REFORM OF THE LAW ON COHABITATION Marriage... but not as we know it. REVIEW OF THE CURRENT LAW ON COHABITATION

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1 1 REFORM OF THE LAW ON COHABITATION Marriage... but not as we know it. REVIEW OF THE CURRENT LAW ON COHABITATION 1. The Current Law on Cohabitation and Separation Unlike on divorce or dissolution of a civil partnership where cohabitants separate the courts have few discretionary powers to adjust the parties finances in accordance with concepts such as needs and/or any principle of fairness between the parties. The focus is on determining who owns what as a strict matter of property law. 2. Regulation by Cohabitants Themselves The law as it stands provides the following remedies to cohabitants who choose and are aware of the proper mechanisms for self-regulation: 2.1. Completed inter vivos gifts. A completed outright gift is valid under standard principles as the title will have passed. However a promise to make a gift is unenforceable unless it is made by deed (Ayerst v Jenkins (1873) LR 16 Eq 275) Cohabitation Contracts. Contracts which regulate the parties financial situation will be binding upon the parties (subject to the usual contract law principles) provided that they are executed in a deed or otherwise supported by lawful consideration (Hart J in Sutton v Mishcon de Reya and Gawor & Co [2003] EWHC 3166 (Ch), [2004] 1 FLR 837 at [ 22]). The future is likely to see the emergence of standard terms for cohabitation contracts. On an extra jurisdictional point, overseas registered partnership regimes (such as the French PACS or Dutch registered partnerships) will be recognised here where they are between same-sex couples as civil partnerships under the CPA 2004 ss , Schedule 20. The approach to opposite-sex couples is not clear; arguably such

2 2 relationships should be regarded by the Courts in England in the same way as a cohabitation contract Express Trusts. Cohabitants, as with any other individuals, may confer beneficial interests in property on each other by way of express trusts. However, in certain cases the requisite formalities will have to be completed before such a trust will be binding: Real property. The transfer of a legal estate in land must be in writing (s.53(1)(b) of the Law of Property Act 1925 (LPA 1925)). Further, where the title is held by more than one party and/or where the parties purchase the property jointly a declaration of trust ought be executed on prescribed forms (FR1 and TR1) which specifically require the parties to state whether they are joint tenants or tenants in common (and if so in what shares). (s.44(1) Land Registration Act 2002 and r 95(2)(a) of the Land Registration Rules 2003). Personal property. A mere oral declaration will suffice; with the consequence that uncertainty is common especially where it is alleged that the declaration was made at the start of a relationship. An express declaration of trust will generally be conclusive as to beneficial ownership unless varied by subsequent agreement or effected by proprietary estoppel. This position has remained unchanged by Stack v Dowden [2007] UKHL 17 see [49]. Given the tick box on TR1 (which creates an express trust if ticked) the battle ground will increasing be over going behind an express trust. This can be achieved under the following broad headings: (a) actions by third parties (such as a party s parents); (b) proprietary estoppel; (c) fraud/ undue influence; (d) mistake (rectification) and (e) unjust enrichment. 3. Regulation by the Doctrine of Implied Trusts Compliance with the formalities in the LPA 1925 s.53(1)(b) and (c) are a precondition of the creation of a valid express trust in land. The doctrine of implied trusts operates in equity to qualify or modify these rules of formality. The category of implied trusts refers

3 3 to both resulting and constructive trusts (although the modern judicial tendency is to blur the distinction). In the context of family property, and the family home in particular, significant practical differences flow, from the conceptual distinction; or at least flowed pre- Stack v Dowden (which arguably put resulting trust analysis to one side) Resulting Trusts. Resulting Trusts are concerned with the destination of the equitable interest in property where there has been some dealing with the property but where the parties have not made their intentions clear as to where the beneficial ownership lies. There are conventionally two types of resulting trust: Presumed Resulting Trust is said to arise where A voluntarily conveys to transfer the legal title to B. The factual inference which operates is that A did not intend B to benefit since equity presumes a bargain rather than a gift. This presumption can be rebutted by direct evidence that A did indeed intend B to take beneficially or by the competing presumptions of advancement (e.g. transfers from parent to child or husband to wife) Automatic Resulting Trust is said to arise where there has been an express declaration of trust and a failure to allocate the beneficial interest in the property. Here the beneficial interest results back to the original owner (or it is treated as never having left them). Both forms of resulting trust operate on the presumption that the provider of the property did not intend to benefit the recipient Constructive Trusts. Constructive Trusts are concerned with the destination of equitable interests where it would be inequitable to depart from the parties common intention as to the allocation of the beneficial interest. To establish a constructive trust the Claiming party must show that: (a) There was a common intention between the parties (express or implied) to hold the beneficial interest in the property jointly;

4 4 (b) They acted to their detriment and/or otherwise materially changed their circumstances in reliance upon that common intention. Traditionally (pre- Stack v Dowden), the hurdle for common intention and detrimental reliance was high (and still is where there is not joint ownership), and thus difficult for those in informal cohabitation relationships to prove. Again, pre- Stack v Dowden, common intention was either express (something agreed between the parties) or inferred (by reliance on conduct) (Lloyds Bank Plc v Rosset [1991] 1 AC 107) but it was not imputed by the parties relationship. As to quantification of a party s interest, although indirect contributions are insufficient to establish detriment, once the relevant intention and detrimental reliance is established, the Court was not confined to examining the parties financial contributions in assessing the quantum of the parties share, and can consider the parties contributions more widely including indirect and domestic contributions. (Midland Bank Plc v Cooke [1995] 4 All ER 562; Hurst v Supperstone [2005] EWHC 1309 (Ch), [2005] 1 FCR 352.) 4. Tenancy in Common and Joint Tenancy. These concepts merit brief consideration in the context of proprietary trusts. In a joint tenancy the individuals have an undivided share in the whole; upon sale or severance the proceeds are divided pro rata between the number of tenants. In a tenancy in common each tenant holds a specified share in the property, any payment out would be made in accordance with those shares. Since 1926 the legal title to property can only be held as joint tenants; the equitable title can however be held either jointly or in common. 5. The Doctrine of Implied Trusts pre Stack v Dowden [2007] UKHL 17 Before Stack v Dowden [2007] UKHL 17 the basic legal framework for cohabitees was provided by a trilogy of leading cases (Pettit v Pettit [1970] AC 777, Gissing v Gissing [1971] AC 886 and Lloyds Bank v Rosset [1991] 1 AC 107). In Pettit and Gissing the House of Lords rejected the doctrine of family assets (where beneficial interest is determined on the basis of a prima facie inference of equal shares in a property from the mere fact that a couple purchased a home jointly) on the basis that equity infers a bargain.

5 5 The dictum on common intention (in constructive trust cases) illustrated a clear rejection of inferred objective intent in favour of subject analysis of the parties conduct with significant weight being attached to direct financial contributions. In Pettit and Gissing it was held that indirect contributions towards the purchase of a property did not give rise to a beneficial interest absent agreement between the parties. Rosset went further and held that, in terms of conduct from which one might infer a shared common intention, it was doubtful that anything less than a direct financial contribution would suffice to create a beneficial interest under a constructive trust. By the time Chadwick LJ considered the law in Oxley v Hiscock [2005] Fam 211 he stated that: It must now be accepted that the answer is that each is entitled to that share which the court considers fair having regard to the whole course of dealing between them in relation to the property. The effect of this approach of fairness lead to results which in practical terms were similar to those which one might have reached by a resulting trust analysis because it principally required consideration of what each party had contributed to the property in question. Therefore, since 1926 when the legal title could not be held in strict accordance with shares, equity did not follow the law; and equity would only follow the law in the last resort when there were no circumstances which indicated a contrary intention. 6. The Doctrine of Implied Trusts post Stack v Dowden [2007] UKHL The New Presumption In Stack v Dowden [2007] UKHL 17 Baroness Hale (expressing the majority opinion) found that it was possible to impute, in absence of any express declaration of beneficial interest, a shared common intention that the parties intended that their beneficial interest should reflect the legal title (i.e. a joint tenancy in equity with no distinct shares until an act of severance). The basic starting point therefore is that where there is sole legal ownership there is sole beneficial ownership, and where there is joint legal ownership there is joint beneficial ownership with the presumption of identical shares. The presumption of

6 6 equal shares is subject to a rider added by Lady Hale at [58] of her judgement that this applies at least in the domestic consumer context which may develop in subsequent case law into arguments that the Courts should revert to their old approach where the asset is not the parties dwelling home and/or where the parties are not in a couple relationship The New Burden Lady Hale emphasised that the burden is on the person seeking to show that the parties intended their beneficial interests to be different than their legal interests. Where the property, tenancy or query other asset is held in joint names the onus to rebut the presumption is heavier than in cases where the asset is held in the sole name of one party. Lord Walker referred, in the joint names context, to [14] " a considerable burden" and Lady Hale stated at [69]: At the end of the day cases in which the joint legal owners are to be taken to have intended that their beneficial interests should be different from their legal interests will be very unusual." 6.3. New Principles? The presumption in Stack v Dowden arguably reintroduced the notion of family assets ; at [69] Lady Hale stated: When a couple are joint owners of the home and jointly liable for the mortgage, the inferences to be drawn from who pays for what may be very different from the inferences to be drawn when only one is the owner of the home. The arithmetical calculation of how much was paid by each is also likely to be less important. It will be easier to draw the inference that they intended that each should contribute as much to the household as they reasonably could and that they would share the eventual benefit or burden equally. Alternatively, if not family assets at least an endorsement of the presumption of advancement between unmarried couples (Hale LJ at [59]). It also arguably reintroduced the notion of imputed intention which was strongly rejected in Gissing v Gissing.

7 Rebutting the Presumption The presumption does not however mean that it will be impossible for joint owners to show that the parties true intention was to hold other than as beneficial joint owners. At [60] Lady Hale set out the method by which one displaces the presumption, namely that the Court should conduct [a] search to ascertain the parties shared intentions, actual inferred or imputed, with respect to the property in light of their whole course of conduct in relation to it. She went on at [69] to observe that "each case will turn on its own facts and that factors other than financial considerations may be relevant to divining the parties' true intentions. At [69] and [70] Lady Hale listed a number of factors which might be relevant in each case. These can broadly be divided into 3 categories: (a) those prior to the transfer (any advice or discussions at the time of the transfer, the reasons why the house was acquired in joint names and why (if it be the case) the survivor was authorised to give a receipt for capital moneys); (b) the nature of the parties relationship (including the purpose for which the home was acquired and whether they had children); and (c) the nature of the family/couple s finances (how the purchase was financed both initially and subsequently, whether finances were separated and how ongoing expenses were discharged). This approach is different from the resulting trust principles; although, it may be possible to achieve the same result (as in Stack v Dowden). Assistance for parties seeking to rebut the presumption can also be taken from the dissenting judgment of Lord Nueburger. He effectively asserts that Lady Hale s presumption is based on 3 assumptions which in many cases can be shown to be false, namely: (1) that the decision not to execute a declaration of trust was a deliberate decision by the parties (whereas in many cases the absence of a declaration is due to the conveyancing); (2) equity did in fact follow the law in this field (arguably this is a significant departure from equitable principles in which equity presumed against a gift); and (3) that the parties understood that

8 8 equity followed the law (which in practice is contrary to most individual s notions that you get what you put in ) Survivorship One area where application of the judgment was not so clear and which will undoubtedly be visited by the Courts in the future is in respect of the effect of the presumption on survivorship. The right of survivorship is a fundamental feature of a beneficial joint tenancy. On the face of the judgement Stack v Dowden is authority for the principle that a joint legal tenancy infers a joint beneficial tenancy. However, Lady Hale stated at [57] that: "the parties may not intend survivorship even if they do intend that their shares shall be equal. In many commercial contexts, and no doubt some domestic ones, it will be highly unlikely that the parties intend survivorship with its tontine "winner takes all" effect." At least in light of the above comment it is arguable that the right of survivorship can be separated from the intention to create a joint beneficial interest, creating a tenancy in common in equal shares as opposed to a joint beneficial tenancy. 7. Application of the Trusts of Land and Appointment of Trustees Act Where both parties have a beneficial interest in respect of the same dwelling home (whether because of joint legal interest or because as a result of an established joint beneficial interest where the title is held in the name of one party only, either party may apply under Trusts of Land and Appointment of Trustees Act 1996 ( TOLATA ) for an order in respect of occupation and/or sale of the dwelling home. A prospective Applicant ought consider when making an application for occupation that the Court will usually also apply equitable accounting principles to compensate for any loss and/or interference with the non-occupying party s property right: the most common form being an order for the payment of occupation rent (or the other party s share of the mortgage) where one party remains in occupation to the exclusion of the other. However, Stack v Dowden the Lords held that were the property was still the family home it was wrong to place the entire financial burden of the breakdown upon the individual who

9 9 remained in the property by levying an occupation rent equivalent to the cost of alternative accommodation (also see Murphy v Gooch [2007] EWCA Civ 603). TOLATA does not empower the Court to adjust the parties beneficial shares in the property. Thus eventually the proceeds of sale will be split according to the parties beneficial entitlements. 8. Doctrine of Proprietary Estoppel. The relationship between proprietary estoppel and constructive trusts was considered by Lord Walker at [37] in Stack v Dowden [2007]. He doubted whether the principles of proprietary estoppel completely overlapped with the law relating to constructive trusts. There appears to be a growing recognition that it is desirable to keep the two concepts separate. In constructive trusts he held that the Court is identifying the true beneficial owners and the size of their interests, whereas under estoppel it is satisfying the equity in the claimant's favour by the minimum award necessary to do justice. To establish Proprietary Estoppel the Claiming party must show that: (a) The other party made a representation that they have or will come to have an interest in the property; and (b) They acted to their detriment and/or otherwise materially changed their circumstances in reliance upon that representation; and (c) The other party s denial of that interest would now be unconscionable. (Willmott v Barber (1880) 15 Ch D 96 at 105.) In quantifying a share once the equity is established, a court will adopt a broad approach in deciding how to satisfy the equity. Such equitable entitlement is not absolute; it will vary accordingly to what is conscionable in all the circumstances. In some cases, this will mean giving effect to the applicant s expectation, in others commensuration for reliance losses are deemed to suffice. The House of Lords will shortly be revisiting issues of proprietary estoppel in Cobbe v Yeoman s Row Management Ltd(on appeal from [2006] EWCA Civ. 1139). 9. Unjust Enrichment

10 10 Lord Hope referred at [9] in Stack v Dowden to the principles of unjust enrichment, but this was not further elaborated on or explored in the judgement. However, in Ledger- Beadell v Peach [2007] Fam Law 595 the principles of restitution were applied by the Chancery Division to the assistance of the parent s of cohabitants; in that case somewhat extending application of the conventional category of constructive trusts to find that one cohabitant was entitled to more than 50% on the basis that she held part of the property on trust for her parents who contributed to the purchase price. 10. Other Statutory Remedies upon Separation of Cohabitees Cohabitees may also have remedies under Part IV of the Family Law Act 1996 and/or Schedule 1 to the Children Act 1989 (if the parties have children) Part IV Family Law Act Although Part IV orders are principally made in cases of domestic violence, there is no restriction to this effect and there is a narrow jurisdiction for a cohabitant to apply for an Occupation Order under Part IV of the Family Law Act 1996 (FLA 1996) in relation to a dwelling house in which cohabitants live, lived or intended to live together. However, Occupation Orders are considered draconian and a fundamental interference with property rights and thus without evidence of abuse that would render continued cohabitation potentially harmful, courts are reluctant to employ Part IV as a general remedy for separating cohabitants (see Chalmers v Johns [1999] 1 FLR 392) Schedule 1 of the Children Act 1989 (parties with children only) Schedule 1 enables the Court to make orders against a parent for capital lump sums, property transfers and settlements for the benefit of a child, regardless of the nature of the relationship between the parents, to meet the child s needs during its minority or until the completion of it s education. There is no requirement that applicant cohabitant has an interest in the property against which an order is sought, so long as they have primary care of a relevant child Schedule 1 will apply. However, because the orders are limited to meeting the child s needs during their minority, the courts are reluctant to order a transfer of capital where that capital will not be exhausted during minority; a transfer of a house outright is therefore extremely rare.

11 11 The factors to be considered in determining whether to make an order under Schedule 1 are very similar to those under the MCA 1973 s.25. Thus, where the parties have been cohabiting, the standard of living enjoyed by the family is a relevant consideration. Any provision under Schedule 1 of the Children Act 1989 (CA 1989) is supplementary and subject to the usual maintenance provisions under the Child Support Act 1991.