Constructive Trust - How to prove an implied or express agreement
- A constructive trust arises when someone financially or physically contributes towards the property.
- A trust can arise whether or not someone is an owner of the property or not.
- Payments towards the mortgage repayments, deposit, renovations, or upkeep could give someone a beneficial interest, which means the property is held on trust under a constructive trust.
- The claimant must prove their contributions toward the property to the Courts.
A constructive trust can be established in court when the Claimant contributes towards the Defendant's property (either physically or financially) to their own detriment. Both Person A and Person B intend for this contribution to entitle Person A to a share of the property, also known as a 'beneficial interest' or 'equitable interest'. This type of trust may be called a 'common intention constructive trust'.
A constructive trust may also arise when the Defendant holds funds they know have been paid to them by mistake or holds an asset they have obtained through fraud. This article focuses on common intention trusts.
The main issue which arises from a common intention constructive trust is that it can be hard to prove a mutual understanding between individuals when nothing was formally put in writing. When Person A needs to claim their share of Person B's property, it is usually after a falling out, in which case Person B may change their mind and decide they don't want to give Person A their rightful share.
This type of claim often leads to a lengthy legal battle and usually occurs between cohabiting partners, where one party owns the legal title and the other party has paid towards mortgage repayments and/or renovations.
In this example, if the relationship falls apart, Person A may want to claim a share of the property through constructive trust; Person B may claim the contributions were similar to rent in exchange for living in the property. This couple faces a legal battle regarding whether and how to split the beneficial interest in the property.
What is the difference between a constructive Trust and a Resulting Trust?
A resulting trust arises when a property is transferred to someone, but it is presumed that they are not the intended beneficial owner.
For example, two people contribute to a property purchase, but only one is registered as the legal proprietor. Under a resulting trust, the other party is assumed to be a beneficial owner according to their contribution to the purchase.
A constructive trust differs because the payments or contributions toward the property are made after the purchase date with the intention for the parties to own the property jointly.
What does it mean to hold something on constructive trust?
A constructive trust imposes equitable obligations on the legal owner of the property (Defendant). This means they hold it (or shares of it) for the benefit of another party (Claimant), typically to fulfil the presumed intentions of the parties involved.
If you hold something on constructive trust, you must look after it for the other party; they are entitled to their share of any income you receive on the property and their share of the sale proceeds when you sell it.
Once the court declares a constructive trust, establishing the Claimant's beneficial shares, they could move to force a sale to get their shares out of the property; unless the legal owner can afford to buy out the Claimant's interest.
How do you prove a Constructive Trust?
There are two ways to identify if a court may imply that you have a common intention of constructive trust over property or land, and these are:
- 1
Express Agreement
is an explicit verbal or written contract where both parties agree to expressed terms; or - 2
Implied Agreement
is a legally binding contract established through implied common intention and conduct.
The challenge is that proving either an Express or an Implied Agreement is very difficult unless you recorded the agreement in writing, even then, a DIY agreement which has not been executed as a Deed.
The best advice is to set out in writing your intentions for the beneficial ownership of a property, especially if you are not a legal owner, and preferably before the property is bought.
If it is your agreed understanding that by paying money towards mortgage repayments and household bills, you are building up a beneficial share of the equity in the property, then draft a legal agreement confirming this.
We draft deeds of trust to set out the intentions between joint beneficial owners, and this can include a confirmation of how your beneficial interest is calculated based on the payments you make towards the property. For more information please email help@samconveyancing.co.uk or call 0333 344 3234 (local call charges apply).
What property payments could give rise to an implied agreement?
- Mortgage repayments - through an implied agreement.
- Extensive improvements to the property - paid works or the use of the party's time/resource (to their detriment) - through an express agreement.
- Substantial financial contributions towards household bills/expenses - through an express agreement.
How to prove a constructive trust by express agreement
An express agreement can be verbal or in writing, and it evidences the parties' intentions to share the beneficial interest in a property.
- Verbal Agreement - the challenge with verbal agreements is proving the conversation took place on a specific date and time. A witness statement setting out what was discussed between the parties does support a claim.
- Written Agreement - this is much preferred, although often not obtained before making payments towards the property.
Along with either of the above, you'll need to prove that you acted in detriment to yourself based on the express agreement i.e. you caused yourself a loss on the understanding you were gaining a beneficial interest in property.
How do you prove a detriment for a constructive trust claim?
A detriment must be more than de minimis, and any associated cost cannot be caused by your everyday activity. The 'detriment' is that if the contributing party had not considered their contributions to be reflected in an interest in the property, they could have saved the funds towards a property or investment of their own, instead. This means that the contributions were to their own detriment, as they have nothing to show for them if not a beneficial interest in the property.
- Mortgage repayments - provide copies of bank statements showing the money being paid to the mortgage lender.
- Extensive improvements to the property - paid works or the use of the party's time/resource (to their detriment) - provide copies of bank statements showing the money being paid to the builders along with copies of invoices. For your own time, evidence that you have been put at a detriment by completing the work (that you would reasonably have expected to have been remunerated for the work if you had not assumed a beneficial interest).
- Substantial financial contributions towards household bills/expenses - provide copies of bank statements showing the money being paid towards the household bills and copies of invoices.
To create a constructive trust, the payment made towards the property must be substantial and evidenced.
What is an Implied Agreement through conduct and detriment?
An implied agreement can be inferred from the intention and conduct of the joint owners that they intended for payments made toward the property to result in sharing the beneficial interest in the property. This differs from an Express Agreement, where there is some form of written or spoken agreement.
This means that, regardless of whether the parties agreed or said anything at the time, the implied intentions of the parties will be considered to confirm if a trust has arisen through their conduct. This could include direct contributions towards the purchase price of the property (could also be a resulting trust) or mortgage repayments - although there are some cases where contributions towards other property-related costs could be taken into account.
Example of an implied agreement
Jane and John are unmarried. Jane has a part-time job and can only afford to pay £100 into the joint account from where the mortgage repayments are made. There is no Express Agreement between the parties confirming the intentions for the £100. After 10 years, Jane breaks up with John and wants to claim a beneficial interest in the property through a constructive interest.
Although Jane made no direct contribution towards the purchase price of the property, it could be implied that because she made contributions to a joint account that was used to pay the mortgage repayments, there was an implied agreement between Jane and John to share the payments towards the mortgage repayments and for Jane to share a beneficial interest in the property. Jane would need legal support to support this claim.
Are you investing in a property with someone else?
If you are investing in a property with another owner, clarify your intentions from the start instead of relying on proving a constructive trust. A deed of trust outlines your intentions in legally binding terms to protect your investment of money or time from conflicts later on.
Arrange a free consultation with one of our experienced conveyancing executives if you are:
- Severing joint tenancy to register as tenants in common, or vice versa.
- Buying with your unmarried partner, to protect your shares in case the relationship breaks down.
- Married or civil partners, let a property, and one of you is in a lower tax bracket.
- Buying with friends or family, so you can protect shares based on the initial and ongoing contributions from each party.
- Going to invest significant money in unequal shares, into improvements or renovations on the property.
- Buying a property with a mortgage, where one or more of the borrowers will not be a legal proprietor.
- Unable to buy the other owner out and want to surrender your share.
What is an example of a constructive trust case?
Constructive trusts are granted by court order when it would be 'unconscionable' (unfair and unreasonable) to deny the claimant's beneficial interest. For example, the homeowner holds funds they know the claimant paid to them by mistake.
If you wish to examine important relevant case law, please look at these cases:
Lloyds Bank v Rosset [1991] AC 107
In this case, the work carried out on Mr Rosset's property by Mrs Rosset was not deemed significant enough to merit a constructive trust. The appeal held that it had been a common intention that she would share in the property, and she had done acts to her detriment.
However, the House of Lords decided that because there had never been any express agreement that she would have a share nor any contributions to the purchase price, Mrs Rosset could establish no right in the home. The case was subjected to heavy criticism for failing to recognise that work might generate an equitable interest in a family home.
Stack v Dowden [2007] 2 AC 432
In this case, the high court declared that an unmarried couple, Mr Stack and Ms Dowden, owned their property in equal shares. 65% of the purchase price had been provided by Ms Dowden (from the sale of their previous home, in her sole name, and from her investments), and 35% by Mr Stack (who had lived in and made numerous improvements to the previous home over 10 years).
The court of appeal overturned the high court and awarded the shares at 65% and 35% based on their initial contributions to the purchase price. Lord Hope said "... indirect contributions, such as making improvements which added significant value to the property, or a complete pooling of resources in both time and money so that it did not matter who paid for what during their relationship, ought to be taken into account as well as financial contributions made directly towards the purchase of the property." and Baroness Hale said "There cannot be many unmarried couples who have lived together for as long as this, who have had four children together, and whose affairs have been kept as rigidly separate as this couple's affairs were kept. This is all strongly indicative that they did not intend their shares, even in the property which was put into both their names, to be equal."
Jones v Kernott [2011]
In this case, the court ruled a 90:10 split in favour of the main child-caring partner, who contributed 80% of the equity to the home in which she lived with their two children. The non-resident partner had not contributed toward bills or child maintenance for a considerable time.
The extension, mostly carried out by the non-resident partner, did not amount to greater interest and the split reflected their actual contributions to the home; because of a) the inference of common intention, and b) the court had the discretion to acknowledge constructive trust in such a manner because it was fair.
See also:
- Eves v. Eves [1975] 1 W.L.R. 1338
- Grant v. Edwards [1986] Ch. 638
- Midland Bank v Cooke [1995] Fam Law 675
- Curran v Collins [2015] EWCA Civ 404
- Le Foe v Le Foe [2001] 2 FLR 970
- Gissing v Gissing [1971] AC 886
- Abbot v Abbot [2007] UKPC 53
- Geary v Rankine [2012] EWCA Civ 555
- Ullah v Ullah [2013] EWHC 2296
- Ali [2012] EWHC 2302
- Graham-York v York [2015] EWCA Civ 72
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
