Last updated on August 18th, 2015 at 02:47 pm

A recent case, heard by the Court of Appeal, highlights the legal complexity of such cases, showing how difficult it is to prove parties’ intentions when things go wrong.

In 1996, Mr A bought a property, registered in his own name, for his father (Mr B), Mrs B (Mr A’s stepmother) and their children to live in.  Mr and Mrs B contributed £5,000 to the purchase price (8%) at the time of purchase.  Mr A and Mr B, agreed that Mr A would be the landlord,  but Mr B said that he hoped to buy the property in the future.

When Mr B died in 2003, Mrs B and her children continued to live in the property.  She did not pay any rent and she fraudulently claimed housing benefit.   Mr A then claimed possession of the property and payment of rent arrears.  Mrs B counterclaimed, claiming that she had an 8% beneficial interest in the property.  The court disagreed and found that the £5,000 was in fact akin to an arrangement fee.  Mrs B was therefore ordered to pay rent and all rent arrears.

Mrs B appealed against the order.  The Court of Appeal found no evidence that the £5,000 contribution was agreed as an arrangement fee, nor evidence to prove whether it was a gift or a deposit.  The judge therefore had to apply assumptions and found that on the balance of probabilities, Mr and Mrs B had intended that the £5,000 was their contribution to the property price, which would be taken into account when they purchased the property themselves.  It was found that Mrs B did in fact have an 8% beneficial interest in the property.

However, Mrs B failed in her argument that she should be paid 8% of the rent and profits since purchase of the property and that this sum should be deducted from her rent arrears.  She was told that she would have to make a claim to county court for this, but the judge commented that she would have difficulty in doing so due to her criminal activity in fraudulently claiming benefits.

Had Mr A and Mr B entered into a proper legal contract at the time of the purchase, such as a declaration of trust which reflects the intentions of each party, matters would have been quite clear from the start and these legal proceedings would have been unnecessary.

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