Example of a resulting trust
Dave is the sole legal owner of a property he purchased in 1980 for £200,000. Dave's partner, Jane, invested £20,000 into the purchase price, Dave invested £20,000 and Dave got a mortgage for the remaining £160,000. In 1990 when Dave comes to sell the property, Dave and Jane aren't together but Jane is expecting to get paid money from the sale. During the whole period of time, Dave paid all of the mortgage repayments and Jane didn’t pay anything else towards the property.
Dave tells Jane that she is due nothing when he sells the property.
Conclusion: Dave is incorrect. As Dave and Jane didn't draft an agreement confirming the £20,000 paid by Jane was a gift or that it wasn't to be repaid to her, then there is an automatic presumption that the money paid by Jane was being held on Trust by Dave and was to be repaid to Jane in the future, thus giving rise to a resulting trust. Now Dave is selling, Jane will be due a share of the beneficial interest in the property. The resulting trust means Jane is due back her £20k and potentially a further share of the gain in the property. If Dave didn't accept this then Jane will need the help of a specialist trust solicitor to help enforce her legal right to the beneficial interest in the property.
Dave will also need to instruct a solicitor as he could argue that as he paid all of the mortgage repayments, that there is also a Constructive Trust which could affect the beneficial ownership split between Dave and Jane. Click here to read more about different types of Constructive Trusts.
Dave and Jane's disagreement on who owns the beneficial interest on the sale of the property could have been avoided if they both agreed at the outset what their intentions were within a legal agreement. At the end Dave thought the money was a gift, however without a gift letter he is unable to prove this.
How do you rebut the presumption of resulting trust?
A resulting trust is only presumed and as such can be rebutted in the event that evidence can be provided to prove that the intentions of the parties were to gift the money. Examples include:
- Evidence the money was a gift such as a gifted deposit letter
- Evidence the money was a loan such as a loan agreement or a promissory note
Once again, this evidence would normally be obtained by your solicitor during the purchase of the property when they complete their due diligence of source of funds and to satisfy their obligations towards your mortgage lender. If you are getting a mortgage and are receiving money from a third party, then your mortgage lender will require you to confirm if the money used to buy the property is a gift or a loan.
Why do mortgage lenders need to know if the money is a gift or a loan?
The simple answer is that mortgage lenders do not want to have any party to have a beneficial interest in the property that isn’t a party to the mortgage and as such bound by their mortgage terms.
This is why during your conveyance your solicitor will need evidence to prove whether the money you are receiving is:
- A gift which means the payer has no legal rights to get the money repaid. You should note that some mortgage lenders only allow gifts from parents. This means if your gift is from a friend or other family member you may need to find a mortgage lender that allows for this and does not treat the apparent gift as a loan.
- A loan with a loan agreement drafted. Once again you may struggle with this route as many mortgage lenders do not allow for a loan and those that do will normally require the loan to be registered as a second charge behind their own first charge (i.e. in the event of repossession, any proceeds from a subsequent sale will be firstly used to repay the lender).
Examples where the payment isn’t a resulting trust (but may be a constructive trust)
It is important to note Lord Reid’s statement in Pettitt v Pettitt "in the absence of evidence to the contrary effect, a contributor to the purchase price will acquire a beneficial interest in the property". It is for this reason the following are not viewed as resulting trusts, but may give rise to a constructive trust:
Contributions towards mortgage repayments
There is a distinction between contributions made to the repayment of a mortgage by way of an agreement from the date of the purchase (such as a deed of trust or similar written agreement) and subsequent payments towards the mortgage repayments. In the example where there is an agreement to share the repayment of the mortgage from the date of purchase, then a resulting trust does arise. In Cowcher v Cowcher, the Judge presumed in favour of a wife who made some of the mortgage repayments taken out in the sole name of her husband who held the legal title in his sole name. This was also shown in Tinsley v Milligan where the House of Lords held that a resulting trust arose where the parties agreed that the mortgage repayments would be made from a joint account containing the proceeds of both of the parties' joint business operation, even though the property and mortgage was just in the name of Tinsley.
Where there is no prior agreement as to the sharing of the mortgage repayments, a contribution towards mortgage repayments will not give rise to an interest by way of a resulting trust as it is not viewed as a contribution towards the purchase price. In Curly v Parkes, Mr Curly and Miss Parkes were living together and Miss Parkes purchased another property in her sole name using the money from her previous property and a mortgage. Mr Curly paid Miss Parkes £9,000 which was used towards mortgage instalments. Mr Curly claimed this contributed towards the purchase price and entitled him to a 8.5% share of the property. The Court of Appeal rejected this claim to a resulting trust in the property. However, even though the £9,000 was insufficient to gain a resulting trust in the property, it could be relevant for the purposes of a constructive trust by way of an implied intention by Mr Curley and Miss Parkes to share the ownership and commitments of the property together jointly.
Contributions towards household expenses
The paying of utilities or general household bills does not give rise to a resulting trust as seen in Burns v Burns. If, however the contribution towards the costs of the household are material enough, then it might give rise to a constructive trust.
Contributions towards costs of purchase
In Curly v Parkes the Court of Appeal held that the payment of conveyancing fees of the costs to purchase the property (removals, surveys, searches) gave rise to a resulting trust. These could however, if substantial enough, give rise to a constructive trust.
Do you need help?
Our solicitors handle trust law and providing competitive rates for:
- Draft an express deed of trust to set out the intentions of the parties involved in the property purchase
- Handle negotiations as to the beneficial ownership of property where intentions have not been clearly set out
If you do need any help then please call us on 0333 344 3234 (local call charges apply) or email help@samconveyancing.co.uk.