the total value of the house but got a ruling in her favour for an interest of 50% on the property while in the Drake Vs Whipp case, the plaintiff was allowed only 1/3 of the property value in lieu of her investment of 19.4% on the total worth of property (Sharing Homes, Part II, the current law, Drake V Whipp, 2.87). The contradiction shows that Mrs Drake had got a smaller share than Mrs Cooke whose equivalent contribution was only 6.47 %. These two cases clearly establish that the law is arbitrary. 9 References: Sharing Homes, the Law Commission, Law Com No 278, Retrieved December 20, 2005, from www.lawcom.gov.uk/docs/lc278.pdf Facts, Burns V Burns, Retrieved December 20, 2005, from http://pntodd.users.netlink.co.uk/cases/cases_b/burns.htm And 2.75, Burns V Burns, detriment, The Constructive trust, Retrieved December 20, 2005, from www.lawcom.gov.uk/docs/lc278.pdf Lloyds Bank plc v. Rosset, Facts, Retrieved December 21, 2005, from http://ourworld.compuserve.com/homepages/pntodd/cases/cases_r/rosset.htm Archbold, Claire.( 1998). “General principles and recent developments in Northern Ireland family law” in Bainham, A (Ed) The International Survey of Family Law, Martinus Nijhoff Publishers, The Hague, Pp 297-322. Midland bank Vs Cooke, the facts, , Retrieved December 21, 2005, from http://ourworld.compuserve.com/homepages/pntodd/cases/cases_m/mid_cook.htm#top_of_case Midland Bank -v- Cooke and Another, Trusts, Retrieved December 21, 2005, from http://www.swarb.co.uk/lisc/Trusts.shtml Drake -v- Whipp, Trusts, Retrieved December 21, 2005, from http://www.swarb.co.uk/lisc/Trusts.shtml Read More