By Elizabeth Darlington

Transcription

1 PROFESSIONAL NEGLIGENCE AND PURCHASES OF PROPERTY IN JOINT NAMES By Elizabeth Darlington 1. The purpose of this article is to consider the increasingly common situation where purchasers buy property in their joint names, subject to an express declaration of trust, and where one party has contributed significantly more towards the purchase price (or may have provided all of the funds for the purchase). The same principles apply whether the purchase is by cohabitees, family members or friends. Background 2. For many years, the Court of Appeal 1 and others, including the Law Commission, 2 have sought to encourage the use of express declarations of trust when dealing with property. 3. This can take the form of a deed of trust. From 1 st April 1998 the Land Registry form TR1 has enabled purchasers of property to state whether they hold the property on trust for themselves as joint tenants, tenants in common in equal shares or tenants in common in such shares as might be specified. 4. Following Stack v. Dowden a new form JO was introduced by the Land Registry. This enables joint purchasers to set out how they own the Property. Five options are provided:- The Joint Owners declare that they are to hold the property on trust for themselves alone as joint tenants. The Joint Owners declare that they are to hold the property on trust for themselves alone as tenants in common in equal shares. 1 See, for example, Carlton v. Goodman [2002] EWCA para 44 per Ward LJ 2 The Law Commission Discussion Paper Sharing Homes (Law Comm No. 278) 1

2 The Joint Owners declare that they hold the property on trust for themselves alone as tenants in common in the following unequal shares:... The Joint Owners are to hold the property (complete):... Under the term of a written declaration of trust dated (complete)... the Joint Owners hold the property on trust as joint tenants for themselves alone do not hold the property on trust as joint tenants for themselves alone 5. Where the form TR1 or JO has been signed and executed this takes effect as a declaration of trust and is conclusive of the parties intentions unless it is capable of being varied by subsequent agreement or affected by proprietary estoppel 3 or set aside on the grounds of fraud or mistake 4, duress or undue influence or sham. 6. In Goodman v. Gallant 5, Slade L.J. stated: If... the relevant conveyance contains an express declaration of trust which comprehensively declares the beneficial interests in the property or its proceeds of sale, there is no room for the application of the doctrine of resulting implied or constructive trusts unless and until the conveyance is set aside or rectified; until that event the declaration contained in the document speaks for itself Goodman v. Gallant was recently approved in Pankhania v. Chandegra 7. This case concerned the purchase of a property in the names of the claimant and defendant as joint tenants to be held by them as tenants in common in equal shares. The transfer contained an express declaration of trust by the claimant and defendant to that effect. 3 Stack v. Dowden [2007] UKHL 17 para 12; see, for an example of subsequent agreement, Qayyum v. Hameed [2009] EWCA Civ Stack v. Dowden supra para 67 5 [1986] 1 F.L.R at [2013] 1 P.&C.R. 16, [2012] EWCA Civ

3 Lord Justice Patten held that, for whatever reason, the parties had executed an express declaration of trust over the property in favour of themselves as tenants in common in equal shares and had therefore set out their respective beneficial entitlement as part of the purchase itself. Such a declaration of trust is regarded as conclusive unless varied by subsequent agreement or affected by proprietary estoppel. A declaration of trust can be set aside for fraud, mistake or undue influence but they were not alleged in this case. The only potential ground for going behind the declaration of trust was that of sham. Patten LJ held that it must be shown that both the parties never intended to create a trust and that they did intend to give that false impression to third parties or to the court (Snook v. London and West Riding Investments Ltd [1967] 2 QB 786). On the facts of the case, however, this was held not to apply. 8. An express statement of the beneficial interest can always be altered by subsequent deed. 9. It is therefore very important to ensure that proper advice is given to clients purchasing property as to how the Property is to be held. Advising the client 10. Eg. Alex and Brian want to live together and decide to purchase a property for 500,000. Brian has worked in the City for years and has sufficient capital to fund the purchase. Alex, in contrast, has a modest income from his job as a freelance journalist. Alex is living in Yorkshire and Brian in London. They decide to purchase a property together in Yorkshire. The entirety of the purchase price is to be funded by Brian. Brian leaves Alex to deal with the solicitors. Sometimes they contact him directly but often will deal with Alex. They send a leaflet to Brian setting out the difference between purchasing as joint tenants or tenants in common but he cannot recall ever receiving it. They contact Alex who confirms to them that they wish to purchase the property as joint tenants. Brian signs the form JO to this effect, as does Alex. The property is purchased. Some decorative work is carried out to the property prior to them moving in. 3

4 Then, just before they move in, they have a massive fall out and decide they no longer want to move in together. Alex then indicates that he wishes to sever the joint tenancy and sell the property in order to realise his 50% beneficial interest. Brian comes to see you for advice. First of all, you consider whether there is any way around the declaration of trust in form JO, on the grounds of fraud, duress, mistake, sham or subsequent agreement but none of these seem to apply. You then consider whether there is a potential claim for professional negligence against the conveyancing solicitors. Duty of Care 11. The conveyancing solicitors owe a duty to Brian both in contract and in tort (Midland Bank v Hett Stubbs Kemp [1979] Ch 384). 12. In Midland Bank v. Hett Stubbs Kemp Oliver J analysed the contractual duties of the defendants as follows: The classical formulation of the claim in this sort of case as damages for negligence and breach of professional duty tends to be a mesmeric phrase. It concentrates attention on the implied obligation to devote to the client s business that reasonable care and skill to be expected from a normally competent and careful practitioner as if that obligation were not only a compendious, but also exhaustive, definition of all duties under the contract created by the retainer and its acceptance. But, of course, it is not. A contract gives rise to a complex of rights and duties of which the duty to exercise reasonable care and skill is but one Often conveyancing firms will send out a pro forma document similar to the one below:- Joint tenants Co-owners who are Joint Tenants have undivided shares in the property. This means that each co-owner is regarded as being jointly and equally entitled to 4

5 the whole of the property, irrespective of their contributions towards the purchase price or mortgage payments. Upon the death of a co-owner the property passes automatically to the remaining coowner. Tenants in Common Tenants in Common have separate shares in the property which would normally be specified either quite simply in the documents transferring the property to them, or at greater length in a formal Trust Deed. On the death of a co-owner, the share in the property of that co-owner will form part of the assets in his or her estate and will pass to that person or those persons entitled to it under the terms of the deceased co-onwer s will. Choosing whether to hold as Joint Tenants or Tenants in Common Holding as Joint Tenants has the advantage of being a very simply agreement. In circumstances where co-owners have contributed equally to the price and outgoings of the property and/or it is their priority that the survivor of them shall become the sole owner of the property, it will be most appropriate to hold as Joint Tenants. However, in circumstances where separate shares in the property require protection or where it is appropriate for others to benefit from the share of the co-owner in the property on his death a Tenants in Common is likely to be more appropriate. The need for a Will Where co-owners hold the property as Tenants in Common, it is very important that the co-owners have wills which specify what happens to their shares in the property upon death. Failure to set out in a will what happens to these shares can have unforeseen consequences. For example, while many people assume that a surviving spouse or co-habitee will inherit the other co-owner s share in the property, this is not necessarily the case and if that surviving co-owner requires the property to live in he or she could be left homeless. 14. In a straightforward property purchase, this would probably suffice. 5

6 15. However, in Oxley v. Hiscock 8 the Court of Appeal considered the steps to be taken when acting for co-habitees 9 : the solicitor should always enquire about the source of the funds for the purchase and the future liability for the repayment of the mortgage; if there is evidence that the purchase is actually a joint acquisition or that others may be acquiring rights under a potential constructive trust, the client(s) should be advised either to purchase the property as legal co-owners and/or to record their arrangement in a trust deed; when drafting the transfer and/or trust deed the solicitor should ascertain whether the equitable interest is to be held as joint tenants or tenants in common. 16. The Law Society Conveyancing Handbook 10 sets out the matters to be considered when acting for joint purchasers. 17. It states: When acting for joint purchasers, it is essential to clarify their intentions as to the method by which they are to hold the property. The solicitor should explain the different methods of co-ownership to the clients in language appropriate to their level of understanding and should advise as to the most suitable type of co-ownership to meet the particular situation. A separate trust deed should be completed to express the clients wishes. Also a note of the clients wishes should be made on the file so that appropriate steps may be taken to implement the clients instructions in the purchase deed [2004] EWCA Civ See also Jones v. Kernott [2011] UKSC th edition. 11 Para A

7 9.1.2 Instructions should be obtained from both (or all) copurchasers Where the intending co-purchasers are not married to each other nor in a civil partnership it may be necessary to advise each party independently about their rights in the property to be purchased. Solicitors should be alert to the possibility of a conflict of interests arising between the two clients in this situation. 18. Further, the Conveyancing Handbook provides: All joint purchasers whether they are spouses, civil partners or cohabitees may need to be advised independently about their respective rights in the property to be purchased. Solicitors should be alert to the possibility of a conflict of interests arising in this situation. 19. The conveyancing solicitor ought to therefore: a) Identify the source of the purchase monies; b) Clarify their intentions as to how they are to hold the property; c) Advise them as to whether to purchase as joint tenants or tenants in common and advise which in the solicitor s opinion is the most suitable; d) Consider the need to advise each party independently about their rights in the property to be purchased and be alert to the possibility of a conflict of interests arising, particularly where one party is contributing significantly more than the other. e) Ensure that a proper attendance note is made and ideally, confirm advice and instructions in writing. 7

8 20. The risks if such steps are not taken are potentially significant. Causation 21. In this type of case, however, a difficulty may arise in terms of causation. If Brian tells you that he would have signed the form JO even if he had been properly advised, then even if he does have a claim he is likely to recover nominal damages only 12. It is necessary for the claimant to prove that if proper advice had been given he would have acted differently. Measure of damages 22. If causation is established, ie. that Brian is able to satisfy the court that had he been properly advised, he would not have agreed to purchasing the Property as joint tenants in law and equity, the court may still find that he would have agreed to purchasing the property in joint names as tenants in common, but on the basis that Alex has a less than 50% interest. 23. The fundamental principle governing the measure of damages is that the claimant should be put in the position he would have been in if the conveyancing solicitor had discharged his duty. It is frequently necessary to speculate as to what would have happened if the solicitor had properly discharged his duty. ELIZABETH DARLINGTON November Sykes v. Midland Bank Executor Trustee Co Ltd [1971] 1 QB 113 8