The issue in this scenario relates to the interest of Sylvie in the property

Introduction

The issue in this scenario relates to the interest of Sylvie in the property, Dove Cottage, that is about to be sold due to bankruptcy of the trustee, Leon. The property was brought by Sylvie and Leon in joint names and registered in joint names. Sylvie and Leon were not married but they have a minor daughter. They no longer live together and the property is in the actual possession of Sylvie.

The trustee in bankruptcy has claimed equal interests of Sylvie and her partner Leon as this was a registered estate of the two parties. However, Sylvie maintains that as she has made a greater financial contribution towards the property than Leon, she should get a greater share of the proceeds when the house is sold. The trustee in bankruptcy disagrees, saying that as the house was bought in joint names, half of the proceeds of sale should be credited to Leon. This advice to Sylvie based on the relevant legislation and case law on the issues involved in the scenario.

based on the relevant legislation and case law on the issues involved in the scenario. The advice recommends that Sylvie should receive a bigger share of the sale proceeds because her contribution for the purchase of the house is greater. This is applicable even if the property is a registered property because registration affects only the legal title to the property, which in this case is joint ownership. The beneficial interest in the property is not affected by registration and therefore, Sylvie can claim the larger share in the sale proceeds.

Advice to Sylvie

In England and Wales, the title to the property can be held in one name (sole ownership), or it can be held in joint names in the legal estate (Stack v Dowden [2007] UKHL 17, 2007). In this case, Leon and Sylvie, who met 17 years ago and have a child together, have bought a house, Dove Cottage together. They are not married but the house, Dove Cottage, is registered in their joint names. It is pertinent to note that the rules regarding registered and unregistered interests in land vary from each other (Davys, 2015, p. 254). In this case, the rules of registered estate will apply as the house was bought and registered in Leon and Sylvie’s joint names. This is therefore a mortgaged property. A mortgage of a registered land is a registered charge and this is registered against the title number of the legal estate in this case Dove Cottage (Davys, 2015, p. 259). Until Leon moved out of the property, Dove Cottage was the shared home of Leon and Sylvie. As it is also mortgaged, it can be described as a mortgaged shared home, that is, it is a property that was “purchased in joint names for joint occupation by a married or unmarried couple, where both are responsible for any mortgage” (Jones v Kernott, [2012] AC 776, 2012, p. 25).

In this case, Trusts of Land and Appointment of Trustees Act 1996 (TOLATA 1996) is engaged because the law provides that when two or more people own land concurrently there is a creation of trust of land as provided under section 1 of the TOLATA 1996. As per the trust, the rights of ownership are divided between the legal owners, who are the trustees; and the beneficial owners, who may be people who have contributed to the purchase of the property and therefore hold some beneficial interest in the property. This may happen even when legal and beneficial owners are one and the same individuals (Davys, 2015). Therefore, there are two things to be pointed out here. First, legal estate is held by two or more only in joint tenancy as the legal estate cannot be held in tenancy in common, therefore, it is not severable. However, the beneficial interests can be held either in joint tenancy or in tenancy in common and is therefore, severable. The question of severance is important in this scenario because, Sylvie is claiming a higher proportion of sale proceeds for which she will have to show that her interest is separate from that of Leon. She will also have to show the proportion in which she and Leon hold shares in the beneficial interest in the property.

It is not always clear as to the nature of beneficial interests held by the parties unless these are expressly declared at the time of the purchase. Where such an express declaration of beneficial interests is not made, equity is presumed to follow the law so that in any event such that the beneficial interests will also be held as a joint tenancy. This is subject to three rules, which are: (a) the four unities of possession, interest, title and time are shown to be present in the case for all the owners (AG Securities v Vaughan and Antoniades v Villiers [1988] UKHL 8 , 1988); (b) the purchase deed does not contain any words of severance such as ‘equally’ or ‘in equal shares’ in which case tenancy in common is to be presumed in the beneficial interest; and (c) that none of the equitable presumptions apply in the case for instance, owners have made unequal contributions to the purchase price (Bull v Bull, [1955] 1 QB 234, 1955).

In this scenario, Sylvie and Leon are the legal owners as per the registered interest in the property. At the same time, they are also beneficial owners because they have contributed to the purchase of the house. In this case, the contribution of Sylvie is more than that of Leon, in which case their individual beneficial shares in the property may differ.

Sylvie is more than that of Leon, in which case their individual beneficial shares in the property may differ. When Leon and Sylvie bought this house, that is Dove Cottage, the cost of the property was £200,000. Of this, £50,000, that is, 25 percent of the cost price came from the proceeds of sale of a property owned solely by Sylvie. Another £50,000 was paid from a joint savings account in the names of Leon and Sylvie. The balance of £100,000 was paid from a mortgage, which was taken out in joint names of Leon and Sylvie. Sylvie, who was in full time employment, paid most of the mortgage instalments and the utilities bills as compared to Leon who made a variable amount of income from song writing and performing. He did however pay the council tax and food bills.

However, after Leon moved out of the property, the payments of mortgage were made solely by Sylvie. This has been the situation for a period of a year when Leon’s song writing and performing business finally failed, and 6 months ago, Leon was made bankrupt and therefore, the entire burden of the financial outgoings for the property as well as the mortgage payments have fallen on Sylvie. Therefore, as the facts of the case show, Sylvie has had the maximum burden or contribution towards the purchase of the property.

As concurrent ownership may create a joint tenancy or a tenancy in common in the property in the names of Leon and Sylvie, in the absence of evidence to the contrary, equity will assume a tenancy in common where the parties have contributed unequally to the purchase price (Malayan Credit Ltd v Jack Chia-MPH Ltd [1986] AC 549, 1986). As Sylvie and Leon did not contribute in equal shares and Sylvie’s contribution was more than Leon’s tenancy in common may be presumed. This has significance in case of bankruptcy and consequent sale of the property because as the shares of the two tenants in common are different as per their contribution towards the purchase of the house, the interest that each will take at the time of the sale would be dependent on the share in the interest. In case of bankruptcy of one owner, the court may order the sale of the house if asked to do so the trustee in bankruptcy (Alliance and Leicester plc v Slayford (2000) 33 HLR 743, 2000). As the owners are tenants in common in the beneficial interest of the property, their shares can be separated and Sylvie can be paid a higher share based upon her contribution to the purchase of the property.

Bankruptcy has an effect of operating on the joint tenant’s share to sever the joint tenancy (McFarlane, et al., 2015, p. 613). In case of the bankruptcy of one joint tenant, through the severance of the joint tenancy, the lender may be able to get at the interest of the joint tenant’s interest in property, but will not be able to get at the interest of the other joint tenant whose interest is severed as a result of bankruptcy. This is true in cases where there is a severance of joint tenancy. (First National Bank v Achampong, [2003] EWCA 487, 2003).

Section 15(4) of TOLATA provides that where a section 14 application is made by the trustee in bankruptcy of one of the parties the court must consider the case under section 335A of the Insolvency Act 1986. When the trustee in bankruptcy makes an application to the court for the sale of the house, the court has to make the court as it thinks just under the circumstances for which the court has to have consideration of a number of factors, including the interest of the bankrupt’s creditors, conduct of the spouse or former spouse in bankruptcy, needs of any children and other related circumstances (Insolvency Act 1996, s. 335A).

In a case, where an unmarried couple purchased a home in their joint names, with contributions made by them in unequal shares, with the woman contributing 75 percent and the man contributing 25 percent of the share, the court held that the respective shares in the property could be ascertained and that the party who had invested 75 percent of the share could not have intended the other party to hold 50 percent of the share (Mortgage Corporation v Silkin; Same v Shaire, [2001] 80 P & R 280, 2001).

In case the property is jointly owned by two owners, and upon bankruptcy, the property has to be sold by the trustee in bankruptcy, the purchase money which has to be paid back to the two owners in proportion of their invested share. Regarding the proportion of beneficial share of Leon and Sylvie, out of the £200,000 purchase price of the property, £50,000, came from the proceeds of sale of a property owned solely by Sylvie. This amounts to 25 percent of the cost price made directly by Sylvie. Another £50,000 was paid from a joint savings account in the names of Leon and Sylvie. If this amount is considered to be paid in two equal parts by Sylvie and Leon, then the amount comes to £25,000 each, which makes it 12.5 percent. The balance of £100,000 was paid from a mortgage, which was taken out in joint names of Leon and Sylvie. However, Sylvie has paid most of the mortgage installments and only the council tax and food bills have been paid by Leon. This may be considered from Leon’s perspective as contribution towards the payment of mortgage installments. This is as per a case decided by the court, where is an indirect payment of the mortgage was considered to have been done by one of the parties who did not pay mortgage payments but did pay for the domestic expenditures (Le Foe v Le Foe [2001] 2 FLR 970., 2001). In that case, the exact contributions of Leon towards domestic expenditures will have to be seen in order to ascertain the respective share in payments of mortgage for the both parties.

Considering all of these points, it can be considered that Sylvie’s contribution to the property may be between 60 to 75 percent depending on the actual calculations with respect to the mortgage payments, whether direct or indirect. Another point that may be of importance here is that Sylvie and Leon have a daughter who is 10 years of age and under the Insolvency Act 1996, s. 335A, the minor daughter’s interest will have to be considered. As the daughter is living with Sylvie, Sylvie should receive a share from the sale proceeds which will allow her to purchase another house where she can live with her daughter (Re Citro (A Bankrupt) [1991] Ch 142 , 1991). Under s.335A, Sylvie’s illness and inability to work fulltime may also be considered an exceptional circumstance (Nicolls v Lan, [2007] 1 FLR 744, 2007).

The most important factor for consideration is however, that Sylvie and Leon be considered tenants in common for the purpose of beneficial interest in the property and therefore, the sale proceeds be shared in the proportion of their contribution to the purchase of the property.

Conclusion

Sylvie and Leon are joint tenants for the purpose of legal title but tenants in common for the purpose of beneficial interest. Their respective contributions towards the purchase of the house were not equal, therefore in the absence of express declaration of the nature of beneficial trust, equity will follow the law and tenancy in common will be presumed. As the contributions made by Sylvie and Leon are not equal, therefore they will take the beneficial interest in the property in the proportion of their shares in the property. In case of Sylvie, the contribution made was up to between 60 to 75 percent of the purchase price. Therefore, she should be paid share in the sale proceeds which is concomitant with the contribution made by her to the purchase of the house.

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