Approximately 4 million people cohabit in the UK. Surprisingly, there is no legislation in place to govern the finances of such a relationship if it were to break down and so we are dependant on case law to guide us.
The recent Supreme Court decision of Jones v Kernott concerns calculating the shares of a property that is jointly owned but where there is no express statement as to who owns what shares.
Background
Jones v Kernott concerned an unmarried couple who bought a property for £30,000 in 1985 and lived there with their children until they separated in 1993. They put the property on the market in 1995 but it failed to sell. The property was worth £60,000 at the time. The plan changed again and the joint insurance policy was surrendered and the proceeds were divided equally. Mr Kernott was able to use these funds to put down a deposit on a property in his sole name. Ms Jones continued to pay the mortgage, endowment premium, household bills and raise the children. Mr Kernott provided little or no support after the separation. The property in his sole name increased in value from £57,500 when he purchased it in 1996 to £205,000 at the time of the hearing. 14 years on, Mr Kernott claimed that he still owned half the joint property which is now worth £245,000.
Ms Jones took the matter to court and the County Court judge awarded Mr Kernott a 10% share of the property. The parties agreed that in 1993, when they separated, the property was owned 50:50. The court then had to determine what had happened to their intentions regarding the ownership of the property after that as, which often happens, the parties had not discussed the issue. The court found that, looking at the whole course of conduct between the parties, that Mr Kernott no longer intended to own the joint property 50:50 with Ms Jones.
Mr Kernott appealed to the High Court and the County Court decision was upheld. It then went to the Court of Appeal who overturned the previous judgment saying that the property should be owned 50:50. The Court of Appeal was of the view that although their lives had gone separate ways and Mr Kernott had shown no responsibility towards the children, it did not indicate a change of intention.
The Supreme Court Decision & the Test
The case then went on to the Supreme Court to make the final decision. While the Justices reached the same conclusion, that the decision of the County Court and Chancery Division should be upheld, they were divided 3:2 on the reasoning. All of the Justices agreed that in cases where the property is held in joint names, the test as set out by Lord Walker and Lady Hale is as follows:
- “…The starting point is that equity follows the law and they are joint tenants both in law and in equity.”
- That presumption can be displaced by showing:
(a) That the parties had a different common intention at the time when they acquired the
home; or
(b) That they later formed the common intention that their respective shares would change;
3. The common intention is to be deduced objectively from their conduct: “the relevant intention of
each party is the intention which was reasonably understood by the other party to be manifested
by that party’s words and conduct notwithstanding that he did not consciously formulate that
intention in his own mind or even acted with some different intention which he did not
communicate to the other party” (Lord Diplock in Gissing v Gissing [1971] AC 886, 906)..
Examples of that sort of evidence which might be relevant to drawing such inferences are given in
Stack v Dowden, at para 69.
4. In those cases where it is clear either (a) that the parties did not intend joint tenancy at the
outset, or (b) had changed their original intention, but it is not possible to ascertain by direct
evidence or inference what their actual intention was as to the shares in which they could own the
property, “the answer is that each is entitled to that share which the court considers fair having
regard to the whole course of dealings between them in relation to the property” : Chadwick LJ in
Oxley v Hiscock [2005] Fam 211, para 69. In our judgement, “the whole course of dealing…in
relation to a property” should be given a broad meaning, enabling a similar range of factors to be
taken into account as may be relevant in ascertaining the parties’ actual intentions.
5. Each case will turn on its own facts. Financial contributions are relevant but there are also many
other factors which may enable the court to decide what shares were either intended (paragraph 3
above) or fair (paragraph 4 above).”
Three of the five judges decided that when Mr Kernott left the property, the endowment was cashed in and divided and he bought a property in his sole name, his interest in the joint property ‘crystallised’ (froze in that moment in time when it was worth £60,000). They calculated that his half share of the then £60,000 property was worth £30,000 which is roughly 12% of the current value (£245,000). They found that it would be unfair if Mr Kernott were to benefit in the substantial increase in value in the property in his sole name and that owned jointly with Ms Jones. As Ms Jones paid the mortgage, outgoings and children’s expenses for 14 years, this enabled Mr Kernott to fund his own mortgage and household. He would not have been able to have done this had he been making contributions to Ms Jones and the joint property.
The two remaining judges were of the view that the fact that Mr Kernott left the property and acquired another was insufficient evidence to show that he had abandoned his stake in the property entirely however they both agreed that the court has the power to ‘impute’ an intention.
Where the property is in the name of one party only
Although it does not relate to properties owned in sole names where another party is trying to acquire an interest, there was some obiter guidance given by Lord Walker and Lady Hale. The test is as follows:
- Whether it was intended that the other party should have any beneficial interest in the party. There is no presumption of joint beneficial ownership;
- If it was intended that the other party should have an interest, what is that interest?
- Apply paragraphs 3 to 5 of the Jones v Kernott test above to establish whether there was any common intention and if not, then it will be imputed by the court based on what it thinks is fair taking the whole course of dealings into account.
Where does that leave us?
The long-awaited judgement of Jones v Kernott is not the saving grace that practitioners were looking for. A highly discretionary element has been introduced. Also, this case can readily be distinguished from many of the cases that lawyers deal with on a daily basis as it is not often that a 14 year period lapses before someone comes back to claim half a share in a property.
Two of the judges openly criticised the government and called for legislation for cohabiting couples which had previously been proposed by the Law Commission. This is clearly the way forward. In the meantime, the only way to ensure that there is never any doubt is to either have a Living Together or Cohabitation Agreement in place. We would also recommend that you get legal advice on the most appropriate way for you to own the property in light of your contributions to the purchase price.
For more information on this or any other similar issue, please contact Lorraine Burke by emailing Lorraine or by calling her on 08450 990045, or speak to your usual contact in the Family Team.
This document is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from taking any action as a result of the contents of this document.
