SHARING HOMES [2002] EWLC 278(3) (01 November 2002)

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URL: http://www.bailii.org/ew/other/EWLC/2002/278(3).html
Cite as: [2002] EWLC 278(3)

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PART III

A PROPERTY APPROACH

In developing a property-based solution to the problems with the existing law, we aimed to achieve a fairer result than is possible under the current law for occupiers who share the home with the legal owner of the home, but who are not themselves legal owners of it; and to simplify the law, making it more accessible and predictable.

In paragraphs 3.3 – 3.54 below, we describe the scheme which we have developed and considered. We illustrate the operation of the scheme by reference to examples at paragraphs 3.55 – 3.74. In paragraphs 3.75 – 3.100 we explain why we have concluded that a scheme of this kind does not offer a viable solution to the problems in the existing law.

An outline of the scheme

The scheme would only apply in the absence of a valid express arrangement made between those who share the home. Parties should be encouraged wherever possible to make express provision, and such provision should therefore be binding on them.

The scheme would lead to:

(1) the exclusion of any reliance on the parties' common intention where they are sharing a home within the scope of the scheme;

(2) the replacement of the doctrines of implied trust and proprietary estoppel in the determination of beneficial ownership of the shared home;

(3) the creation of a statutory default scheme for the ascertainment and quantification of beneficial ownership which would offer greater certainty, clarity and consistency.

More precisely, the scheme would apply where two or more persons shared a home, one of whom, A, was a legal (or beneficial) owner, and the other of whom, B, was not a tenant, employee, lodger or boarder of the legal owner. When B made a financial contribution whether direct or indirect, and other than as a gift, to the acquisition, improvement, or retention of the shared home, then B would obtain an interest in the equity of the property commensurate to the value of the contribution made. B might also gain a beneficial interest in the shared home through non-financial contributions to the construction or improvement of the home, or to the parties' joint lives.

In circumstances where B obtained an interest in the shared home under the scheme, it would be pursuant to a "statutory trust".

Principal features of the scheme

No express arrangement

Where an express declaration of beneficial entitlement had been made in relation to those sharing the home, this would exclude the operation of the scheme. This principle, consistent with the objective of encouraging self-regulation, would allow parties to "contract out" of the scheme, but only in circumstances where express provision was made. It would frustrate that objective were parties permitted to "contract out" despite making no alternative provision for themselves.

The shared home

Property would come within the scope of the scheme in so far as it comprised a "shared home." It was the occupation of the home that was to be shared. The claimant and the person or persons with an interest must have been living (or have lived) in the property. It would not, for instance, be sufficient if one party, who was living elsewhere, were to store items in a room in a house which was occupied by the legal owner.

There would be three conditions to be fulfilled in each case:

(1) The property should be occupied by two or more persons.

(2) Each person should occupy the property as a home.

(3) At least one such person should have a legal or beneficial interest in the property.

The number of persons occupying the home would be irrelevant. The problem which we are seeking to address can arise where two or more persons are living together.

At least one of the persons sharing the home would have to have a legal or beneficial interest in the property upon which a statutory trust could be based. As the scheme involved the conferment of proprietary entitlement, the claim would have to be made against a person who had capacity to confer a proprietary interest in favour of the claimant.

We considered whether our provisional proposals should be limited in their scope to the "only or principal home" of the persons involved.

The scheme was deliberately broad in its scope: all those who shared a home would potentially fall within the scheme, subject only to very limited exclusions.

Excluded sharers

As far as possible, we wished to pay no regard to the nature of the relationship between the persons who were sharing the home. This seemed central to a property-based approach in which contributions were to be objectively assessed. However, it was clear that certain types of individual should be denied entitlement to claim pursuant to the statutory trust.

We did not envisage that minors would acquire a beneficial interest in the home, even where they had made relevant contributions.

We would exclude from the operation of any scheme those sharing a home pursuant to a genuinely commercial relationship. In such circumstances, the parties would normally have made express arrangements concerning the consequences of their joint occupation, but even where they had not it could be inappropriate for beneficial interests to be acquired. We therefore sought to exclude those who hold from the legal owner as employees, tenants, contractual licensees (such as lodgers and boarders), and tenants at will. A useful working definition would, we thought, be that set out in section 62(3)(c) of the Family Law Act 1996:

those who live or have lived in the same household merely by reason of one of them being the other's employee, tenant, lodger or boarder.

Trust-based

Consistent with the property approach, the parties' respective interests would take effect behind a trust, which may conveniently be termed (for the purposes of exposition) a "statutory trust". The legal title would be held by the registered proprietors on trust for all those beneficially entitled. Third parties dealing with the statutory trust could protect themselves by overreaching the interests of the beneficiaries.

Proprietary interest

Under the scheme, a home-sharer who had made a relevant contribution would earn a proprietary interest, not just a personal right to be repaid the value of the contribution. The significance of a proprietary interest lies primarily in the potential for it to be binding on third parties, and the greater enforceability of a right attaching to real property. A beneficial interest in real property brings with it also a right of occupation, although this is not an absolute right.

Pro rata

We did not perceive the contribution made as being merely a payment akin to a debt which the contributor expected to be repaid at some undefined point in the future; it was more of the nature of an investment in the home. Consistent with this view, the contributor should gain a proportionate share, that is a share proportionate to his or her contribution. It would obviously be unrealistic to confer an interest on each party exactly equal in value to the contributions which had been made, as it would be extremely unlikely that the total value of relevant contributions would equal the value of the equity in the shared home – indeed in many cases, particularly where the parties had been sharing the home for a long time, the total value of contributions would exceed the equity. The parties would receive shares in the property in the same proportions as the respective totals of their relevant contributions. The statutory trust would facilitate the operation of what we called the pro rata principle.

The date at which the beneficial interest arises

Under the current law, a proprietary interest under a resulting or constructive trust arises at the time when detriment is incurred. It does not depend for its existence on recognition by the court, and it is in this sense "retrospective". This is to be contrasted with a system (such as the "traditional" view of proprietary estoppel)

Contribution-based

We considered that the basis of the law should continue to derive from the circumstances immediately prior to the determination of ownership of the shared home, rather than, for instance, to require the court to address the future needs and resources of the parties. This approach reflected the nature of the project and its focus on how the ownership of the shared home should be determined as a matter of property law. We therefore considered that

(1) the ascertainment of property rights should be based on the contributions made by the parties; but

(2) the contributions relevant to this assessment should not be exclusively confined to those that are referable to the acquisition of the property.

We envisaged that (in those cases where no valid express arrangements had been made) the court would examine what the parties had respectively contributed to the property and quantify their respective interests on the basis of those contributions. In formulating our scheme, we emphasised that proof of a contribution would be essential to acquisition of a share. Central to this property law model based on contributions to the shared home was the notion that a party would not get "something for nothing". Save where the parties had come to an express arrangement concerning their shares in the home, a beneficial interest was to be earned.

Disregarding the parties' intentions

In the absence of a valid express arrangement, we were keen to reduce the influence of the parties' intentions so far as possible. We considered this to be an essential ingredient of a successful contribution-based scheme, as it would then avoid the conceptual uncertainty and probative difficulties inherent in the notion of common intention.

However, we soon realised that it may be unrealistic, and impractical, to deny any importance whatsoever to intentions which are not given the requisite formal expression. In particular, rigid adherence to a policy of disregarding informally expressed wishes would mean that any substantial gift of property (or money or services) from one person sharing the home to the other would generate an enhanced beneficial interest in the absence of a formal statement that this was not to be the case.

We therefore worked on the basis that a relevant contribution would be presumed to give rise to an interest in equity, but that the presumption would be rebuttable by evidence that the contributor intended to gift or lend the property or services in question.

The valuation of contributions

Further difficult questions then arose. What contributions were to give rise to an interest in the property? And how would each contribution be valued? It was essential, we believed, for a contribution-based scheme to stipulate as clearly as possible which contributions were relevant, which were not, and how the value of relevant contributions was to be assessed. We now turn to these issues.

Relevant contributions

A "relevant contribution" would be one which would earn the contributor an interest within our scheme. We divide this section into financial and non-financial contributions, as we concluded that different considerations would apply in respect of each.

Financial: direct and indirect

We provisionally concluded that "relevant contributions" should include payments directly attributable to the acquisition, retention or improvement of the shared home.

We considered that the kinds of contribution which it was at least arguable should be reflected in the property interests of those who share homes were:

(1) The value of existing beneficial interests in the property when the parties begin to share it as a home.

(2) Capital sums paid at the time the property was acquired.

(3) Any discount on the price of the property obtained as a result of the status of one of the parties (for instance where the right to buy is exercised).

(4) Payments made towards the instalments of any mortgage debt secured over the property.

(5) Payments made towards the improvement of the property.

It would be possible for contributions of this nature to be objectively valued without undue difficulty. More difficult, however, were indirect contributions, for instance to "general household expenditure". These might need to be taken into account for the following reason.

For example, two persons lived together. One paid off the mortgage. The other regularly incurred expenditure on the groceries, the household bills, joint holidays, and possibly the purchase of high value chattels such as cars. It would seem inequitable if the person who paid off the mortgage could deny the person who lived with them, and whose payment of other items of household expenditure freed their income to pay the mortgage, an interest in the property. Too much would depend on what may well have been an arbitrary allocation or assumption of the parties' respective responsibilities towards the household budget.

Valuation of financial contributions

The court would have to make an overall assessment of the economic value of the contributions made by each party to their shared home.

While we were concerned that our proposals should be based soundly on principle, we realised that pragmatism was essential. We took the provisional view that, in an attempt to avoid protracted and costly litigation and its ancillary costs, the court should be actively encouraged to take a "broad brush" approach to issues such as quantification. We therefore envisaged that assessment of the economic value of contributions to the parties' joint lives should be conducted in a relatively impressionistic manner, with emphasis being placed on the approximate nature of the exercise.

The "approximate valuation" approach would have the merits of being neither arbitrary, nor over-precise. The court would not be required to carry out a precise mathematical exercise, calculating exactly what each party had contributed and formulating their share accordingly. This approach would provide a framework against which negotiated settlements would take place, which would assist in the majority of cases, in which costs may outweigh the benefits of litigating. The costs of litigation would tend to make it worthwhile only where substantial sums are at stake.

The court would be required to balance the parties' contributions under the various heads of contribution, adjusting the figure to take account of possible overlap, and then to aggregate the total attributable to each party. The parties' "approximate shares" could then be calculated (as fractions or percentages of the equity), and the beneficial interest in the home divided according to the pro rata principle. In an attempt to encourage courts to think in broad terms, it would be useful to direct the use of "banding" (by analogy with rating valuations) – fixed by reference to specific percentages of the overall equity of the home. We had in mind to limit the courts to assessing shares at gradations of five per cent (thus 5%, 10%, 15% and so on).

In ascertaining the parties' shares, it might be necessary to make allowance for the fact that a particular contribution was made some years previously and that it is necessary to take account of changes in the value of money, in particular the erosive effect of inflation. This "uprating process", which may not be equally applicable to all forms of contribution, could be facilitated by the use of inflation tables, but we would emphasise again that the court was being invited to make an approximation.

Chattels

Some "general household expenditure" would comprise the purchase of items of considerable value (cars, computer equipment, hi-fis) intended for use in the shared home or for the parties generally. We considered how chattels should be treated in this valuation exercise, and concluded that where a chattel had been purchased as part of "general household expenditure", the person purchasing the chattel should have the right to choose whether their contribution should be assessed by reference to the value of the use of the chattel to the parties or by reference to its capital value.

Non-financial contributions

Home-making and caring contributions

In the same way as indirect financial contributions by one sharer would enable another to make the direct payments towards the acquisition of a home (in other words, if B met the utility bills, and thereby enabled A to pay the mortgage), non-financial contributions by one sharer might enable another to pay for the home. Where a person took responsibility for the shopping, the cleaning, looking after children or other dependants, maintaining the house and garden, and dealing with contractors, they might enable the other person or persons to go out to work and to generate an income out of which the mortgage instalments were paid. There is a strong argument that this endeavour should be rewarded by means of the conferment of a beneficial interest in the home.

Two examples may be given.

(1) A female legal owner goes out to work full-time, leaving at home her male partner. He does not undertake any paid work as he is looking after their three children who are all under school age. He does the shopping and all the house-work, thereby enabling the woman to work long hours and to advance in her employment.

(2) A single man's mother is widowed in her sixties. He gives up his rented accommodation and goes to live with his mother, whose health deteriorates over the course of the next five years. He shops and cooks for her and keeps the house clean. He does not make any direct financial contribution towards the house, as the mortgage had been paid off prior to his father's death.

In neither of these cases is the provider of the services likely to obtain a beneficial interest in the home under the current law. Yet they have each provided services which are of economic value and which have conferred a benefit on the other party.

This type of contribution raised difficult issues. It was essentially a contribution towards the household or the family and it was at best indirectly related to the acquisition of the property. A legal owner might argue that non-financial contributions should only count as "relevant contributions" insofar as they enabled the owner to acquire, or retain the home (such as by paying off the mortgage), and so contributions made subsequent to the acquisition of the home should not confer an interest on the contributor. The contributor would argue, however, that his or her contributions were of value to the other person, and that if the conferment of a beneficial interest was an appropriate means of recognising the contribution, it did not diminish once the mortgage had been paid off.

Valuation of home-making and caring services

Valuation of the contribution made (in money terms) was a potentially difficult, and, some might argue, demeaning process. Nevertheless, we did not feel that such services should be ignored merely because quantification may be well nigh impossible in absolute terms. Consistent with our overall approach, it was clear that the scheme should focus on the economic value of home-making or caring activities.

Economic benefit

We considered that an appraisal of economic value based on the economic benefit conferred by the home-making contribution was a possible approach. In essence, the court could be directed to value the home-making and caring contribution by reference to the economic benefit conferred over the course of the period during which the home had been shared.

For purposes of calculation, the court could adopt an annual sum which would represent full-time home-making.

The court could then consider how much home-making (on average) each party undertook in a particular year. The value of the home-making activities over the period during which the home had been shared would then be determined by applying a multiplier. This would of necessity generate a relatively impressionistic assessment of each party's contribution, but it would recognise the value of what had been done.

Economic detriment

We took the view that account should not be taken of economic detriments incurred, save possibly in relation to the cost of lost opportunities where the claimant would have earned more had he or she been in paid employment for the relevant period.

A discretion in respect of non-financial contributions only

The scheme we were developing differed from the system of ancillary relief on divorce

We did not consider that a statutory adjustive discretion was desirable, because it would introduce scope for unpredictability with its attendant disadvantages. And yet we were not sure that the economic value of non-financial contributions could be fairly and objectively assessed. We therefore considered the possibility of a statutory discretion being available purely as a means of evaluating non-financial contributions.

Countervailing benefits

Some form of benefit may have been received by a contributing party. In that event, the value of that benefit should be taken into account and off-set against the contribution, maybe by a credit to the other party. Countervailing benefits were most likely to take the form of free accommodation in the shared home.

Accommodation

We acknowledged the benefit of accommodation provided by crediting the legal owner of the home with an amount equivalent to the interest on the money tied up in the home. To avoid double-counting, where such a credit is included, the net value of the house at the start of the home-sharing was not uprated.

Possible controls

Disproportionality

We shall consider below two examples of how the scheme would work in practice. It became clear that it was desirable, in an attempt to ensure that indirect financial contributions did not unduly distort the quantification process, to limit the scope of claims on indirect financial contributions to disproportionate indirect financial contributions towards the acquisition, retention or improvement of the home. Thus, where two parties shared a home, the contribution of each party would be calculated, and then the smaller contribution be subtracted from the larger. The remaining amount would then be attributed to the larger contributor as a relevant contribution. We show the effect of this approach in the worked examples below.

Imposition of a minimum period of sharing

Sharing a home would not of itself give rise to any beneficial entitlement under a statutory trust. It would be necessary for the claimant to establish that they had made a "relevant contribution" to that home. There was strength in the argument that once such a contribution had been made, then a claim should be tenable.

However, we realised that there was a risk that a claim might be brought where the parties had lived together for a very short time and the contribution made had been relatively insignificant. We were particularly keen to ensure that any proposed scheme did not offer those who had been living together, possibly for a short period of time, a means of expressing the anger and resentment which may be felt at the termination of a relationship by commencing and pursuing litigation against the other party.

We therefore considered whether, where a claim was based on non-financial contributions, a minimum period of occupation in the shared home by the claimant should be imposed as a safeguard against claims of this kind. Any such period would have to be significant, and we provisionally settled on two years as being the length of the minimum period of sharing. Once the time threshold was passed, contributions made in the "qualifying period" would count in the assessment. We did, however, realise the strength of the counter argument that a party might make very substantial contributions in the first few months of sharing the home as decorations and refurbishments might be taking place.

Worked examples

As the following two examples illustrate, the property approach which we considered was intended to involve the court in a valuation of the parties' contributions to the shared home. But, as we shall see, these straight-forward examples also indicate very clearly the practical limitations of such an approach.

Example 1

A and B are in their sixties. They have now paid off the mortgage on their property, which they own beneficially as joint tenants. Their son, C, aged 22, drops out of college and comes to live with them. The house is worth £200,000. A and B's combined annual income from their pensions is £15,000. C earns £30,000 net pa. C stays for ten years.

The scheme would require the court to assess the respective contributions of A and B – and C – as follows:

(1) A and B would be credited with total contributions of £375,000

(a) the opening net equity of £200,000

(b) direct financial contributions (improvements etc) of, say, £10,000

(c) indirect financial contributions (general household expenditure – say 60% of net income) of £90,000

(d) indirect non-financial contributions (homemaking – say £7,500 pa) of £75,000.

(2) C would be credited with total contributions of £100,000

(a) direct financial contributions of, say, £20,000

(b) indirect financial contributions (into the household budget) of, say, £80,000.

On this calculation, the equity in the shared home would now be divided pro rata as to 79% for A and B, and as to 21% for C.

The problem with this outcome is that many would argue that the calculations result in C receiving rather more than he deserved. To overcome this, additional tests could be applied to reduce C's share:

(1) A and B could be credited with a sum representing the accommodation (as a "countervailing benefit") they have provided C – say £10,000 pa.^[10] This would increase their total contributions to £475,000, and the pro rata shares would become 83% and 17% respectively.

(2) Indirect financial contributions could be disregarded save and in so far as they were disproportionate. A and B contribute £10,000 more than their son over the ten year period. Taking no account of accommodation costs, A and B would then total £295,000. C would total £20,000. The pro rata shares would be 94% and 6%. If accommodation costs were also taken into account, A and B's contribution would total £395,000 and C's £20,000, translated into 95% and 5% pro rata.^[11]

(3) It would be possible to eliminate C's claim altogether by requiring that he prove a "detriment". Instead of crediting A and B with the accommodation costs, C's overall input could be quantified by deducting those costs from the direct and indirect contributions he has made. This would mean that C could not show a contribution at all – the "total contributions" of £100,000 being off-set by the total accommodation costs of £10,000 pa for ten years.

Example 2

F purchased a house in his sole name, with the assistance of mortgage finance, for £150,000, of which £100,000 is provided by the secured loan. Shortly afterwards, G, who is expecting F's child, goes to live with him. F does not serve any notice contracting out of the scheme on G. (Had he done so, that would deny G any entitlement to claim.) No mention is made of G paying rent.

F and G live together for ten years. F has earned £40,000 net pa on average over that period. G has earned (part-time) £5,000 net pa on average, and has made no direct financial contributions to the house. They have spent 75% of their income on their joint lives.

The respective contributions of F and G would be assessed as follows:

(1) F's total contributions would amount to £362,500:

(a) the opening net equity of £50,000

(b) direct financial contributions (mortgage payments, 5% pa) of £50,000

(c) indirect financial contributions (75% income, minus mortgage payments) of £262,500.

(2) G's total contributions would amount to £187,500:

(a) indirect financial contributions (75% income) of £37,500

(b) indirect financial contributions (say £15,000 pa) of £150,000.

On this calculation, the equity in the shared home would now be divided pro rata as to 66% for F and 34% for G. The parties' beneficial interests in the statutory trust would cede priority to the mortgage.

In Example 1, we considered ways of reducing C's share, as we thought it was strongly arguable that he received more than he deserved. However, in this case, it may be that the current attribution of a 35% share to G seems "about right", and we are therefore reluctant to apply the additional tests. If, however, those further factors were to be applied, the effect would be as follows:

(1) If F were credited with a similar sum representing the accommodation provided for G – say - £2,500 pa - F's total contributions would now be £387,500, and the pro rata shares 67% and 33% respectively.

(2) If indirect financial contributions were disregarded save and in so far as they were disproportionate, G's share would be reduced as her financial contributions would be netted off those of F. F's share would rise to 70% and G's would be 30%.

(3) If accommodation costs were deducted from G's contribution in an attempt to evaluate her "detriment", this would reduce her total contributions to £162,500. Her pro rata share (on the basis that F is not credited with accommodation costs, F's total contributions would now amount to £362,500) would be 31%.

Unwelcome results

These two relatively straightforward factual situations show that there are some cases where additional tests or controls are necessary to achieve a fair result whereas there are other cases where they are not and where their application would lead to unfairness. Yet the basis for distinguishing between the factual situations cannot be expressed in a suitably principled or rational manner.

The problem with G's claim is that the scheme requires the court to consider her actions in a manner which is somewhat disconnected from reality. She would not normally think of herself providing "home-making services", even "child-caring services". She, the child and F are a family. She has supported F by staying at home and looking after the child. She has in consequence worked only part-time. On breakdown of her relationship with F, she is in need of some financial assistance and support to enable her to provide for herself and the child. While the Child Support Act will ensure that she obtains income from F, and she can also claim capital provision under the Children Act 1989 for the benefit of the child, there is no direct route available for her to seek relief for her own financial predicament.

The claim of C has the effect of eroding the accrued rights of his parents who may have been entirely oblivious to the consequences of their actions. It bristles with human rights implications.

Once it is accepted that a qualifying contribution is rewarded by the conferment of a pro rata beneficial interest, the claimant can assert a right of occupation, pursuant to statute, and can also ask the court for the property to be sold in order that his share be realised. The court would not necessarily accede to such an application, but it would be highly contentious to give persons the right to make a claim in such circumstances.

C's claim would have greater merit if it could be shown that his parents had in some way encouraged his expectation of an interest – had, for instance, intimated that if he came and lived with them, helped them with the shopping, drove them about, cooked, washed up and cleaned the house, he would obtain some reward (even if only in their wills). Such a claim could be more effectively dealt with by proprietary estoppel. It may be a doctrine of uncertain operation, but it can at least respond with subtlety to the factual – and indeed the emotional – nuances of human relationships.

In short, while both C and G are sharing a home with the legal owner(s), the legal consequences of their home-sharing should as a matter of principle be dealt with quite differently, in order to reflect the different types of grievance we are seeking to address. In C's case, the grievance is the loss suffered by relying upon his parents' undertaking that they would in some way compensate him for moving in with them; in G's case, it is the loss suffered consequential upon the breakdown of her relationship with the legal owner. It is in our view impractical to devise a single scheme to deal fairly with these different needs.

There can be little doubt that a court would instinctively have greater sympathy for the unmarried mother (G) in Example 2 than for the child of elderly parents (C) in Example 1. But when it comes to characterising their respective claims, it is not really possible to articulate the differences without reference either to the probable intentions of the parties or to the nature of the relationship from which the claim has arisen.

We applied certain controls in an attempt to limit the claim which can be made by C. However, they do not seem appropriate where G is concerned. It seems wholly reasonable that C should pay for the accommodation provided by his parents, but wholly unreasonable that G should account for the accommodation cost where the legal owner is her cohabitant and the father of her child. The difference in treatment cannot be accounted for by application of the contribution-based principle underlying the scheme.

Again, injustices arise in the application of the disproportionality principle to non-financial contributions. This principle was introduced into the scheme to mitigate some of what were perceived to be unjust effects produced by the scheme, and in some cases, the result is indeed fairer (as in Example 1), but it can be disastrous in some very typical cases of cohabitation outside marriage.

It will be clear from the above discussion that it is tempting to allow a property-based scheme to become "ends-driven" – in other words to attempt to modify the method of calculation so that it produces results which appear objectively fair and reasonable. Before very long, it is easy to lose sight of the principles which provided the initial rationale for the scheme, and the attempted reform becomes immersed in obscurity.

The problems of the scheme

The essence of the reform which we have been considering can be simply described. It would involve retention of the trust as the device responsible for balancing the respective rights of those with interests in the shared home. Parties would be encouraged to make express declarations of trust which would be rigorously enforced by the courts. But where no such express provision had been made, the court would no longer be required to carry out an examination of the parties' intentions. Instead, beneficial entitlement would follow from proof of contribution. The problem of informality was to be addressed by replacing intention with contribution. It was hoped that the latter would be easier to identify and to put a value upon.

The rejection of intention

The uncompromising rejection of intention, central to the scheme, was ultimately impossible to justify. It may be possible to encourage parties into making express provision, but they cannot be compelled to do so.

The consequences could be alarming. Take Example 1 above. It may never have crossed the minds of A and B that their son C would, as a result of living with them and helping out in their home, be able to claim an interest in their home. Yet unless they made express provision denying that he had such an interest he would be able to make a claim. Or they may have indicated to him that if he came and lived with them and helped out he would obtain a half share in the house. Such a statement, although relied upon by C, would no longer have any effect as a matter of law.

We accept that the current emphasis on the parties' intentions causes problems of its own – in particular in proving what those intentions were. But to disregard intention altogether could have the result of prejudicing many of those who would have obtained a beneficial interest under the present law.

The definitional problem

There is a problem with the scope of the scheme – to whom should it apply? The definition seeks to eliminate those who have entered into a commercial arrangement with the legal owner – as employee, as tenant, as lodger or as licensee. There is no doubt that such a demarcation would lead to litigation as claimants sought to establish that they were within the scheme. In that litigation, the question of intention would once more arise, as the court determined, for example, whether the person was the employee or the tenant of the legal owner.

Again, in determining which person should be able to claim beneficial entitlement under the scheme, the nature of the relationship between the legal owner and the claimant would be impossible to disregard. Indeed, it is the nature of that relationship which would dictate the answer to the question.

Real problems would arise where a person lives, rent-free, in the home at the invitation of the legal owner. This may be nothing more than an act of charity or kindness by the legal owner – or the parties may be involved in an intimate relationship. Contributions by the occupier towards the expenses of the home or the household may be made by the claimant out of gratitude for the accommodation provided by the legal owner – or they may be made in the context of the parties "sharing their lives". The only distinguishing factor between these factual circumstances would once more be the parties' intentions.

Undue advantage for those who share

In effect, the scheme would impose a form of statutory co-ownership on those who fail to make express provision and thereby fall within its remit. This may in some cases confer disproportionate benefit on a person who has been sharing the home with the legal owner.

Take by way of example a person (P) who is caring for her elderly parents. She spends 30 hours a week at their home cleaning, shopping, nursing, changing beds and so forth. She does not live with them, as she has a husband and children. Her brother (like C in Example 1 discussed above) who works full time out of the house does spend a small number of hours each week (usually in the early hours) caring for his parents. He lives in his parents' home. Why should C be able to claim but not P?

The simple answer would be that C "qualified" by reason of sharing the home with his parents. P does not qualify because she does not live there. It almost goes without saying that it would be very difficult to justify permitting C to claim but not P. The link between the services provided (the caring) and the home is tenuous. In so far as the claim is for the cost of caring (and that surely is what it is) it should be irrelevant that the carer is living in.

The problem of proof

We have criticised the existing law in that it requires claimants to prove that a conversation ("however imperfectly remembered", per Lord Bridge in Rosset)

The provisional scheme was intended to defeat this objection by putting all the emphasis on the financial contribution itself. It would not be necessary to establish a common intention to share beneficially, and so the proof of financial contribution would itself be enough.

However, the proposed scheme would create problems of its own. The proof of contributions would inevitably involve the production and inspection of bank accounts, and oral evidence may well be necessary as the court determines by whom a particular payment has been made. While we have advanced the case for applying a "broad brush" to issues of quantification, it seems to us naive to assume that the proposed scheme would lead to much by way of savings in court time.

The inflexibility of the statutory trust

The relationship between the proposed scheme and the existing law would be a critical question. It was always envisaged that the scheme would take over entirely once the criteria for its operation had been satisfied. Where parties shared a home within the meaning of the legislation, it would not be possible to claim an interest in that home by reference to resulting or constructive trust or proprietary estoppel. However, it must be admitted that this may have unfortunate, and undesirably restrictive, consequences.

This is particularly the case where claims are brought by "carers" who have been sharing the home with the person for whom they have been caring. As we have mentioned above, there is no principled reason why two claims by "carers" should be treated differently. Yet all would depend on whether the court were to hold that the carer and the cared-for were sharing a home. If they were, then it would be a matter of assessing the contributions made. If they were not, it would be a matter of identifying the minimum necessary to do equity between the parties, taking account of the expectation and the detriment, and applying the principle of proportionality.

In Part II, we referred to two recent decisions of the Court of Appeal, Campbell v Griffin and Jennings v Rice, as an illustration of the flexible response of the doctrine of proprietary estoppel to the expectation generated by the legal owner's conduct.

The resulting remedy could differ significantly, not only in substance, but also in form. The broad nature of relief available to satisfy a proprietary estoppel claim may lead either party to contend that the arrangement was outside the scope of the statutory scheme. These cases have certainly indicated a flexibility afforded to the courts when confronted with an equity arising by way of estoppel which application of our proposed scheme, with its conferment of a beneficial interest pursuant to a statutory trust, would inevitably deny.

The imposition of a trust may be singularly inappropriate, particularly in cases where the contributions made are relatively insignificant. It would be much easier, perhaps, for the court to be able to order the payment of a lump sum (which could itself be charged on the home) to compensate the claimant. The lack of flexibility of the proposed statutory trust would be a serious drawback.

The intention has always been to impose a "statutory trust" where the parties sharing the home have not come to an express arrangement dealing with their respective beneficial entitlements in the property. There would be no further role for the rules of implied (resulting and constructive) trust or proprietary estoppel. This radical exclusion of the principles applicable to informal arrangements for the purchase and the sharing of properties could only be justified if we were able to prove (beyond a shadow of a doubt) that the replacement scheme was better (indeed much better) and that it worked. Try as we have, we have been unable to do this.

Prospective or retrospective

An important issue is whether the scheme could be implemented with effect only in relation to home-sharing which began after a set date, or with retrospective effect. The disadvantage of the proposals having prospective effect only would be:

(1) the complexity of more than one scheme being in effect at a time – the applicable law would be determined by the date the claimant started to share the home;

(2) that this state of affairs could continue for a long time; and

(3) that, if one party stood to gain by arguing that the old law applied rather than the new, and there was conflicting evidence about the date on which the sharing period started, there would be a clear incentive for parties to litigate on the point.

As one of our aims in making provisional proposals was to simplify the law, these difficulties obviously make it preferable that any reform should have retrospective effect: from the day the reforms came into force, they would apply to all property and sharers within the scheme. However, we have some concern that making such a reform retrospective would aggravate the existing problem of compatibility with the European Convention on Human Rights.

The lack of a unifying principle

In truth, there are two principles underlying the scheme:

(1) that contributions made towards the acquisition, improvement and retention of the shared home should give rise to a beneficial interest in the property, and

(2) that contributions towards "home-making" should have a similar effect.

The former concerns contributions which are directly attributable to the property, but the non-financial contributions are better described as contributions towards the parties' joint lives. Such a distinction highlighted very clearly the contradictions which are at the heart of the project.

It can of course be argued that it does not matter that there are two underlying principles, provided they are not logically inconsistent. But the nagging doubt with the so-called "non-financial contributions" is that the scheme obscures the true nature of the claim. It may be a claim of a restitutionary nature, the claimant arguing that the services which have been provided have unjustly enriched the respondent. Or it may be that it is a claim for the loss of opportunity occasioned as a result of relationship breakdown.

Let us refer once more to Burns v Burns.

Conclusion

In Part II above, we highlighted cases which illustrated the injustice which may result from the operation of the law as it is. We sought to develop a scheme based on property law principles which would be fairer than the current law. We do not think this can be done. The property law scheme does not go far enough in remedying injustices which arise under the current law, but creates new ones of its own. It is not, therefore, one which we can even provisionally propose.

Note 1    The application of the law in relation to capital gains tax, assured tenancies, secure tenancies and Rent Act regulated tenancies is restricted in this way. The Law Commission provisionally proposed, in Renting Homes (2002) Consultation Paper No 162, the removal of the “only or principal home” test.    [Back]

Note 2    See paras 2.27 - 2.31 above.    [Back]

Note 3    See para 2.40 above.    [Back]

Note 4    See para 2.91 above.    [Back]

Note 5    See para 2.106 above.    [Back]

Note 6    See, for a recent decision where an attempt was made to deal with this problem, Le Foe v Le Foe, para 2.79 above.    [Back]

Note 7    This is implicit in the adoption of an approach based on economic benefits and detriments discussed below.    [Back]

Note 8    Although it is highly likely that the market rate for such services would be low relative to other rates of earning.    [Back]

Note 9    See paras 5.8 - 5.11.     [Back]

Note 10    This would involve rejecting the argument that once C has made a relevant “contribution” to the shared home, he should not be accountable for the accommodation cost on the ground that he has a beneficial interest behind a statutory trust and therefore a right of occupation.     [Back]

Note 11    Although accommodation costs appear to have very little impact on C’s share, this is due to the fact that C had a very small share to begin with.     [Back]

Note 12    See para 5.16.    [Back]

Note 13    In particular, implications in regard to the First Protocol to the European Convention on Human Rights, Art 1.    [Back]

Note 14    [1991] 1 AC 107, 132.    [Back]

Note 15    A further problem is that the scheme would operate as far as the shared home is concerned, requiring the court to value the contributions made – but the defendant may have generated an expectation that the claimant obtain an interest in some other property altogether: see the inheritance-expectation cases, such as Gillett v Holt [2001] Ch 210.    [Back]

Note 16    See paras 2.96 - 2.100 above.    [Back]

Note 17    And was not excluded, eg as being a lodger, relevant to facts such as those inCampbell v Griffin.    [Back]

Note 18    [1984] Ch 317, at paras 2.75 - 2.76 above.    [Back]

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