Beneficial ownership

The principles under which a non-owning cohabitee may acquire a beneficial interest in property which is in the sole legal ownership of their partner are well-rehearsed in the landmark cases of Lloyds Bank Plc v Rosset [1991] 1 AC 107 and Oxley v Hiscock [2004] EWCA Civ 546. The recent House of Lords' ruling in Stack v Dowden [2007] UKHL 17 has also sought to clarify the relevant principles to be applied in assessing beneficial entitlement in the context of a family home which has been purchased in the joint names of the parties where one joint owner is seeking to establish that they own more than a joint beneficial interest.

Although much of the case law has focused on the issue of assessment of the parties' beneficial ownership (see, for example, Adekunle v Ritchie, 17 August 2007, Leeds CC; Abbott v Abbott, 26 July 2007, PC and Fowler v Barron [2008] EWCA Civ 377, CA), the recent decision in Levi v Levi, 12 March 2008, has addressed the question of what detriment is required to support a constructive trust at the initial stage of the court's inquiry into the claimant's claim.

Meaning of detriment

(a) express common intention

It is evident that, in the express common intention category, very little detriment is required and a wide range of conduct may qualify to support a constructive trust: see Stokes v Anderson [1991] 1 FLR 391, at 400, per Nourse LJ. In Grant v Edwards [1986] Ch. 638, at 648, Sir Nicholas Browne-Wilkinson V-C opined that: '.. . once it has been shown that there was a common intention that the claimant should have an interest in the house, any act done by her to her detriment relating to the joint lives of the parties is, in my judgment, sufficient to qualify. The acts do not have to be inherently referable to the house.'

This liberal approach to the meaning of detriment in the specific context of an express common constructive trust is echoed in Rosset, above, where Lord Bridge referred to the required detriment in this category as being merely a 'significant alteration in position' by the claimant.

In particular, a direct financial contribution (in the form of a payment towards the initial deposit or purchase price) is not essential. In Grant, the female partner's contribution consisted of substantial indirect contributions to the general household expenses. It was evident that these contributions enabled the male partner to pay the mortgage instalments out of his own income and, moreover, that he could not have done that if he had had to bear the whole of the other household expenses as well. On this basis, therefore, the female partner's indirect contributions were held sufficient to support a constructive trust based on an express common intention that she was to have some beneficial share in the house.

It is also apparent that the detrimental reliance need not take the form of an expenditure of money. In Eves v Eves [1975] 1 WLR 1338, for example, the female partner had done considerable work, some of it very heavy, to the house and garden. Her physical labour was held sufficient despite not being referable to the initial cost of acquisition: see also, Drake v Whipp [1996] 1 FLR 826.

Similarly, in Hammond v Mitchell [1991] 1 WLR 1127, the detrimental reliance consisted of the female partner allowing her rights as occupier to be subordinated to those of the mortgagee bank and through her support of the male partner in his business ventures which, had they proved unsuccessful, would have involved a sale of the property in order to repay the bank.

It is conceivable that even purely domestic contributions (as homemaker or child carer) will be enough to avail a claimant in establishing a common intention at the primary stage of the court's inquiry where they relie on express discussions between the parties as to their beneficial entitlement.

The position may be contrasted with that in Burns v Burns [1984] FLR 216, where the female cohabite, in the absence of any express agreement, failed in her attempt to claim a beneficial share in the property since she had made no financial contributions to the purchase price of the house (which was in her male partner's sole name), despite the fact that the parties had lived together for

19 years and the claimant had borne two children.

(b) inferred common intention

In the absence of any finding of an agreement or arrangement between the parties to share beneficially, the court may alternatively rely on the parties' conduct both as a basis from which to infer a common intention and as the detrimental conduct relied on to give rise to a constructive trust.

In this situation, direct contributions to the purchase price, whether initially or by payment of mortgage instalments, will readily suffice: Rosset, above.

It is now also apparent (despite Lord Bridge's apparent observations to the contrary in Rosset) that indirect contributions (in the shape of contributions to general household expenses thereby releasing the other party's income to pay the mortgage instalments) may be capable of supporting a claim to a beneficial share under an inferred constructive trust: Le Foe v Le Foe [2001] 2 FLR 970.

As mentioned above, however, it remains insufficient for the claimant to contribute merely towards household expense simpliciter, purchase chattels for the house, or to do the housework, decorating or gardening, since such conduct does not manifest an intention of helping with the purchase of the house and, therefore, with the aim of acquiring some interest in the property: Burns, above. This stance has been reaffirmed most recently in Stack, above, where the House of Lords made clear that, while significant improvements to the property (for example, a loft conversion) following purchase may qualify because the cost is seen as a capital expenditure, mere payments towards household bills and outgoings or repairs, or merely living together for a long time, having children, or operating a joint bank account would not by themselves support a common intention to acquire or alter beneficial entitlement. Such matters were only relevant as 'part of the vital background' in the sense of providing the context by reference to which any discussions or actions, subsequent to purchase, fell to be assessed by the court: ibid, at para. 143, per Lord Neuberger.

Facts in Levi

The claimant (Sherone) and defendant (Isaac) were brother and sister. Following their mother's death, Isaac succeeded to her secure tenancy of a council house, which he subsequently purchased (under the right to buy provisions in the Housing Act 1985) with the aid of a mortgage and a loan from his sister of about £5,000. The loan was made on the basis that Isaac would pay 5 per cent interest per year and the loan would be repaid from the proceeds of sale of the house when it was eventually sold. In addition, Sherone would be entitled to half the equity in the property after repayment of the loan and mortgage.

A month after the purchase, the parties fell out and Sherone told her brother that she wanted full repayment of her loan immediately, upon which she would relinquish all her interest in the property. The loan was duly repaid.

Some years later, Isaac sold the property for £385,000. Sherone then contended that she was entitled to half the net proceeds of sale (about £220,000) on the basis of a constructive trust arising from the parties' original common intention that they should share the beneficial interest equally.

Can a loan constitute detriment?

The deputy judge (Mr Geoffrey Vos QC) had no difficulty in finding that there was an agreement between the parties that Sherone should have a 50 per cent interest in the property in return for the loan. The real issue was whether the loan could, as a matter of law, amount to sufficient detriment to support her claim to a constructive trust.

Two cases were referred to by the deputy judge on this point. In Re Sharpe (a bankrupt) [1980] 1 WLR 219, a loan made by an aunt towards the purchase of her nephew's property was held incapable of supporting a claim to a beneficial interest under a resulting trust. To hold otherwise, according to Browne Wilkinson J, would be to permit the lender to 'get [her] money twice: once on repayment of the loan and once again on taking [her] share of the proceeds of sale of the property': ibid, 223. This case, however, was held to be distinguishable by the deputy judge on the simple ground that no agreement had been reached between the parties as to what interest (if any) the aunt should acquire in the property as a result of her loan. In Risch v McFee [1991] 1 FLR 105, the claimant lent £1,700 to the defendant to enable him to buy out his wife's share in the property. The loan was never repaid because of a common intention that that the claimant should acquire a beneficial share to the extent of her financial contribution which included the loan. In this case, the Court of Appeal held that the claimant had suffered a detriment because, after she had contributed other money, she had never sought to recover the £1,700 or claim any interest on it. Although, therefore, this sum started as a loan, it later fell to be taken into account as part of her contribution to the cost of acquiring the property.

According to the deputy judge, neither of these cases precluded the possibility of a loan forming adequate detriment capable of supporting an express common intention constructive trust.

In the judge's view, a loan made at an uncommercially low level of interest could clearly support such a trust. In the instant case, the making of the loan at an agreed rate of 5 per cent could also be treated as sufficient detriment. The terms of the loan were open ended in so far as Sherone would only be repaid when (and if) the property was sold. Significantly, she had no control over when that would take place.

In the result, however, despite having initially acquired a beneficial half share in the property under a constructive trust, that entitlement was effectively extinguished when Sherone expressly agreed to relinquish her share if she was repaid the loan immediately.