Problems can be caused when informal arrangements are made by family members concerning the ownership or occupation of property. Comments are often made such as, 'No, we don't need a legal document drawing up - we're family'. Two recent cases highlight the personal and financial problems that can be caused when families disagree and how a formal legal document at the start can help prevent such problems arising or make them easier to resolve.
Sandhu v Sandhu 
This involved a dispute between a father and two sons. The house in question had been purchased in the sole name of one son with father contributing to the purchase price. Many years later father and the other son claimed that father had a beneficial interest in the property due to his contribution to the purchase price. This case was eventually taken to the Court of Appeal.
There was nothing in writing to show what the parties had intended when the property was purchased. In such a situation, following the decision in Jones v Kernott where it was determined that where there is no evidence as to what particular shares were intended, the court has to consider all the evidence concerning the dealings between the son and his father in relation to the property to arrive at a fair result. It was held that, on the facts, the father should have a 70% share in the property. The Court of Appeal found this figure 'eminently reasonable' and dismissed the appeal - but at what cost and emotional stress to the family involved? How much better it would have been if the family had instructed their solicitor to draw up a written agreement at the time the property was purchased setting out the terms of the father's financial interest in the property.
Zas Ventures Ltd v Forkner 
In this case the former family home, a small terraced property in East London, had been left in the late mother's will to her son and one of her two daughters. The son and daughter had left home some time before the death of their mother and had their own homes; the other daughter still lived in the family home. At a family meeting it was verbally agreed that the other daughter (the defendant in this case) should be allowed to live rent free in the property for "for as long as she wanted without paying any rent provided that she kept the property insured and in good repair and paid all the out-goings in connection with it such as Council Tax etc". Unfortunately there was no written agreement confirming this arrangement.
A number of years later, with the daughter still in occupation, the house was sold at a price that reflected her occupation rights. As there was no written agreement, the buyer insisted on the brother making a statutory declaration setting out what had been agreed, which included the above verbal statement made at the family meeting. Following the sale of the property it fell into serious disrepair due to the daughter failing to repair it. The new owner brought possession proceedings against her claiming that her right to occupy the property was conditional on her repairing it. The Court held that her occupation of the property was conditional - the use of the phrase 'provided that' in the brother's statutory declaration was indicative of this. As this was the only evidence of the precise terms of the agreement it was sufficient to enable to new owner to terminate the right to occupy and claim vacant possession of the property.
Once again if the family member had instructed their solicitor to draw up written agreement setting out the rights of the family members, considerable stress and costs may well have been avoided.
If you and your family or friends are considering contributing jointly to the purchase of a property then please speak to a solicitor who will be able to advise you on the drawing up of a Declaration of Trust. A Declaration of Trust is a legal document which can set out the terms of the purchase, the parties' financial contributions, the repairing obligations and the rights of occupation. Spending money on a written legal document can make things a lot clearer right from the start and may prevent problems and stress in the future.
Please contact the Hughes Paddison Property Team if you require assistance with the purchase of a property and/or drawing up of a Declaration of Trust.