Buying a property is often the biggest investment a person will make in their lifetime. It therefore stands to reason that people want to ensure that their investment is protected. The recent case of Haque v Raja provides a reminder that, if you don’t appear on the title of a registered property that you’ve contributed to and you don’t live in it as well, you must protect your interest.Ownership of a property may be divided into the ‘legal’ ownership and the ‘beneficial’ ownership. The legal owner is the person (or persons) recorded as owning the title of the property at the Land Registry (most properties are registered these days), while the beneficial owner is the person (or persons) having the benefit of the property. While often the same people have both the legal and beneficial ownership, there may be circumstances where the position is less straightforward.
A situation may arise where a property is in person A’s sole name but person B contributed to the purchase price or later added money to the property to improve it and raise its value. A is therefore recorded as the owner of the property but B may feel entitled to part of the beneficial interest, such as a share of the proceeds upon sale or any rental income. In these circumstances A can be considered to hold B’s beneficial interest on trust.
If the relationship between A and B breaks down and A looks to sell the property, then B may rightly be concerned about protecting his interest in the property. Haque v Raja dealt with these facts, whether A can sell the property in these circumstances without consulting B and, if so, whether upon the sale of the property B can consider that the buyer is now holding B’s beneficial interest in the property on trust for him.
The court found that where the property is sold for its fair value to a neutral third party and B is not living in the property at the time of the sale, A may sell the property without consulting B; and B does not have any right to state that the buyer is now holding B’s beneficial interest in the property on trust for him. (B may have a right against A to some of the sale proceeds – that question was to be determined in another court case – but that will be of little comfort to B if he wanted to stay invested in the property.) While this may sound unfair, the court also needs to protect the rights of the buyer and ensure that buyers can be confident that they may rely on the legal title of the property without having to conduct further investigations of their own, unless they had notice that there was reason for concern. If B was living in the property then he may have further options available to him if it was clear that the buyer should have been aware of his interest, but in any event recording B’s entitlement on the legal title should be considered essential in order to prevent any ambiguity.
The court was clear in its judgment that if B wants to ensure that his interest is protected, there must be notice of it on the legal title of the property. Ideally this would go further and the rights of both A and B would be set out fully in a document known as a Declaration of Trust, recording how various scenarios such as the sale or rental of the property would be dealt with along with the payment of outgoings and repairs. However, at the very least a restriction on the title of the property at the Land Registry should now be considered essential for anyone in B’s position in order to provide protection and peace of mind.
This article was written by my colleague Caroline Doyle, associate solicitor, Private Capital.