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Resulting Trust - Beneficial Owners of Property

07/03/2018

A resulting trust arises where the property ‘results’ back to the original settlor; in other words, the beneficial ownership in a property is reflected in how the property was originally purchased. In the case of Pettit c Pettit 1970 it shows the now well-known presumption of ownership that a person who contributed towards a share, or all, of the purchase price of a property would be entitled to the corresponding proportion of the beneficial interest in the property by way of an implied or resulting trust.

What is crucial to understand is that regardless of whether you wanted to buy the property in trust with someone else and share the beneficial ownership with them, by your actions of jointly funding the purchase of the property with someone else and without any other document confirming the contrary (like a gift letter or express deed of trust) you may well have purchased the property under a resulting trust.

This means that although you may be the sole legal owner of the property, the beneficial interest in the property (which includes any gains made when the property is sold) could be shared with the person who helped buy the property with you.

Jointly own or funding a property? Get a deed of trust

If you share owning a property, either as a legal owner or through jointly funding it, then it is important to set out your intentions right from the outset. As you'll find out further on, by not agreeing the principles at the outset, you are relying on a Resulting Trust or Constructive Trust to confirm your beneficial interest in a property. A deed of trust sets this out from the outset and saves on conflicting understandings at a later stage. Call 0207 112 5388 to speak to a deed of trust specialist.

What types of trust are there

The 3 types of trust that are used to define the beneficial ownership of property are:

Express Trust or a Bare Trust - where joint owners of property set out their intentions and the beneficial interest in the property at the outset (or by mutual agreement during their ownership). This type of trust can either be a declaration of trust or a deed of trust
Resulting Trust - where no Express or Bare Trust has been drafted and the contribution towards the original purchase price of the property is used to work out the beneficial share in the property. This is not applicable if you have set out your beneficial interest within an Express Trust.
Constructive Trust - relates to the consequence of the conduct of the party towards the property such as contributing towards mortgage repayments after purchase and renovation works that add value to the property. This is not applicable if you have set out your intentions within an Express Trust.

As you can see from the above, without setting out your intentions for the property in an Express Trust, your intentions may not follow your original plan - something that can cause a challenge if the relationship between you and a joint owner changes (such as a breakdown in a relationship).

How do you prove a resulting trust?

A resulting trust should be relatively straightforward to prove as someone can demonstrate paying money towards purchase price of the property (unlike a constructive trust which relies upon the conduct after the purchase of property).

To prove you have a resulting trust in property you’ll need to be able to demonstrate that you contributed towards the original purchase price of the property. Let’s look at what constitutes the purchase price of the property.

Money paid to a third party is presumed to be repayable (with few exceptions)

A key principle to understand if there is a resulting trust is that it is presumed, outside of certain relationships, that any money paid to a third party is never a gift and is always due to be paid back. This means if someone pays money to buy a property and receives no consideration in return then it is presumed that they have intended to retain an equitable interest in the property being purchased (ie they are going to get something back from the sale of the property in the future). The person buying the property will therefore hold the property on resulting trust for them.

In Dyer v Dyer the judge stated: “the trust of a legal estate...whether taken in the names of the purchasers and others jointly, or in the names of others without that of the purchaser; whether in one name or several; whether jointly or successive, results to the man (person) who advances the purchase money”

There are exclusions (subject to circumstances) to a presumption of resulting trust where it is presumed the money paid is a gift instead which include:

Father giving money to their child (not any other relative such as a grandparents, uncle, auntie or siblings)
A person acting 'in loco parentis' (from the latin 'in the place of a parent') giving money to a child (this could, for example, be a foster parent or official carer giving money to a child)
Husband giving money to his wife

This means that in all of the following cases there is no presumption that the money paid is a gift and that it is presumed the money paid is to be repaid and the property held on resulting trust for them:

Mother giving money to their child
Grandparents, uncles, aunties or siblings giving money
Wife giving money to her husband
Co-habiting couples or mistresses giving money to their partners
Friend giving money to their friend

In all cases your solicitor should confirm with you if any money from a third party being used towards the purchase price is a gift or a loan during the conveyancing; to satisfy both their obligations towards you and the mortgage lender.

Do you need help?

We cover more on Resulting Trusts below, however, our solicitors handle trust law and provide competitive fixed fee quotes 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.

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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.