Beneficial Interest In a Property Explained
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If an unmarried couple lives in a jointly owned property, upon separation both parties will retain their individual rights that come with legal property ownership.
But if the property is owned entirely by one party, their former partner will generally not be entitled to any share of the equity in the property.
Nevertheless, there is a way for a non-owner to claim rights to the equity in a property that is owned by their former partner, even if they are unmarried.
This is known as establishing a beneficial interest in a property.
We will explore this important exception below.
What is a beneficial interest in a property?
Cohabiting couples that do not tie the knot have fewer legal rights upon separation than their married counterparts, including when it comes to property.
A beneficial interest in property provides a non-owner with rights to occupy the property and/or to receive a financial share of the equity.
For purposes of an unmarried couple who live together in a property solely owned by one party, a beneficial interest might be held by the non-owner if they can establish it.
This is, of course, assuming that the couple did not enter into a cohabitation agreement, whereby property rights upon separation were documented in a legal contract.
How can a beneficial interest be established?
There are three different ways in which a beneficial interest can to established.
1. Express declaration
A cohabiting couple might choose to establish a beneficial interest by making an express declaration that specifies their intentions to share the property.
This may take the form of a declaration of trust signed by both parties which set out any shares in the property.
2. Resulting trust
A resulting trust may be established where the non-owner made a financial contribution to the purchase of the property.
For example, they might have contributed to the initial deposit or helped out their partner with a lump sum payment which enabled them to purchase the property.
3. Constructive trust
It may be possible to establish a constructive trust where there has been some kind of implication or “common intention” that the property would be shared.
This could be due to regular help with mortgage payments by the non-owner, or any substantial expenses related to the property, such as major renovations.
In order to establish a constructive trust, the courts will generally expect certain facts to be present, including:
- A common intention that the non-owner would gain a beneficial interest in the property
- Evidence of express discussions which gave rise to the common intention
- The non-owner should have acted to their detriment by relying on this common intention of a beneficial interest
It should be noted that the principles applicable to a constructive trust are the same for both unmarried and married couples.
However, a married couple generally will not need to rely on establishing constructive trust.
How do you prove a beneficial interest in a property?
Obtaining sufficient proof of beneficial interest in a property is crucial to successfully establish a claim.
The easiest way to establish beneficial interest is by creating a declaration of trust. This proves that there was an express intention to share the property.
Retaining evidence of any financial payments will be useful in terms of proving a resulting trust.
Ideally, there will be some written evidence that explains the reason for the transfer of funds, eg to enable the payment of a deposit on the property etc.
Proving a constructive trust can be more tricky. Once again, written evidence is extremely important. However, it may be necessary to apply to the court for a decision.
What are the different types of legal ownership of property?
Sole ownership – this is where the property is owned just by one person. Unmarried cohabitees who live in a property owned by just one party may want to establish a beneficial interest to protect the rights of the non-owner.
Joint tenancy – this is where a property is owned in equal shares. If an unmarried couple has a joint tenancy, they will not normally need to seek to establish a beneficial interest.
Tenancy in common – tenants in common can own different shares of a property. Unlike a joint tenancy, a property owned by tenants in common does not automatically pass to the survivor if one party dies.
Do I need a cohabitation agreement or a declaration of trust?
When the legal title to a property is held as “Tenancy in Common” then it is advised that a declaration of trust should be implemented.
However, it may be appropriate to execute a declaration of trust in addition to a cohabitation agreement depending on the intricacy of the arrangements between a cohabiting couple.
In simple terms, a declaration of trust will record the respective parties’ beneficial interests in a property.
Whereas a cohabitation agreement can include not just a declaration of trust, but also a more extensive range of declared intents if the relationship ends, including any of the following:
- How the mortgage and other household bills are to be settled
- If one co-owner wishes to sell the property, but the other does not
- An option for one party to buy out a co-owner share
- How and when the property might be sold
- Ownership of other joint and individual assets
- Financial support between cohabitees
- Living arrangements and financial provisions for children
A cohabitation agreement can therefore include a wider variety of matters than a declaration of trust, including a specific declaration of trust setting out beneficial interests in the property.
Our Cohabitation Agreement Solicitors can help answer any of your questions regarding cohabitation, as well as draft legal contracts that can stand up in court.