When property is purchased jointly, consideration needs to be given to the way in which ownership is shared among the purchasers, especially when those purchasers are co-habitees. Lawyers and Judges routinely look to see whether the owners entered into a Declaration of Trust that would determine the percentage share which each of them own. This is regarded by the courts as clear evidence of the parties’ intentions at the time. However, what if the parties did not formulate any intention? In these circumstances, can the Court impute to the parties an intention which they never had on the basis that it seems to be the fairest outcome? The Court of Appeal initially ruled that the courts had no such power, but on Appeal the Supreme Court in Kernott -v- Jones has directed that they can .
Mr Kernott and Ms Jones had purchased a bungalow together 20 years earlier. They took out a joint mortgage and the Deeds confirmed that they owned the property jointly. 8 years later in 1993 the couple separated. Mr Kernott moving out, leaving Ms Jones in the property. She agreed that Mr Kernott could cash in their joint endowment policy to help him buy a new house. In 2006 Mr Kernott took steps to secure his half share in the bungalow which by then was worth nearly £250,000. Ms Jones felt that this was unfair when he had made no financial contribution towards the house for 13 years.
On the face of it this appeared to be a case where there should be an equal division. At the original Trial in the county court in April 2008 Ms Jones conceded that when the couple had separated, there was insufficient evidence to displace the legal presumption that their beneficial interests follow the legal title, so that as a consequence they were joint tenants in law and equity. She also accepted that she had no claim on the property bought by Mr Kernot. However, she argued that its purchase, along with other events since their separation, was evidence that their intentions with respect to the beneficial interests in the bungalow had changed. In these circumstances, based on previous decisions, equality would prevail (subject possibly to any equitable accounting in respect of the capital element of the mortgage payments made by Ms Jones in occupation after separation) unless the Court could impute an agreement to vary the terms based on principles of fairness. Adopting this approach, equality would not be a fair outcome for Ms Jones. At the original hearing the county court Judge said that the fairest outcome would give Ms Jones an ownership share of 90% and Mr Kernott a share of just 10% . This decision was upheld at the first Appeal but overturned in favour of Mr Kernott by the Court of Appeal, who found that despite the actions of the parties they could not impute any intention to vary the terms of the presumption of joint ownership, on the basis of fairness or for any other reason . The Supreme Court took the entirely different view and reinstated the original award to Ms Jones.
The circumstances in Kernott – v- Jones did not involve any express agreement to vary the terms of the Declaration of Trust but the actions of the parties lead the Supreme Court to conclude that they could impute intentions to the parties arising from their actions to achieve fairness. Principally, the important factors in this case were Mr Kernott leaving the property and subsequently cashing in an insurance policy, the proceeds of which he used to buy another home to live in and Ms Jones funding the mortgage payments and maintaining the property for 13 years after Mr Kernott had left .
There will be many cases in the future where the original joint purchase and equal shares will still hold firm because there has been no express variation or circumstances from which the Court can impute any intention to vary the terms. There will however be many other cases where the post separation circumstances raise questions as to whether the terms of the joint ownership are still fair and whether the circumstances overwhelmingly urge the Court to impute to the parties an intention to vary their original agreement.
A point raised at the Court of Appeal hearing suggested that this reasoning could lead to one decision being reached at the point of separation and different decisions at other later stages when circumstances and contributions will have inevitably changed.
A further matter for discussion for both the Court of Appeal and the Supreme Court was the distinction, if any, between the Court drawing an inference of the parties’ intentions and imputing an intention. The Court of Appeal felt there was a clear distinction; the Supreme Court felt that in practice such differences as there may be have little or no impact in reality.
Kernott and Jones is expected to lead to a huge degree of uncertainty in joint ownership situations. From now on, all the facts will need to be considered to determine whether the circumstances are such that a Court could impute an intention of the parties to change their shares to achieve fairness where there has been no express agreement between the parties to do so. Fairness will now prevail in cases where there is no agreement or a change in circumstances justifies a variation of an earlier agreement.
At a time when the government and the judiciary are encouraging the use of Mediation to avoid litigation one wonders whether this may lead to a government re-think on the long awaited cohabitation legislation, thought by many to be well overdue in England and Wales.
For further information about joint property ownership within non married relationships contact family solicitor Paul Jordan on 01271 372128 or email him at [email protected]