Wednesday, November 5th, 2008
“Where informal (or no) arrangements are made regarding property ownership or financing, disagreements are often the result,” says Marie Stock.
Recently, a dispute about ownership of a property arose between a brother and sister. The brother had lived with their mother until her death and at that point had succeeded to the secure tenancy of her council house. Using the ‘right to buy’ legislation, he applied to buy the house. To finance this, he obtained a mortgage and borrowed £5,000 from his sister on the basis that she would be entitled to the repayment of her loan and half the sales proceeds (net of her loan and the mortgage) if the property were sold. She was also paid 5 per cent interest on the loan – a rate below market rates at the time.
The two later fell out and the sister agreed that if her loan were repaid immediately, she would have no further claim regarding the property. This was done. Several years later, the property was sold for £385,000 and the sister claimed she was entitled to half of the net proceeds. Her argument was that the loan constituted a ‘detriment’ to her and there was therefore a ‘constructive trust’ in her favour.
The first question was whether she had suffered a detriment. The court was able to agree that the advancing of a loan on beneficial terms was sufficient to constitute a detriment. Furthermore, under the original agreement, the sister had no control over when her loan was to be repaid. Her argument that the original agreement created a constructive trust in her favour was therefore accepted. That the detriment was not substantial was not in point.
However, the court ruled that her express agreement regarding the repayment of the loan meant that her claim to have an interest in the property was extinguished.
“The main lesson to be learned from this case,” says Marie Stock, “is that doing things on a casual basis is fraught with danger. Had the appropriate documentation been executed at the time of the transactions, there would have been nothing to argue about. If you are entering into an agreement with regard to an asset as valuable as property, it makes sense to get this properly documented at the time it is made.”
Contact Marie Stock now for more advice.
© Copyright 2008 Burt Brill and Cardens Solicitors