Welcome to the second of our RED Alerts of 2023.
Also featuring in this month's update:
Hudson v Hathway [2022] EWCA Civ 1648
Summary
The parties were a former unmarried couple who purchased a family home jointly. Mr Hudson sought an order for sale with the sale proceeds to be shared equally. Ms Hathway agreed to the sale but claimed entitlement to the whole of the sale proceeds on the basis of an agreement to that effect expressed in email exchanges between the parties. The Court of Appeal found in favour of Ms Hathway – she was entitled to all of the equity in the property.
The law
Title to property is split into legal title and beneficial (or equitable) title. Where property is jointly owned by one or more persons, legal title will always be jointly held but the parties can co-own the beneficial title either as joint tenants or tenants in common. It is the beneficial title that confers a right to share in the proceeds of the sale of the property.
Tenants in common each own a distinct share in the property. A declaration of trust may be entered into on the purchase of the property which records the proportion of each owner's beneficial share and thus what proportion of the sale proceeds each owner will receive on a sale. For example, a co-owner with a 60% share will be entitled to 60% of the sale proceeds.
In contrast, beneficial joint tenants each own the whole of the property. The principle of 'equity follows the law' means that the starting point for beneficial joint tenants will be that each beneficial share is worth 50% and thus each party will receive 50% of the sale proceeds.
It is possible for one co-owner to sever a beneficial joint tenancy in order to recover a larger share in the equity of the property on sale by establishing a common intention constructive trust. In other words, the co-owner claiming the greater share must show that at the time of or subsequent to the purchase of the property, the parties agreed (held a common intention) that the claiming party would have a greater share in the equity of the property.
A joint tenant may also release the whole of their beneficial interest in the property to a co-owner (and so give the co-owner the right to the entirety of the proceeds of sale) under section 36(2) of the Law of Property Act 1925 (the Act).
Pursuant to section 53(1)(a) and (c) of the Act, dispositions of an interest in land and dispositions of existing beneficial interests must be made in writing and signed by the party disposing of the interest.
The facts
Mr Hudson and Ms Hathway were an unmarried couple who purchased a family home jointly. They held the beneficial interest in the property as joint tenants initially ie in equal shares. This means that as and when the property was sold the sale proceeds would be split 50/50.
Mr Hudson sought an order for the sale of the property with the proceeds to be split 50/50.
Ms Hathway agreed to the sale of the property but claimed she was entitled to the whole of the sale proceeds relying upon emails exchanged with Mr Hudson regarding the financial arrangements and allocation of assets following their separation. In those emails, they agreed Ms Hathway could keep the house and all of the sale proceeds, on the basis she would relinquish any claim she had to Mr Hudson's other assets (pension, shares etc).
Ms Hathaway initially argued that the change in her beneficial ownership ie the entitlement to all of the equity / sale proceeds of the property (once sold) had arisen under a common intention constructive trust as a result of the agreement reached over email.
Ms Hathway introduced a new additional argument in the Court of Appeal, submitting that the relevant emails exchanged between the parties complied with the requirements of section 53(1)(a) and (c) of the Act and so, by way of those emails, Mr Hudson had immediately disposed of his beneficial interest to Ms Hathaway.
The decision
The Court of Appeal decided in favour of Ms Hathaway, holding that there had been an express disposition of Mr Hudson's beneficial interest in the property on the following basis:
- The form of emails exchanged constituted a release of Mr Hudson's beneficial interest in the property to Ms Hathaway under section 36(2) of the Act.
- This release was a disposition caught by section 53 of the Act and it therefore needed to be made in writing and signed by Mr Hudson.
- There was no question that the relevant emails constituted writing but the question of whether they had been signed warranted more detailed consideration.
- Mr Hudson had deliberately applied his name to the end of the relevant emails by signing off "Lee" and so the emails were signed for the purpose of section 53.
As a result, Mr Hudson had validly released his beneficial interest in the property to Ms Hathaway, she therefore held the whole of the beneficial interest in the property and accordingly was entitled to receive all of the sale proceeds of the property once sold.
The Court of Appeal did not therefore need to consider the common intention constructive trust argument. However, the Court did clarify one important question of law that had emerged out of the decision of the Judge presiding over the earlier appeal in this case; namely whether a constructive trust can arise as a result of a common intention alone or whether the co-owner would also need to establish that it had relied on that agreed common intention to its detriment.
To illustrate, in the present case Ms Hathway argued she had relied on the agreement that she would retain all of the equity in the house to her detriment because as a result of that agreement she had paid all interest payments on the joint mortgage, had not claimed against the other assets of Mr Hudson in their separation, had maintained and decorated the property and lived frugally to afford the upkeep and mortgage of the property (amongst other acts).
The Court of Appeal confirmed the long-established principle that detrimental reliance was an essential requirement for a common intention constructive trust.
Our comment
Co-owners must exercise caution when discussing their property interests informally. It is clear that signing off an email even with just a first name can be sufficient to comply with the statutory formalities for transacting property. There is also no difference between intentionally typing a name at the end of an email or this being applied automatically by email software; in both cases the law treats this as authentication of the content of the email by way of signature.
This case also re-affirms the long-standing principle that, in the absence of an express declaration of trust, the agreement between co-owners that one party will have a greater share in the equity of the property than the other will not be enforceable without detrimental reliance.
