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[1]
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.
[1] Haque v Raja & Anor [2016] EWHC 1950 (Ch) (28 July 2016)
