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Land law problem question: legal interest in property

In 1995 Edgar inherited a property 'The Shambles' from his brother. Three years later, he sold it for £120,000 and used the proceeds towards the purchase of 'Hanging gardens', a large residential house with a florist's shop attached. He took out a mortgage secured over 'Hanging Gardens' for £300,000. The property was registered at the Land Registry in his sole name. Edgar moved in with his long term girlfriend Angelica. Angelica paid the legal costs, stamp duty land tax and land registration fees, together with the removal firm's costs. She also purchased new carpets and curtains for the property. When they moved in, the couple spent many evenings discussing plans for their home and the florist shop. Initially, Edgar and Angelica shared all the household expenses. After a few months, Angelica resigned from her full-time job to work in the florist's shop. She did not receive any pay for the first 10 months to enable the business to become established. During this time she was supported by Edgar's income and he paid the household expenses. In 2002, Angelica gave birth to the couple's child, Kelly. Edgar employed a sales assistant in the shop to enable Angelica to be a full-time mother. Angelica did the housework, decorating and shopping and cared for Kelly. In 2004, Angelica used the proceeds of sale of her car to pay for a new central heating boiler and additional radiators at 'Hanging Gardens'. Edgar left 'Hanging Gardens' two months ago after an argument. Last week, Angelica received a letter from Edgar's solicitor advising her that Edgar intended to sell his freehold property, Hanging Gardens, and that she should find alternative accommodation. Angelica is very upset. She has always believed 'Hanging Gardens' was jointly owned property. Advise Angelica as to whether she has any legal or equitable interest in the property. Would it make any difference to Angelica's claim to an interest in property in LAND LAW if Angelica and Edgar had married in 1998? [you are NOT required to advise on divorce or judicial separation]

In order to advise Angelica as to her rights in this particular situation it is necessary to look at the ways in which a legal interest in the property can be acquired and the ways in which she might acquire an equitable interest.

The Law of Property Act 1925 s1 states that

  1. The only estates in land which are capable of subsisting or of being conveyed or created at law are
    1. an estates in fee simple absolute in possession;
    2. a term of years absolute.

Subsection 2 lists the other interests or charges over the land that can be classed as legal interests and includes such things as easements[1], rights of way, rentcharges[2], legal mortgages[3] and other similar charges.

Under the Land Registration Act 1925 s5 the courts recognise the registered land as belonging to any person to whom the land has been registered as having an absolute title to that land[4]. This would effectively mean that Angelica would not have a legal interest in the property.

The Law of Property Act 1925 s1(3) states that

All other estates, interests, and charges in or over land take effect as equitable interests.

It is possible that she could argue that the payment of the solicitors fees, stamp duty and the land registration that this should be counted as money towards the purchase of the house and as such she should be entitled to a share of the property[5]. If Angelica is able to convince the court that her payments as mentioned above are equivalent to having made a direct contribution to the purchase price of the property the court would be free to concur that by her actions a resulting trust has been duly created[6].

The equitable presumption of resulting trusts is that a person who contributes to the purchase price of the land must have done so with the intention of acquiring an in that land in proportion to the amount that they have paid towards the purchase price[7]. If the courts can find that such an intention is to be inferred by Angelica’s actions then they will give effect to the presumption thereby whilst recognising Edgar as the legal owner of the property requiring him to hold the property on trust for Angelica[8].

Lord Diplock stated in Gissing v Gissing[9]

A resulting, implied or constructive trust…is created by a transaction between the trustee and the cestui que trust in connection with the acquisition by the trustee of a legal estate in land, whenever the trustee has so conducted himself that it would be inequitable to allow him to deny the cestui que trust a beneficial interest in the land acquired.

It would appear from the above that although Angelica does not have a legal interest in the property she should definitely be able to prove that she has an equitable interest in the property[10]. It may be that the courts do not accept the payments she made as creating a resulting trust and if this were the case then Angelica would have to rely on the contributions she has made in money and time spent looking after the house and the family to be construed by the courts as creating a constructive trust[11].

Constructive trusts were described by Lord Diplock in Binions v Evans [1972] Ch 359 in the following terms.

A constructive trust is the formula through which the conscience of equity finds expression. When property has been acquire in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest equity converts him into a trustee.

Trusts can only arise in relation to defined property[12], which therefore means that constructive trusts are a means by which a legal owner will be required to hold the property on trust for the beneficiaries even where there was no express or implied intention that the property should be held in this manner[13]. Unlike resulting trusts where the beneficiary has contributed to the purchase price of the property in constructive trusts no such payment has been made. A further difference between resulting trusts and constructive trusts is that with a resulting trust the person putting the money into the purchase price has an express declaration[14] that they will have an interest in the property as they have paid towards its purchase whereas in a constructive trust there may be an implied declaration but not an express one[15].

Constructive trusts were primarily developed to give effect to a wife’s interest in the property as it was frequently the case years ago that the house would be registered in the husband’s name only and the status of the wife was as the homemaker looking after the children and taking care of the household tasks. With more and more women contributing to the household budget either through their own employment or through providing money towards the purchase price it was seen as a necessary measure to protect the rights of the wives should the marriage fail.

In the case of Angelica as she has bought items for the property and expended money on it an implied constructive trust could be inferred[16]. It could also be viewed by the courts that although there was no express agreement between Edgar and Angelica that she would have an equitable interest in the property that their conduct in the relationship and the contribution she has made both financially and in helping to maintain the property that there is an implied agreement that she would be entitled to an equitable interest in the house[17].

The courts have the power to infer that there has been an implied trust created by scrutinising the common intention of the parties[18]. This can be done by either evidence of express comments[19] made by the parties to each other and in company with others or by inference drawn from their conduct[20]. For Angelica to establish that there was an implied agreement she would have to show that there was a common intention to share the property and that she acted in her detriment on reliance on the implication that she was to acquire a beneficial interest in the property[21].

In this particular case she could point to the fact that they had had discussion concerning the plans for their home and also the florist shop which is attached to the property[22]. She could then rely on the fact that she has put quite a lot of her own money into purchases for the house and the household bills, including the stamp duty on the property and the legal fees for the completion of the purchase[23]. She could use this to prove that based on the reliance of Edgar’s discussion with her about their future she has acted in her detriment by spending her own money on the property[24].

If Angelica is unable to convince the court that a constructive trust should be construed then she should still be able to remain in the house at least until Kelly reaches 17 years of age[25]. The Family Law Act 1996 s36 gives the court the power to make an occupation order in respect of Angelica. This can be granted if she can prove that she is entitled to a beneficial interest in the property.

If Angelica is only awarded a beneficial interest in the property it is likely that once Kelly reaches the age of 17 Angelica would be expected to vacate the property[26]. The property would then be allowed to be sold by Edgar, with the court taking into account any payments made towards the payment of the mortgage or monies expended on the property by Angelica in deciding what proportion of the profit from the sale of the house Angelica should be awarded.

Until Kelly reaches the age of 17 the courts would be likely to insist on Edgar making the payments on the mortgage of the property and maintaining its upkeep[27]. The courts may well take into account the ability of Angelica to pay the mortgage on the property or pay for maintenance of the property, but any such payments made by her would be taken into account when the property was finally sold in the interests of fairness.

To prevent Edgar from selling the property Angelica could apply for proprietary estoppel on the grounds that her contribution into the household funds and the work she has paid for in the property gives her a beneficial interest in the property under equity[28]. The principal of proprietary estoppel in the late 19th century had to fit into strict criteria before an estoppel in equity could be raised.

The cases of Willmott v Barber (1880) 16 Ch D and Ramsden v Dyson (1866) LR 1 HL 129 highlighted 5 essential elements that had to be satisfied before the legal owner would be prevented from asserting his legal rights. The 5 elements highlighted in the above cases are that the plaintiff must have expended some money or have done some act on the faith of their mistaken belief that they would acquire an interest in the land[29]; they must have made some mistake as to their legal rights; the defendant must know of the existence of his own right which is inconsistent with the plaintiffs rights; the defendant must be aware of the plaintiffs mistaken belief of his rights; and lastly the defendant must have encouraged the plaintiff to spend money in the way they have or have encouraged them to act in the way they did[30].

It is clear from the scenario above that Angelica would more than likely satisfy the requirements to apply for a proprietary estoppel to prevent Edgar from selling the house[31].

If Edgar and Angelica had married before buying the property Angelica would have found it easier to prove that a resulting trust[32] should apply in this instance as she could show that the money she spent should be counted as towards the purchase price of the property as she would obviously expect to acquire an interest in the house as it was to be their family home[33].

She would be further assisted by the Family Law Act 1996 s30 which would give her the right to remain in the matrimonial home so long as she could prove that she had a beneficial interest in the property. Under the Matrimonial Causes Act 1973 provision could be made for the property to be transferred to Angelica, or alternatively for the property to be held under a property adjustment order postponing the sale of the property until Kelly reached 17[34].

In summing up my advice to Angelica would be that it might be possible for the courts to construe a resulting trust has been created if they consider that the money spent of the legal fees etc can be counted as money towards the purchase price of the property. If the court are not satisfied that the money can be counted in this manner they could find as an alternative that a constructive trust has been created which would give Angelica an equitable interest in the house. Given that her name is not on the registration documents Angelica does not have a legal interest in the house and cannot acquire one unless Edgar agrees to have her name entered onto the register. In either event Edgar would not be entitled to sell the house until Kelly reached the age of 17 as he is under an obligation to provide a home for his daughter. The courts are likely to apply the principals of proprietary estoppel to prevent him from selling the house until she is 17 and also to make an order that he makes the payments on the mortgage and repairs during this time. If Angelica had been married the court could have ordered the property to be transferred into her name but at the very least would have employed the use of a property adjustment order to prevent the sale until Kelly is 17.

Bibliography

Pearce, R and Stevens, J, The Law of Trusts and Equitable Obligations, 2nd Ed, 1998,

Butterworths

Hayton, D J, The Law of Trusts and Equitable Remedies, 11th Ed, 2001, Sweet & Maxwell

Gravells, N P, Land Law Text and Materials, 2nd Ed, 1999, Sweet & Maxwell

Cretney, S.M& Masson, J M, Principles of Family Law, 6th Ed, 1997, Sweet & Maxwell

Oldham, M¸ Statutes on Family Law, 10th Ed, 2002, Blackstone’s

Thomas, M, Statutes on Property Law, 8th Ed, 2001, Blackstone’s

Table of Cases

Binions v Evans [1972] Ch 359

Burns v Burns [1984] Ch 317

Coombes v Smith [1986] 1 WLR 808

Drake v Whipp [1996] 1 FLR 826

Dyer v Dyer (1788) 2 Cox Eq Cas 92

Eves v Eves [1975] 1 WLR 1338

Gissing v Gissing [1971] AC 886

Grant v Edwards [1986] Ch 638

Hussey v Palmer [1972] 1 WLR 1286

Inwards v Baker [1965] 2 QB 29

Lloyd’s Bank plc v Rosset [1991] 1 AC 107

Lloyds Bank Plc v Carrick & Anor [1996] EWCA Civ 1303 (28 February 1996)

Matharu v Matharu (1994) 69 P & CR 93

Mesher v Mesher [1980] 1 All ER 126

Midland Bank plc v Cooke [1991] 1 FLR 391

Pascoe v Turner [1979] 1 WLR 431;

Pettitt v Pettitt [1970] AC 777

Phipps v Pears [1965] 1 QB 76

Ramsden v Dyson (1866) LR 1 HL 129

Rochefoucauld v Boustead [1897] 1 Ch 196

Springette v Defoe [1992] 2 FLR 388

Tinsley v Milligan [1994] 1 AC 340

Tiverton Estates Ltd v Wearwell [1975] Ch 146

Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669

Willmott v Barber (1880) 16 Ch D

Table of Statutes

Family Law Act 1996

Land Registration Act 1925

Law of Property Act 1925

Matrimonial Causes Act 1973

Rentcharges Act 1977

1


Footnotes

[1] Phipps v Pears [1965] 1 QB 76

[2] Rentcharges Act 1977

[3] Law of Property Act 1925 ss85- 87

[4] Tiverton Estates Ltd v Wearwell [1975] Ch 146

[5] Dyer v Dyer (1788) 2 Cox Eq Cas 92; Pettitt v Pettitt [1970] AC 777

[6] Springette v Defoe [1992] 2 FLR 388; Gissing v Gissing [1971] AC 886

[7] Lloyd’s Bank plc v Rosset [1991] 1 AC 107; Tinsley v Milligan [1994] 1 AC 340

[8] Midland Bank plc v Cooke [1991] 1 FLR 391

[9] [1971] AC 886

[10] Pettitt v Pettitt [1970] AC 777

[11] Eves v Eves [1975] 1 WLR 1338; Burns v Burns [1984] Ch 317

[12] Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669

[13] Rochefoucauld v Boustead [1897] 1 Ch 196

[14] Pettitt v Pettitt [1970] AC 777

[15] Gissing v Gissing [1971] AC 886

[16] Hussey v Palmer [1972] 1 WLR 1286

[17] Grant v Edwards [1986] Ch 638; Eves v Eves [1975] 1 WLR 1338

[18] Grant v Edwards [1986] Ch 638

[19] Eves v Eves [1975] 1 WLR 1338; Lloyd’s Bank plc v Rosset [1991] 1 AC 107; Drake v Whipp [1996] 1 FLR 826

[20] Midland Bank plc v Cooke [1991] 1 FLR 391

[21] Grant v Edwards [1986] Ch 638; Eves v Eves [1975] 1 WLR 1338; Matharu v Matharu (1994) 69 P & CR 93

[22] Eves v Eves [1975] 1 WLR 1338

[23] Pettitt v Pettitt [1970] AC 777

[24] Gissing v Gissing [1971] AC 886

[25] Coombes v Smith [1986] 1 WLR 808; Family Law Act 1996 s62(2)

[26] Lloyds Bank Plc v Carrick & Anor [1996] EWCA Civ 1303 (28 February 1996)

[27] Mesher v Mesher [1980] 1 All ER 126

[28] Pascoe v Turner [1979] 1 WLR 431; Lloyds Bank Plc v Carrick & Anor [1996] EWCA Civ 1303 (28 February 1996)

[29] Pascoe v Turner [1979] 1 WLR 431; Ramsden v Dyson (1866) LR 1 HL 129

[30] Inwards v Baker [1965] 2 QB 29

[31] Lloyds Bank Plc v Carrick & Anor [1996] EWCA Civ 1303 (28 February 1996)

[32] Pettitt v Pettitt [1970] AC 777

[33] Pettitt v Pettitt [1970] AC 777

[34] Mesher v Mesher [1980] 1 All ER 126


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