If someone else has contributed financially or physically towards your property, a court may impose a ‘constructive trust’ and that person would be entitled to a share in the value of the property or any income it generates, even if there was no formal agreement between you reflecting this. A financial contribution could include paying towards the deposit, mortgage or upkeep of the property. A physical contribution could include maintaining or renovating the property without pay.
‘A dispute can arise when there is a difference of opinion over the basis of those contributions – and no documentation to clarify the situation, such as a cohabitation agreement or a gifted deposit letter,’ explains Mark Blake, Partner in the dispute resolution team with QualitySolicitors Parkinson Wright
Mark, explains when a court might impose a constructive trust and how our solicitors can help you if you face a claim from someone who wants a share of your property.
What is a constructive trust?
A constructive trust is basically a legal mechanism which is designed to ensure fairness for someone who is not a legal owner of a property, but who has paid towards the property, while preventing the legal owner from being unjustly enriched.
It bestows a beneficial interest in the property onto the non-legal owner and gives them the right to receive a share of the proceeds if the property is sold or rented out. The size of the share allotted is usually based on the contributions they have made.
In the worst-case scenario, you could be forced to sell the property if you cannot afford to buy them out.
When might a constructive trust claim arise?
A claim arises most often when people who are not married live together and fall out, and the person who has contributed towards the property believes they should receive from the owner a share in the value to reflect their contributions. This is not confined to romantic relationships, but could arise where someone in a position of authority abuses that position to enrich themselves to the cost of another, where someone wrongfully receives property or assets without paying for them, or where a will is ambiguous.
A constructive trust might also be recognised if a family member has contributed financially to the purchase of the property (such as via the bank of Mum and Dad), but their name is not on the title deeds.
In disputes between cohabitees, the non-legal owner often claims that there was a common intention to share ownership of the property, while the legal owner claims the contributions were merely the equivalent of rent, paid in exchange for being allowed to live in the property.
What evidence is required by the courts?
Courts will only impose a constructive trust on a property if the contributions made towards the property are substantial and evidenced.
A court would need to see proof of:
- the contributions that have been made by the non-legal owner, such as receipts for renovations, or bank statements showing the cash paid towards the mortgage or household bills;
- a common intention between you and the non-legal owner to share the property. In the absence of a written agreement, the non-legal owner might claim you offered verbal assurances that they were entitled to a share of the property; and
- the detriment which the non-legal owner has suffered as a result of relying on that common intention. The detriment must be more than de minimus, (i.e., too small to be meaningful or taken into consideration); for example, it could involve ploughing money into your property which could have been saved to buy their own property.
How do you defend a constructive trust claim – and how can a solicitor help?
Disputes over beneficial ownership generally arise because there is no written agreement to provide clarity over the financial arrangements. You disagree over whether there was an intention to share the property and, if negotiation and alternative dispute resolution methods fail, you could be dragged to court to defend a claim that someone else has a beneficial interest in your home because they say they paid towards it in some way.
If you receive a letter making such a claim, it is imperative that you consult our dispute resolution lawyers as soon as possible. We can quickly assess your case and suggest a strategy to defend your right to retain your fair share of your property.
A first step would be to help you amass the evidence that backs up your claim that there was no common intention or that no substantial financial contribution was made by the non-legal owner. We will also review the evidence provided by the other party, and advise you on your options.
Court is always a last resort and so we will negotiate with the person making the claim or their legal representative to achieve the most cost-effective outcome. This could involve arranging mediation sessions to try and settle the matter amicably. Or we may need to fight your corner to disprove the other party’s claims of intention, reliance or detriment; as well as representing you if your case has to go to court.
Even if some kind of constructive trust is found, your solicitor will work hard to reduce any remedy sought by the non-legal owner, such as agreeing a monetary settlement instead of beneficial ownership.
For further information, please contact Mark Blake or a member of the dispute resolution team on 01905 721600 or via email worcester@parkinsonwright.co.uk
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.