Title to land – Flat occupied by couple – Flat owned by one partner and later sold to the other – Whether transaction a sham – Whether original owner retaining entire beneficial interest – Whether entitled to interest by constructive or resulting trust – Claim allowed in part – Counterclaim for possession dismissed
In the early 1990s, the claimant, a married MP, entered into a same-sex relationship with the defendant. In 1992, the claimant purchased a first-floor flat for £80,000, with a deposit of £20,000 and a mortgage for the remainder. The defendant purchased the ground-floor garden flat below. Thereafter, the two lived as a couple in the first-floor flat and used the ground-floor flat for entertaining, while maintaining the appearance of being neighbours.
In 1995, a cost order was made against the claimant in a failed defamation action over a newspaper article that alleged his relationship with an unnamed man. Fearing that execution might be levied against the first-floor flat in respect of the costs, the parties agreed that the defendant should purchase that flat for £80,000 and grant a shorthold tenancy back to the claimant. The sale was duly completed, with the claimant’s mortgage being redeemed and the defendant acquiring one in his own name. Thereafter, the parties continued to live together in the flat, with the claimant paying a £600 monthly “rent” to the defendant to cover the mortgage payments. Despite this, in divorce proceedings brought by the claimant’s wife in 1996, including a claim for financial relief, the claimant swore on oath that he lived in rented accommodation as the sole occupant.
In March 2005, the claimant expended £10,000 on improvements to the first-floor flat. However, six months later the relationship ended. In 2008, the defendant gave notice to quit to the claimant in respect of the first-floor flat. The claimant applied to the court for a declaration that he was the sole beneficial owner of the flat; alternatively that he had a beneficial interest under a constructive or resulting trust. He contended that both the sale to the defendant and the purported letting in 1995 had been a sham and that the parties’ common intention had been for the claimant to continue as the beneficial owner and to pay the outgoings in respect of the flat. The defendant counterclaimed for a possession order and rent or mesne profits from April 2008. He further sought an order for the sale of another flat that the claimant had purchased as an investment in 2004, but which was held in the parties’ joint names; the defendant sought a division of the proceeds and an account of rent received.
Held: The claim was allowed in part; the counterclaim was dismissed.
The purported sale of the first-floor flat had been genuine, although not conducted at arm’s length. The correspondence and formal documentation was expressly to the effect that the property was being sold and there had been consideration for the sale. Moreover, after the sale, the claimant had paid what he consistently described as “rent” to the defendant and had, in matrimonial proceedings persisted in asserting that he did not own the flat but lived there as tenant. In the light of considerable documentary and other contemporary evidence to the contrary, it was not possible to accept that the sale was a sham. Moreover, the relevance of any tenancy agreement and of the payment of rent, regardless of whether it was effective to create a valid tenancy, was that it combined with the other evidence to negate the claimant’s contention that he occupied the flat by virtue of his own beneficial interest. The transfer had not been made on the basis that the defendant would hold the property on trust for the claimant. Although the parties had continued to live together in the flat after the sale had taken place, no express or implied obligation had been imposed on the defendant to allow the claimant to live there indefinitely even after their relationship had ended.
(2) However, an equity arose in favour of the claimant by virtue of an expenditure of £10,000 on improvements to the flat at a time when he believed that his relationship was strong and that he would be living with the defendant for the foreseeable future and when the defendant, who was aware of that belief, was in fact considering bringing the relationship to an end. The defendant would have known that if the claimant had been aware of his true intentions, the claimant would not have expended the money on improvements. The expenditure therefore constituted a detriment to the claimant and it would be unconscionable for the defendant to retain the benefit. In the exercise of its discretion, the court would order either a monetary award in favour of the claimant, plus compound interest from the date when the equity arose to the date of the judgment or permission to continue residing in the flat rent-free for a specified period; further submissions were invited on that issue.
(3) The flat purchased in 2004 had been held by the parties as legal and beneficial joint tenants, subject to a trust that the claimant was responsible for the outgoings and entitled to the income from the property for his lifetime. A notice of severance served by the defendant in 2009 had resulted in the parties holding the legal interest as joint tenants and the beneficial interest as tenants in common, but subject to the same trust as before.
John Robson (instructed by Hodge Jones & Allen) appeared for the claimant; Michael Glaser (instructed by Russell-Cooke LLP) appeared for the defendant.
Sally Dobson, barrister
