How To Prove A Beneficial Interest In Property

Do you need to prove a beneficial interest in a property?

Perhaps you’ve lived in a property owned by someone else?

Maybe you contributed to the purchase, have paid the mortgage , or have paid for an extension.

Is the legal owner refusing to recognise your contributions?

If so you need to prove a beneficial interest in the property to protect the equity that you’re entitled to.

Let’s look at how you can do that.

 

What Is A Beneficial Interest In Property?

First things first.

We need to know what a beneficial interest in property is.

In short, it’s an interest in the equity of the property.

There are two ways that property is owned:

• Legally; and
• Beneficially.

The legal owners of the property are the people registered at the Land Registry as owning the “legal title” to the property.

A beneficial owner on the other hand, might not be registered with the Land Registry as having an interest in the property at all.

A beneficial owner is entitled to a share of any income generated from the property, as well as a share of the sale proceeds if the property is sold.

If you can prove a beneficial interest in a property, despite not being the legal owner, the legal owner is said to be holding the property on “trust” for you.

I won’t get anymore technical than that for the time being.

 

Examples Of Beneficial Interests

It is quite common for property to be legally owned by one person, but for another to have a beneficial interest in it.

This often happens where a couple live together, but only one is registered as the legal owner.

That might be because one of them owned the property before they met, with the other moving in after the relationship developed.

Perhaps only one could raise finances at the time of purchase, and therefore purchased the property in his or her sole name, only for the other to be added to the mortgage at a later date.

Sometimes one might contribute a certain amount to the deposit, with the other taking out the mortgage.

Now and again parties agree for one to legally own the property, on the basis that it is held for the benefit of them both.

Whatever the reason, the party who is not registered as a legal owner will want to ensure that their beneficial interest is protected so they don’t lose out.

 

The Starting Point

A beneficial interest in property is an “equitable” interest in it.  As opposed to the legal registered interest, discussed above.

There is a famous saying that “equity follows the law”.

This essentially results in the presumption that any beneficial interest in a property will mirror the legal interest in it.

Where one person is registered as the sole legal owner of a property, the starting point is therefore that that person is also presumed to be the sole beneficial owner of it also.

The onus is therefore on any non-registered party to “rebut that presumption” by establishing a beneficial interest in the property.

How To Prove A Beneficial Interest In Property

I said that I’d try not to get too technical, but I can’t avoid a bit of legal jargon here I’m afraid.

There are several ways to prove a beneficial interest in a property.

Here they are:

1. Via a Declaration of Trust
2. Via a Constructive Trust
3. Via Proprietary Estoppel
4. Via a Resulting Trust

Sorry about that.

I’ll try to explain each of these as simply as I can.

1. Proving A Beneficial Interest in Property Via A Declaration of Trust

It is quite common for unmarried couples who live together to enter into a binding document called a “declaration of trust” or a “deed of trust” to set out in writing how they own the property.

This could include whether one of them has a beneficial interest in the property, and if so, what proportion of the equity it relates to.

They might do this at the outset when purchasing a property, or further down the line if one moves in and/or contributes towards the property in some way.

Often this declaration is recorded quite simply by ticking a box in the form transferring the property to one or both of the parties.

However, if they decide to document any beneficial ownership in a separate document (i.e. via a declaration of trust) reference to that document should be registered against the legal title to the property at the Land Registry.

As you can imagine, this is the easiest way to prove a beneficial interest in a property as it will be conclusive evidence of what has been agreed between the parties.

But what about where there is no declaration of trust?

 

2. Proving A Beneficial Interest in Property Via A Constructive Trust

To establish a beneficial interest in a property via a “constructive trust” involves, as you might have guessed, “constructing” that beneficial interest by reference to the parties’ conduct and dealings.

In simple terms the person claiming the interest must show:

1. That an agreement existed for them to have a beneficial interest in the property; and
2. That they acted to their detriment in reliance upon that agreement.

Establishing An Agreement

In terms of the first point, the agreement could take the form of some written agreement between the parties, letters, email correspondence, or even text messages for example.

It could, however, also  be inferred from their conduct.  This could include conduct such as oral discussions, financial arrangements, and how they structure their affairs, to name a few.

So we are talking about establishing an agreement either as a matter of fact or as a matter of inference.

The agreement could take place prior to purchase, or at a specific time afterwards.

Detrimental Reliance Upon That Agreement

Once an agreement is established – that a party was to have a beneficial interest in a property – that party must also show that they have acted to their detriment in reliance upon it.

There is a lot of caselaw on what might be considered detrimental reliance upon an agreement.

The following things will suffice:

• Direct financial contributions towards the purchase of the property
• Payment of the mortgage installments
• Substantial improvements to the property

Constructive Trusts In General

It is important to be aware that every case is different and will depend upon its own facts and circumstances.

In considering whether a constructive trust, and therefore a beneficial interest, exists it’s vital to provide as much information as you can about how the affairs of the people involved were arranged,  before, during and after any period of living together.

How To Claim Your Beneficial Interest In A Property Via A Constructive Trust

This really depends upon the circumstances.

If the legal owner agrees that you have a beneficial interest that can be documented quite easily.

If not an application to court for a declaration (to confirm your interest) should do it.

That said, you shouldn’t need to go to court to claim your beneficial interest.

If the legal owner is being difficult, the best thing to do is  to send them a solicitor’s letter.

That might surprise you if you’ve been trying to get the legal owner to acknowledge your interest for a long time.

Rightly or wrongly the sight of a solicitor’s letter is usually enough to make the difference.

It signifies that you won’t put up with them ignoring you any further.

If the letter is worded properly, adopting a suitable tone, the legal owner might well agree for your interest to be formally recorded without the need to involve the court at all.

Alternatively, you might receive an offer from the legal owner to buy your beneficial share of the property to bring matters to an end.

I recently acted for a client whose ex refused to acknowledge that their contributions towards the mortgage payments entitled them to an interest in the property.

Since getting involved we’ve sent a few letters and now have a deal that will allow both parties to move on with their lives.

Letter Before Action

From time to time a legal owner will ignore such a letter.

It doesn’t happen often, but it does happen.

You might have found that already.

If an initial letter doesn’t do the trick, the next step is to send a “Letter Before Action”.

This will put the legal owner under a formal obligation to acknowledge and agree your beneficial interest in the property before you issue an  application at court for a declaration that you have one.

You have to do this to avoid getting penalised by the court.

Usually it’s all that’s needed however.

Given the formal nature of a letter before action, the legal owner will be left in no doubt that you will apply to court for an order to confirm your beneficial interest if they don’t respond.

It will also show the court that you have done everything possible to try to resolve matters first.

Quite often this letter will result in a deal being done.

In the unlikely event that the letter before action doesn’t resolve matters, the next step is to send your application to court.

 

How Much Will You Get?

Once a constructive trust has been established you need to determine the proportion of your interest.

It can usually be ascertained by looking at the agreement reached between the parties (in writing, or orally perhaps).

If a solicitor’s letter is sent the beneficial interest is usually agreed between the parties.

If the court’s involvement is needed, and the amount of the interest cannot be ascertained from the agreement reached, the court will then quantify that interest by trying to infer what the parties intended in that regard from their words and conduct.

If it is unable to do that the court will then impute what the parties intended which involves considering what is “fair having regard to the whole course of dealing between them in relation to the property.”

A you can see, it can all get a little technical, but in most cases a resolution can be reached via a letter or two without the need for a detailed analysis.

 

Forcing A Sale Of The Property

Your letter before action will set out the basis of your claim for a beneficial interest.

It will usually result in a settlement.

However, it should also include the suggestion that if necessary, once your interest is acknowledged, an application to force the sale of the property will also be made so that your equity in it can be realised.

Again, this is very rarely necessary, but the added threat of having the property sold can have a profound impact on the other party’s willingness to negotiate with you.

To find out more about the process of that I suggest you read my article on how to force the sale of a jointly owned property.

A Final Word On Constructive Trusts

Constructive trusts are relevant when establishing a beneficial interest in a family home context.

They are not so relevant when trying to establish an interest in a property that was purchased for investment or commercial purposes.

A declaration of trust, will assist in that context, as might the final two options, which we’ll briefly consider below.

 

3. Proving A Beneficial Interest In Property Via Proprietary Estoppel

“Proprietary Estoppel”.  Sounds very technical again doesn’t it?

Apologies.

In this context it’s quite similar to a constructive trust.

Proprietary estoppel involves proving that:

• An assurance has been made to a person;
• That person has relied upon the assurance; and
• That person has suffered detriment as a consequence of that reliance.

You can see the similarities I’m sure.

I don’t plan to spend too much time on the differences between the two, as it can get quite confusing, however the obvious distinction is that proprietary estoppel is established based upon assurances, whereas constructive trusts are  based upon agreements and the parties’ intentions.

In practice, it’s quite common for a claim for a proprietary estoppel to be made at the same time as a claim for a constructive trust.

It’s often worth popping it in the Letter Before Action at the same time.

If you contact a solicitor to ask how to prove a beneficial interest in a property they’ll no doubt consider whether proprietary estoppel is relevant.

 

4. Proving A Beneficial Interest In Property Via A Resulting Trust

A “Resulting Trust” is another form of implied trust that creates a beneficial interest in property.

Resulting trusts are less common in the context of the family home.

They are often referred to as “purchase money resulting trusts”.

They are more commonly created where a property has been purchased for business purposes.

Simply put, a purchase money resulting trust is created where one party has made a “contribution” to the purchase of a property but that person’s name has not been recorded as a legal owner at the Land Registry.

There have been plenty of cases on what constitutes a “contribution” for the purposes of a resulting trust.

• It is generally accepted that a direct cash contribution to wards a purchase or funds raised via a mortgage will suffice as a contribution.
• A contribution to a deposit is likely to be enough.
• Payment of mortgage installments might also.

Once a resulting trust has been established the size of the beneficial interest created by it needs to be quantified.

That interest will generally be proportionate to the size of the contribution made.

If you’ve contributed to the purchase of a property and the legal owner refuses to acknowledge your beneficial interest in it, the best thing to do is to send them a Letter Before Action to claim your interest via a resulting trust.

As with constructive trusts, that letter should be enough to get the matter resolved.

 

How To Prove A Beneficial Interest In Property – Next Steps

I hope that this article has given you an idea of how to claim a beneficial interest in property.

In most cases a letter or two will do the trick.

If you’d like to claim a beneficial interest in a property feel free to get in touch.  I’d be happy to discuss this with you.

 

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