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Sharing Homes: a Discussion Paper

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Sharing Homes: a Discussion Paper The Law Commission (LAW COM No 278) SHARING HOMES A Discussion Paper Presented to the Parliament of the United Kingdom by the Lord High Chancellor by Command of Her Majesty November 2002 Cm xxxx The Law Commission was set up by the Law Commissions Act 1965 for the purpose of promoting the reform of the law. The Law Commissioners are: The Honourable Mr Justice Toulson, Chairman 1 Professor Hugh Beale QC Mr Stuart Bridge Professor Martin Partington CBE Judge Alan Wilkie, QC The Secretary of the Law Commission is Mr Michael Sayers and its offices are at Conquest House, 37-38 John Street, Theobalds Road, London WC1N 2BQ. This Discussion Paper was first published online on 18 July 2002. The text of this Discussion Paper is available on the Internet at: http://www.lawcom.gov.uk 1 At the date this report was signed, the Chairman of the Law Commission was the Right Honourable Lord Justice Carnwath CVO. ii THE LAW COMMISSION SHARING HOMES A Discussion Paper CONTENTS Paragraph Page Executive Summary vi PART I: INTRODUCTION 1 The shared home 1.6 2 A property-based approach 1.23 6 PART II: THE CURRENT LAW 9 Introduction 2.1 9 Trusts of land 2.4 10 Legal and beneficial ownership of the shared home 2.10 11 Legal title – joint tenancy 2.12 11 Beneficial ownership- joint tenancy or tenancy in common 2.16 12 Resolution of disputes between trustees and beneficiaries 2.23 14 Dealings with third parties 2.27 15 Occupation of the shared home 2.32 17 Where a person has an interest under a trust of land 2.34 17 Matrimonial home rights 2.37 18 Orders regulating occupation of the shared home 2.38 19 Encouraging formal arrangements 2.41 20 Express trusts 2.48 21 Construing the declaration 2.49 21 Implied trusts and proprietary estoppel 2.53 23 Implied trusts 2.54 23 The resulting trust 2.56 23 Intention to make a gift or loan 2.58 24 Presumption of advancement 2.59 24 The current role of the resulting trust 2.61 25 The constructive trust 2.62 25 Quantification of beneficial entitlement 2.80 31 Proprietary estoppel 2.88 34 iii Paragraph Page Criticisms of the current law 2.105 40 “Common intention” constructive trust 2.106 40 The relevance of contributions 2.107 40 Discrimination against home-makers 2.108 41 The quantification of beneficial entitlement 2.109 41 The unpredictability of estoppel 2.110 41 The litigation consequences 2.111 41 PART III: A PROPERTY APPROACH 43 An outline of the scheme 3.3 43 Principal features of the scheme 3.7 44 No express arrangement 3.7 44 The shared home 3.8 44 Excluded sharers 3.14 45 Trust-based 3.17 45 Proprietary interest 3.18 45 Pro rata 3.19 46 The date at which the beneficial interest arises 3.20 46 Contribution-based 3.21 46 Disregarding the parties’ intentions 3.23 47 The valuation of contributions 3.26 47 Relevant contributions 3.27 47 Financial: direct and indirect 3.28 48 Valuation of financial contributions 3.32 48 Chattels 3.37 49 Non-financial contributions 3.38 49 Valuation of home-making and caring services 3.42 50 A discretion in respect of non-financial contributions only 3.47 51 Countervailing benefits 3.49 52 Possible controls 3.51 52 Disproportionality 3.51 52 Imposition of a minimum period of sharing 3.52 52 Worked examples 3.55 53 Example 1 3.56 53 Example 2 3.60 54 Unwelcome results 3.65 55 The problems with the scheme 3.75 57 The rejection of intention 3.76 57 The definitional problem 3.79 58 iv Paragraph Page Undue advantage for those who share 3.82 58 The problem of proof 3.85 59 The inflexibility of the statutory trust 3.88 59 Prospective or retrospective 3.94 60 The lack of a unifying principle 3.96 61 Conclusion 3.100 61 PART IV: A WAY FORWARD 62 Australia: “unconscionability” 4.5 62 Canada: unjust enrichment 4.10 64 New Zealand: “reasonable expectation” 4.16 66 Summary 4.20 67 PART V: A RELATIONSHIP APPROACH 70 Married couples 5.6 70 Financial provision and property adjustment on divorce 5.8 72 Statutory co-ownership 5.12 73 Unmarried couples 5.13 73 No adjustive discretion 5.16 76 Australia 5.19 76 New Zealand 5.22 77 Proposals for reform 5.23 77 The Law Society 5.23 77 Scotland 5.25 78 Northern Ireland 5.28 78 The policy questions 5.29 79 Registered partnerships 5.30 79 Denmark 5.31 79 France 5.32 80 Proposals for reform 5.35 81 Bills before Parliament 5.36 82 The policy questions 5.41 83 Summary 5.42 83 A tiered approach to rights and obligations 5.42 83 PART VI: CONCLUSIONS 85 v SHARING HOMES: A DISCUSSION PAPER EXECUTIVE SUMMARY The project 1. The Law Commission Discussion Paper “Sharing Homes” examines the property rights of those who share homes. It covers a broad range of people – not only “couples”, married or unmarried, but also friends, relatives and others who may be living together for reasons of companionship or care and support. 2. The Law Commission has not been examining the issue of the rights and obligations of unmarried couples. It is important to emphasise this. The project we have conducted is both broader and narrower than a project on cohabitation would have been. It is broader in that we have placed no limit on the kinds of relationship with which we are concerned. It is narrower in that we have focused on a single area of activity – the home, in an attempt to consider how people who live in the home gain rights in and over it, and whether we can propose any useful reform of the principles which currently apply. The problem 3. Where two people buy a home together, there is rarely a problem. They are likely to seek legal advice. If they are married, or, although not married, are in a long- term relationship, it is very likely that they will decide to have title to the home registered in their joint names. They will also execute a declaration of trust stipulating what their respective shares in the property are to be – this will then govern the proportions into which the proceeds of sale of the house would be divided in the event of sale. 4. But sometimes a home is purchased and no express arrangements of this kind are made. Or a home-owner invites someone to live with them – a partner, a friend, a carer, a relative. There may be no discussion at all about the potential legal implications of what is happening, or there may be some conversation, but no formal agreement is entered into. Over a period of some years, the person may make very substantial contributions towards the home – assisting with the mortgage payments, paying towards – or even physically building – an extension, or (less directly) dealing with the household bills so that the home owner can pay the mortgage. Eventually the question may arise whether they have obtained a share in the home. 5. This question may require to be answered in several circumstances: · Most obviously, where the persons who have been sharing the home cease to do so. It may be that this follows the breakdown of a relationship between them – but it may also occur where one obtains employment elsewhere, or even where one dies. It will be necessary to establish what shares the persons had in the home so that the outgoing sharer (or, if they have died, their estate) can be paid out the capital to which they are entitled. · It is very likely that the home will have been purchased with the assistance of a mortgage – there may be more than one if the home-owner has sought funds vi for other purposes subsequently. The borrower defaults on the mortgage, and the lender seeks possession of the home so that it can be sold to satisfy the debt which is owed. Can anyone living in the home claim rights which prevail over those of the lender – and thereby defend the possession proceedings? 6. We have not been concerned in this project with the jurisdiction of the court to make orders adjusting property rights on divorce. If a married couple separate, and intend to divorce, the resolution of their finances will not normally require the court to work out their respective shares in the matrimonial home, as its powers are so extensive that such an exercise is unnecessary. However, it remains important to be able to ascertain the spouses’ shares on death and where third parties, in particular secured lenders, are concerned. The current law 7. The current law which determines whether a person has rights in a home which they share with its owner is quite complicated and difficult to apply. It is not ideally suited to the typical informality of those who are sharing a home. The current law can be criticised for several reasons: · Much depends on what the court identifies to be the common intention of the parties. This can be a somewhat unrealistic exercise, as people do not tend to think about their home in such legalistic terms. · Although certain contributions towards the acquisition of the home can give rise to an interest in it, it is not very clear where the line is drawn between contributions which count and contributions which do not.
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