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You are here: BAILII >> Databases >> The Law Commission >> SHARING HOMES [2002] EWLC 278(1) (01 November 2002)
URL: http://www.bailii.org/ew/other/EWLC/2002/278(1).html
Cite as: [2002] EWLC 278(1)
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PART I
INTRODUCTION1.1 Under Item 1 of our Eighth Programme of Law Reform we have examined the property rights of those who share homes. The Programme explained the scope of the project as follows:
We are reviewing the law as it relates to the property rights of those who share a home, except – for example – where a person's occupancy is attributable to a tenancy, contractual licence or his or her employment. Our review therefore covers a broad range of people, including friends and relatives who share a home as well as unmarried couples and married couples (other than on the breakdown of the marriage).
At present, a person who is not a legal owner of a shared home will only be able to claim an interest in the home in certain, limited circumstances. Principally, these are when they can establish-
(a) an equity arising by proprietary estoppel;
(b) that a resulting or constructive trust has arisen in their favour; or
(c) that they are a beneficiary under an express declaration of trust.
It is widely accepted that the present law is unduly complex, arbitrary and uncertain in application. It is ill-suited to determining the property rights of those who, because of the informal nature of their relationship, may not have considered their respective entitlements.1.2 As we shall explain below, the project has focused on the defects in the current law concerning the ascertainment and quantification of property rights in the shared home. A frequently encountered problem is that persons who are living together have not given any serious thought to the legal consequences of their sharing arrangements. When those arrangements break down - or when other parties (purchasers, mortgagees, personal representatives) make claims against the shared home, it becomes necessary to establish the respective legal rights of the persons who have been sharing by reference to the rules of implied trusts and proprietary estoppel. These rules are not as clear as they might be, and they can be extremely difficult to apply. 1.3 In the course of this project we have attempted to formulate a scheme for the ascertainment and quantification of property rights in the shared home which is easier to operate, and leads to a greater certainty of outcome, than the principles which are currently applied. We have explored to an advanced stage a possible scheme based on the objective evaluation of contributions made. However, we have concluded- for reasons which we will set out - that it is not possible to propose that a contribution-based scheme would comprise an adequate replacement for the current law. It has, indeed, become clear that the current law offers a degree of flexibility which is positively desirable in that it can respond with some sophistication to different factual circumstances and to different personal relationships. 1.4 As we have not been able to formulate provisional proposals, it does not seem appropriate to publish a Consultation Paper. However, we do consider it important, and we hope useful, to provide an account of the attempts we made to devise a contribution-based scheme for the ascertainment and quantification of interests in the shared home. In the course of our work, we have also identified issues which, while not within the scope of this project, we believe do require further consideration. These issues raise questions of policy which are already to some extent being considered by government and which are not, we believe, appropriate questions for answer by the Law Commission, at least in this context. 1.5 In this Paper, which we term a Discussion Paper, we report on the problem which we have identified, the means we have explored to deal with the problem, and the difficulties encountered which have led us to the conclusion which we have reached. We then outline, with a view to furthering discussion, those policy issues which we believe are worthy of further consideration.
The shared home
1.6 In this project, we have not been concerned with homes which are rented by their occupiers but only with homes which they own. We have considered the legal consequences of what has been one of the most important social changes in the twentieth century- the steady expansion of owner-occupation- with particular reference to those who share that occupation with the owner.[1] 1.7 By the year 2000 seven out of ten homes in England were owned by one or more of their occupiers.[2] Over the last quarter of a century, living arrangements within those homes have become increasingly diverse, and greater numbers of people are now living together in circumstances which are characterised by informality. While marriage remains popular, cohabitation outside marriage continues to grow, and, as has been recently observed, statistics based solely on the marital status of the parties give "an increasingly incomplete picture of relationships and family circumstances".[3] Moreover, the notion of the "traditional" family, based on one or two parents and their children living together in one unit, does not make allowance for multi-generational living arrangements within a family, where a home which may be legally owned by the head of the family is occupied by siblings, children, grand-children, and possibly even great grand-children, many of whom may be adults. As the population ages, there are many elderly siblings or friends who live together for comfort and companionship, and adult children who move in with their elderly parents to provide day-to-day care and support. 1.8 The project is centred on a belief in the importance of the home as property. The home is unique. It is the place where life is lived, it is the focus of the family, and the centre-piece of their communal security. It is likely to be a major subject of dispute on relationship breakdown, and its devolution on the death of its owner may also prove to be contentious. It is, in many cases, the single most valuable asset of its owner. It has great economic significance as a means of securing capital advances by way of loan and of recovering debts owed. 1.9 The dual function of the home, as place of occupation and capital asset, can be seen very clearly in litigation initiated by creditors. It is often the duty of the court to decide whether, in a given case, priority is to be given to those, typically creditors, who seek to realise its capital value, or to those, typically members of the debtor's family, who wish to continue living there for as long as possible. 1.10 Over the last thirty years or so, a recurring question encountered by litigants before the courts in England and Wales has concerned the property entitlements of persons who are sharing, or have shared, homes together. The question arises in various contexts, and the many ways in which it has been answered have emphasised the lack of clear principle in this vital area of the law. 1.11 There are four principal circumstances in which the determination of the ownership of the shared home is highly material and to which we will return throughout this paper. They are as follows:(1) The persons (two or more) who share a home cease to do so. Typically, one leaves. It may be that this follows the breakdown of a relationship between the sharers. It may be that the living arrangement is no longer convenient to the person who leaves, as they have obtained employment elsewhere. The question arises of whether the person who leaves is entitled to receive payment of a capital sum representing their share of the property, or indeed, in the event of no satisfaction being obtained, whether that person can force a sale thereof.
(2) One of the persons who has been sharing the home dies. The question arises whether that person had an interest in the property, and, if so, what therefore is now to happen to it.
(3) The home is subject to a mortgage securing a loan negotiated by its owner or owners to facilitate the acquisition of the property or to provide funds for other purposes. The borrower defaults on the mortgage, and the mortgagee seeks possession in order to realise its security by sale of the property. The question arises whether any of those living in the home can assert an interest in that property against the mortgagee, and whether they can successfully defend the proceedings for repossession.
(4) A creditor whose debt is not secured over the property by way of mortgage seeks to have the property sold so that the demand can be satisfied. The question arises whether any person who has been sharing with the debtor can successfully hold out against the creditor's claim.1.12 The resolution of these questions is no easy matter. "Who owns what?" may be very simple to ask, but in a short time the enquirer will find themselves immersed in the off-putting, and sometimes obscure, terminology of the law of trusts and estoppel. It may then be necessary to address potentially difficult issues of priority which may themselves depend on proper and timely registration of interests. 1.13 Where legal title to the home is held jointly by the persons who are sharing it, it is unlikely that there will be significant problems defining their interests in the circumstances we have outlined above. In particular, where title to land is registered in the names of two or more proprietors, it is now required that the proprietors make an express declaration of their beneficial entitlement. Once such a declaration has been made, it will be binding on the parties and conclusive of their respective interests in the land save in highly exceptional circumstances.[4] 1.14 This requirement has proved to be extremely valuable, as there is considerable reluctance among those seeking to purchase property together to enter into a legally binding agreement which would govern the parties' future relationship. Some will not have the benefit of legal advice, or sadly some who have legal advice will not be informed of the desirability of this course of action. 1.15 Difficulties primarily arise where legal title is held in the sole name of one person (the legal owner), but where another, or others, has or have made contributions to its acquisition or has or have otherwise assisted the legal owner in such a way as to enable him to make mortgage payments. No thought is likely to have been given to the legal effect of such contributions on the parties' shares in the property at the time they were made. If the formal legal position as to ownership were to prevail, it would lead to manifest injustice in many cases. Accordingly, the courts have developed rules, appropriately enough by invocation of principles and concepts of equity, in an attempt to ensure that justice is done. 1.16 The "default" rules which have been developed have proved at times to be both relatively rigid and extremely difficult to apply. They involve the courts in a search for the parties' common intention and generally require proof of contributions to the shared home which are essentially financial in nature. Legal significance is usually denied to activities such as looking after the home and taking care of children. The way in which a family has chosen to budget may become of distorted relevance in determining whether and if so what interests are to be implied in favour of the person(s) whose names do not appear on the title. Application of the current rules can lead to unfairness as between the parties. 1.17 The roots of the problem lie in a lack of "organised thinking" by persons who share homes about their respective rights in the property. Such arrangements which are made tend to be informal and not recorded in writing. The parties will frequently have a close relationship based on love and affection and will have given little thought to the possibility of separation, the legal consequences of one of them dying, or the claims of creditors on the shared home. They may be husband and wife, they may be a couple cohabiting outside marriage, they may be blood relatives (such as parent and child, or brother and sister), they may be friends. Some of these people may believe that the law confers protection on them such that there is no need to address the question of legal entitlements as between themselves. In this belief all would be mistaken.[5] 1.18 English law does not have a special property regime for married couples, and in determining whether an individual has obtained property rights over a home which is legally owned by another, the fact that the parties are married will not make any significant difference. The major distinction between married couples and others is that in the event of the "irretrievable breakdown" of a marriage, either party may petition for divorce. There is a statutory jurisdiction available to divorcing spouses which empowers the court to make orders within the exercise of its discretion providing for the redistribution of the family property between the spouses.[6] The existence of this jurisdiction means that it is almost always unnecessary (and indeed undesirable) for the courts to determine questions of beneficial ownership to the home as a prelude to making orders reallocating the spouses' property. We should emphasise that this project is not considering the current statutory jurisdiction of the courts to make orders for ancillary relief on divorce. 1.19 The determination of the respective beneficial interests of the spouses remains of importance when a spouse dies, or when creditors, secured or unsecured, seek to obtain their due recompense from the spouses' home. Many of the most important decisions which have addressed the respective rights of creditors over the shared home have concerned parties who are or who have been married. 1.20 Recent governments have actively promoted marriage, considering it to provide the best foundation for the up-bringing of children,[7] and Parliament has expressly required the courts to support marriage as an institution.[8] However, it is undoubtedly the case that marriage is less popular than it was. Although the number of marriages is expected to rise (and the number of divorces to fall) over the next fifteen to twenty years, it is anticipated that by 2005 less than half the adult population will be married.[9] It is quite clear that even among cohabiting couples of the opposite sex, marriage is no longer the norm. 1.21 The sociological evidence is to the effect that more people are choosing to cohabit outside marriage, that cohabitation is lasting longer, and that cohabitation is becoming more common amongst older people.[10] At the same time, it is recognised that unmarried cohabitation is not as stable as married cohabitation, in that, even taking account of the frequency of cohabitants "ceasing to cohabit" by getting married, relationships are more likely to break down. 1.22 In so far as individuals do not wish (or are not able) to enter into the commitment which marriage involves, there remains a large problem for those determining future legislative policy. Marriage, as we will see, is a status which is easily identifiable and which therefore facilitates legislative control of its consequences. The same cannot be said of more informal living arrangements. The difficulty of describing these relationships only serves to emphasise the problems faced by those who believe that some legal regulation of the consequences of such relationships is necessary. Thus where two unrelated people of the opposite sex live together outside marriage they may be termed "cohabitants" or "common law" spouses or, more formalistically, as persons "living together as husband and wife".[11] There is, for instance, no concept of "common law marriage" known to English law, and those who, although not married to each other, live together "as husband and wife" will not acquire rights in each other's property from the mere fact of cohabitation. Further definitional difficulties are caused where a same sex couple live together in a mutually supportive relationship.[12]
A property-based approach
1.23 In this project, we have explored the circumstances in which those sharing homes may obtain and enforce property interests against the legal owner of the property, or against those who may be seeking possession of the home in order to sell it. 1.24 We believe that every encouragement should be given to those who are sharing, or who are contemplating sharing, a home, to discuss between themselves the legal consequences of their actions, and to formalise their agreement by means of an express declaration of trust. 1.25 Where no express provision has been made, the current law requires the court to consider whether an interest has arisen by means of an implied trust or by means of the doctrine of proprietary estoppel. This involves an examination of the parties' intentions, based on statements, on conversations and on payments they may have made. We set out a summary of the current law as it concerns express trusts, implied trusts and proprietary estoppel in Part II below. 1.26 To deal with the inadequacies of the current law, we attempted to devise a scheme which would operate to identify and quantify the parties' beneficial interests in circumstances where no express arrangements have been made. This scheme was to be based on an objective assessment of the economic value of the contributions made by each party sharing the home. The contributions which would qualify were to be widely defined. The court would be able to define, and to declare, the parties' interests by reference to the contributions made. The scheme was not intended to give the court a discretion to adjust or to re-allocate property rights. It would apply to all the different kinds of people who may be sharing a home. 1.27 In Part III we explain briefly the scheme which we devised. We have, however, concluded that the infinitely variable circumstances affecting those who share homes have rendered it impossible to propose the scheme as a viable and practicable reform of the law. We do not consider that it offers sufficient flexibility, and far from improving on the existing law we believe that its application would make matters worse. 1.28 We have therefore concluded that although the existing law is not entirely satisfactory, there is no clear proposal for legislation which could be enacted to reform the means by which beneficial interests in the shared home are defined. However, we do believe that there are ways in which the common law can be usefully developed, and we shall discuss these further in Part IV. 1.29 The major issue which we have clearly identified as requiring further consideration is beyond the scope of the current project. It concerns the effect of breakdown of a relationship between two (and possibly more) persons who have been sharing a home. The direction of reform in this area would almost certainly require the formulation of a status which would confer rights and carry obligations, one of which would be the right to apply to the court for an order dealing with the financial consequences of the relationship breakdown. 1.30 This takes us well outside the scope of the project, as there would be no particular reason to restrict such orders to the shared home. We have however, in Part V, set out an analysis of the possible effect of the nature of the parties' relationship on the legal approach to their relationship and its consequences. This analysis imports connotations of status which the project has hitherto sought to avoid as a means of developing the law. 1.31 The project has led us to conclude as follows:(1) It is quite simply not possible to devise a statutory scheme for the ascertainment and quantification of beneficial interests in the shared home which can operate fairly and evenly across the diversity of domestic circumstances which are now to be encountered.
(2) Those who wish to obtain an interest in the shared home can do so by means of a trust being declared in their favour. It is essential that those who are living together are positively encouraged to investigate the legal consequences of doing so and to make express written arrangements setting out clearly their intentions. This message has been clearly sent out by the courts, and the Land Registry has changed its practice to ensure that those who purchase property jointly make effective provision stipulating their mutual rights and obligations.
(3) The issue of couples living outside marriage, in particular in marriage-like relationships, requires considerable further attention. The property law, which adopts a retrospective approach essentially based on financial contributions to the acquisition of the property, has not proved to be an effective means of doing justice on the breakdown of such relationships. There are two possible (and not by any means mutually exclusive) solutions:
(a) Recognition of certain marriage-like "partnerships" which the parties enter into and have registered, thereby conferring on themselves a set of rights and obligations. This solution would involve the parties "contracting in".
(b) Recognition of certain "de facto" (again traditionally marriage-like) relationships. Here the law seeks to define circumstances (such as living together for a certain period of time) in which legal rights and obligations will be imposed on the parties. It would be possible for the law to allow parties to "contract out" of the legislation.
(4) There is also an increasing problem concerning persons who are not in any sense "a couple", but who live together for mutual support or caring. They may or may not be related, but their financial affairs become somewhat inextricably intertwined. This is not by any means a homogenous group. The difficulty of definition does not however detract from the reality of the problem.1.32 This is not a formal consultation exercise. We make no provisional proposals. We do hope, however, that this Paper will promote discussion at a time when there is likely to be heightened interest in the legal regulation of personal relationships. It is an area of the law in which we lag well behind many other jurisdictions, notably Australia and New Zealand. 1.33 The Law Commission has received assistance and advice from many individuals and organisations- too numerous to mention all by name- over the course of this project. It would like to pay particular tribute to the considerable efforts of the former Commissioner, Charles Harpum. In the last year, we have found invaluable the advice and support of District Judge Stephen Gerlis, Adrian Shipwright of Pump Court Chambers, Elizabeth Cooke of the University of Reading and Jo Miles of Trinity College, Cambridge. But to all who have contributed we are extremely grateful.
Note 1 The legal regulation of rented homes is currently being considered by the Law Commission: see Renting Homes - 1: Status and Security (2002) Consultation Paper No 162. [Back] Note 2 43 per cent of such homes were not “owned outright”, being purchased with the aid of a mortgage: see generally DTLR Housing in England 1999-2000 (2001), Table 7.1. [Back] Note 3 Chris Shaw and John Haskey, “New Estimates and Projections of the Population Cohabiting in England and Wales” (1999) 95 Population Trends 7, ONS. [Back] Note 5 There is, for instance, a commonly held belief that rights are bestowed on those who live together as “common law” spouses: see A Barlow, J Duncan, G James and A Park, “Just a Piece of Paper? Marriage and Cohabitation” British Social Attitudes, 12th Report (2002), National Centre for Social Research pp 29-58. [Back] Note 6 See paras 5.8 - 5.11 below. [Back] Note 7 Supporting Families: A Consultation Document (1998) Cm 3968 (Home Office). [Back] Note 8 Family Law Act 1996, s 1. [Back] Note 9 Chris Shaw, “1996-based population projections by legal marital status for England and Wales” (1999) 95 Population Trends 23, ONS. [Back] Note 10 John Haskey, “Cohabitation in Great Britain: past, present and future trends – and attitudes” (2001) 103 Population Trends 4, ONS. [Back] Note 11 Some of these expressions do have current legal significance, others do not. See para 5.13 below. [Back] Note 12 See Fitzpatrick v Sterling Housing Association [2001] 1 AC 27. [Back]