Ownership Agreement Defeats Claim of Trust

A trust exists where a person who has legal ownership of something (‘the object of the trust’) is obliged to act with respect to the object of the trust for the benefit of some other person or persons (‘the beneficiaries’).

Trusts are normally created formally, but a trust can also arise in a number of ways without any formal documentation being created.

In a recent case, it was claimed that a relationship of trust had arisen with regard to a property. The deposit on the property was paid by a man who was not able to obtain a mortgage, so his nephew (the claimant) agreed to help out. The property was therefore bought (in 1989) by the nephew and his aunt. The purchase documentation contained an express declaration of trust stating that they held their beneficial interests in the property as ‘tenants in common’ in equal shares.

The aunt then lived in the property. The accounts of the purchasers’ intentions at the point of purchase differed, but the aunt – except for a period of less than three years – paid the mortgage and related costs.

The aunt claimed that, over time, the true ownership of the property had passed to her as she had made the payments connected with owning and living in it. It was her contention that her nephew was, in effect, holding his share in the property in trust for her. The High Court accepted that this was the case.

However, this decision was overturned by the Court of Appeal, which ruled that where an express declaration of the division of respective interests of ownership of a property exists, it cannot be varied except in unusual circumstances. In his ruling, LJ Patten said, “The effect of executing the declaration of trust was therefore to make the claimant an equitable tenant in common regardless of what the parties may have subjectively intended and to estop the defendant from denying his title.” LJ Mummery added, “In the absence of a vitiating factor, such as fraud or mistake, as a ground for setting aside the express trust or as a ground for rectification of it, the court must give legal effect to the express trust declared in the transfer.”

The Court ordered that the property be sold and the proceeds split equally between the aunt and her nephew.

If you are buying a property with another person, we can advise you how to make sure that your respective interests are clearly defined.