LEVEL 6 - UNIT 9 – LAND LAW SUGGESTED ANSWERS – JANUARY 2013 Note to Candidates and Tutors: The purpose of the suggested answers is to provide students and tutors with guidance as to the key points students should have included in their answers to the January 2013 examinations. The suggested answers set out a response that a good (merit/distinction) candidate would have provided. The suggested answers do not for all questions set out all the points which students may have included in their responses to the questions. Students will have received credit, where applicable, for other points not addressed by the suggested answers. Students and tutors should review the suggested answers in conjunction with the question papers and the Chief Examiners’ reports which provide feedback on student performance in the examination. SECTION A Question 1 The decision of the Supreme Court in Kernott v Jones (2011) is the latest in a long line of judicial decisions seeking to establish the nature of implied trusts of the family home. Where cohabiting couples have considered the division of property on sale or the breakdown of the relationship and have expressed the nature of the trust, there can be little problem. An express trust of land will be recognised so long as the relevant formality requirements are satisfied (s53 Law of Property Act 1925): it is made in writing and signed by the settlor or settlors. It is often the case that such trusts appear on the face of the transfer of the property to the trustees. Where such an express trust is not found a resulting or a constructive trust may be implied. A presumption is raised that the people who advance the purchase money at the time of acquisition of property are entitled to a proportion of the value of that property equivalent to the proportion they paid towards the purchase price (Dyer v Dyer (1788)). The presumption can be rebutted by evidence that the money was a gift or loan, or by express wording to the contrary (Re Sharpe (1980), Cowcher v Cowcher (1972)). Where there has been contribution to the purchase price by both parties, the use of the resulting trust provides some remedy to both parties. The resulting trust, however, may not provide a fair division of value where the purchase price was paid wholly or mostly by one party, or where the other party has made a significant contribution to the running of the household after purchase, or has, for instance contributed towards the building costs of an extension. Page 1 of 15 A constructive trust is, in theory, imposed when it is unconscionable for the legal owner to deny the beneficial interest. According to Lloyds Bank plc v Rosset (1990), the person claiming to be the beneficiary of a constructive trust must show either: an express common intention at the time of purchase that the property be owned jointly together with detriment; or a common intention implied from the circumstances together with a contribution to “bricks & mortar”. Thus in Grant v Edwards (1986), the express intention was manifested by the defendant’s assurance that the legal estate would be in joint names but for that it would complicate his divorce, and detriment was shown by bringing money in to the household and paying some of the bills (note that there was not direct contribution to “bricks and mortar”). It seems that the detriment required following proof of an express common intention need not be great. In Hammond v Mitchell (1991) it amounted to demurring in the legal owner granting a charge over the property, although in the absence of the claimant having a demonstrable interest in the property before that point, it is difficult to see how she might have prevented the property being charged. Where there is no express common intention, the courts will look at all of the circumstances to see if such an intention can be implied. Here the claimant will have to show a direct contribution to “bricks and mortar”. In Passee v Passee (1988), making payments towards the mortgage was sufficient, but, tellingly, in Burns v Burns (1984) giving up work to keep the house and raise children was not. More recent decisions (Oxley v Hiscock (2004) and Stack v Dowden (2007), for instance) have demonstrated a greater willingness by the courts to impose a constructive trust (even where a resulting trust might be normally be presumed) on the breakdown of a cohabiting relationship. In those cases the courts seemed to recognise that the imposition of a resulting trust was a “blunt instrument” in determining the distribution of the asset. But this can only be done where the common intention and detriment or contribution can be demonstrated. If the parties have never discussed the matter, no express common intention arises and thus the claimant faces the high hurdle of showing contribution: this creates problems in the cases which seem most to require justice, where one party has given up work and career to raise a family. Earlier decisions concerned the “sole ownership” cases. More difficult have been the situations where the parties are joint legal owners, but where no express trust is in place. Historically, equity would follow the law, and the parties were deemed to be beneficial joint tenants. Following Stack, this approach could rebutted by strong evidence of a contrary intention between the parties. Judged against the unusual facts of that case (that the parties had punctiliously separated their respective finances throughout their relationship), it seemed that few couples would be in a position to rebut. In Jones v Kernott (2011) the Supreme Court made it clear that a resulting trust should not be applied to disputes concerning the family home (whether solely or jointly owned). Instead, the starting point in joint ownership cases would be a joint tenancy, but the bar appears to be lowered in comparison with Stack, as if the objective common intention is otherwise, the presumption will be rebutted and a constructive trust applied. Page 2 of 15 In sole ownership cases, a constructive trust will be applied where the claimant can demonstrate a right to beneficial ownership (whether by contribution to purchase price or pursuant to a common intention constructive trust). Once the Court is satisfied that a constructive trust should be imposed, the claimant’s remedy is a share “that is fair having regard to the whole course of dealing” between the parties. Significantly, the Supreme Court held that the parties’ intentions could change through the course of the relationship and the ownership of the property, and that the parties’ respective shares could change in consequence. In Gallarotti v Sebastianelli (2012) the Court of Appeal confirmed that Jones applied in all “domestic” cases: in that case, the co-owners were friends who could not afford to buy their own homes independently; they were no cohabitees. It is arguable that Kernott has brought clarity to the area; the blunt instrument of a resulting trust is no longer to be considered; and the approach to single and joint ownership cases is largely common, and clearly stated in the judgment. Set against this is the loss of certainty arising from resulting trusts. The recognition that the parties’ intentions can change over time, and the apparently “ambulatory” nature of the modern constructive trust, combined with the broad brush approach to quantification must, it is argued, be the most significant factor in the argument that the doctrine is considerably less certain that was the case following Rossett. Question 2(a) Section 205 of the Law of Property Act 1925 defines “land” as including, inter alia, all corporeal and incorporeal hereditaments. This includes the land itself, buildings, and things forming a physical part of the land and buildings, as well as rights appurtenant to the estate. Assuming that the transfer is of only the estate (i.e. there is no provision in the contract for the transfer of fixtures and fittings), the purchaser will acquire, in terms of corporeal hereditaments, fixtures (but not fittings) and fructas naturales (not fructas industriales). The original test to distinguish fixtures (land) and fittings (chattels) is the "degree of annexation test", although problems can arise with "temporary" or "lean to" buildings. Other things attached to land were seen as land so long as they were firmly attached. Thus if a one ton statue was bolted down, it was land, if not, a chattel (compare Holland v Hodgson (1872) and Berkeley v Poulett (1977)). The courts recognised the problem and addressed issues with consideration of whether things on the land formed a part of an "architectural scheme of decor". Thus a tapestry nailed to the wall which was in keeping with a theme of decoration was land, whilst one simply nailed to the wall so it could be seen, was not (Compare Leigh v Taylor (1902) and Re Whaley (1908)). The narrow application of the idea of a “scheme of décor” is of limited utility in the context of modern home ownership, however. The more modern test is the "purpose of annexation" test. This test asks why the object has been attached: for its own purpose, or for the enhancement of the land. Page 3 of 15 The case of TSB Bank plc v Botham (1996) casts some light on its application to things one expects to find in a modern home. Botham invites the court to distinguish fixtures and fittings on the basis of permanence & lasting improvement and relevance or utility and ease of removal. In that case, kitchen and bathroom units were considered fixtures, whereas white-goods and gas fires, given their limited annexation and short working lives, were considered fittings.