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Co-ownership agreements

A comforting decision for the poor draftsman

Legal rules will not be used to frustrate the intentions of people who buy a property together. As long as they record what those intentions are, the courts will do their utmost to see those intentions are fulfilled, even if their document is unhappily drafted, writes Mark Warwick, barrister at Selborne Chambers www.selbornechambers.co.uk.

Introduction

In these uncertain times, if the funds are available, there is much to be said for parties investing in bricks and mortar. Where two or more persons purchase property in their joint names there are cogent reasons why they should set out in writing their intentions regarding their interests in that property. A recent appellate decision, Chopra v Bindra [2009] EWCA Civ.203 shows, that if parties do execute a document recording their intentions, then the courts will strive to give effect to this document, even if the language deployed appears to contravene some settled rule of property law. This article discusses the importance of parties recording their intentions in a trust deed and then the approach that the courts will adopt to the construction of such a deed, if it is poorly drafted.

The importance of parties recording their agreement as to their interests in jointly owned property in documentary form is best understood by considering the position if they do not do so. At present the state of the law, where there is no trust deed regarding jointly owned property, is uncertain. In Stack v Dowden [2007] UKHL 17 the House of Lords was concerned with an unmarried couple who bought a house in their joint names and there was no trust deed. The majority (Lord Neuberger dissenting) stated that a conveyance into joint names indicated both a legal and a beneficial joint tenancy, unless and until the contrary was proved. However despite this ruling, the House of Lords nonetheless decided that the beneficial interests of the two legal owners were unequal. The weight of evidence needed to displace the presumption of joint beneficial tenants is therefore presently a matter of debate.

Lord Neuberger, having dissented in Stack, then sat in the Court of Appeal and delivered the lead judgment in Laskar v Laskar [2008] EWCA Civ 347 In his judgment he distinguished Stack, on the basis that the house in that case had been purchased primarily as a home. He said that a different approach was justified where a property was purchased primarily for investment.

The implications of and friction between Stack and Laskar remain to be worked through in further cases. Inevitably this will be at the cost of individual litigants. In contrast to the lengthy and costly litigation that can arise if there is no trust deed, if the parties do execute a trust deed that is clear then the court will give effect to it. Baroness Hale said just this at paragraph 49 in Stack. Moreover the Court of Appeal has repeatedly urged parties to record their intentions regarding property in writing. Ward LJ said so in strong terms at the end of his judgment in Carlton v Goodman [2002] EWCA Civ 545.

The problem

What happens if there is a trust deed, but it is poorly drafted? How will the Court approach the construction of such a deed? This was the very question that was considered by Etherton J (now Etherton LJ) at first instance in Chopra v Bindra, and was further considered on appeal in that case. In the Chopra case a brother (Akash) and his sister (Angela) purchased a house in 1988 in their joint names. Akash contributed about £72,000 to the purchase price and Angela only £2,000. The balance was raised on mortgage. By clause 1 of the trust deed, executed on the day of purchase, brother and sister created a tenancy in common. The deed then continued as follows:-
    "2. Akash shall be entitled to £72,169 of the said net proceeds of sale and Angela shall be entitled to £2,108 of the net proceeds of sale.

    3. Out of the remaining balance of the net proceeds of sale Akash shall be entitled to 75% and Angela shall be entitled to the remaining 25%.

    4. Upon the death before sale of either Akash or Angela the trustee shall hold the property upon trust for the survivor of Akash or Angela who shall thereupon be entitled to the whole proceeds of sale absolutely".
It is the settled rule of trust law that once absolute property rights are vested in a party, any attempt to divest that party of his or her right is repugnant, and therefore void. (See In re Dugdale, Dugdale v Dugdale (1888) 38 Ch. D. 176). Thus if clauses 2 and 3 gave Akash an absolute right to the return of his £72,000 plus 75% of the balance of the net proceeds then clause 4 was void. Clauses 2 and 3 appeared to do just this. However if the court decided that this was the proper construction of the deed then clause 4 became void. This would seem to be contrary to the sibling’s wishes and also bad news for Angela, who survived her brother and claimed the whole house, in preference to Akash’s widow and sole beneficiary.

Dealing with the problem

In approaching the construction of the trust deed the court noted the following principles for interpreting written documents:
  • A document must be construed as a whole and effect must, as far as possible, be given to every word and every clause;
  • One takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective.
Giving effect to the above principles, Etherton J., and the Court of Appeal, decided that clauses 2 and 3 only gave Akash and Angela life interests, and that if one of them died before the house was sold then the other obtained all of the net proceeds.

Conclusion

Thus, despite the poor drafting, the Courts were able to use established principles of interpretation in order to give a meaning to all parts of the parties’ document. Of course it would have avoided lengthy litigation if the trust deed had been clear. However, at least, the presence of the document removed some issues from consideration, such as the parties’ contribution to the purchase price. Without any document the scope for dispute between joint owners can be even greater, as Stack and Laskar illustrate.

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