Remortgaged Equity Distribution

November 24th, 2015

A cohabiting couple who bought a house as joint tenants with equal shares has ended up with one party owning 85 per cent of the equity, although no express declaration to vary beneficial ownership was ever made.

Ordinarily, where a property is jointly owned and there is no express declaration of trust setting out terms to the contrary, the equity in the property is deemed to be owned in equal shares. However, in Barnes v Phillips [2015] EWCA Civ 1056, the Court of Appeal has decided that unequal cash distributions made to the two parties on re-mortgage of the property demonstrated a change to the original intention to hold the property in equal shares even though no express declaration to vary beneficial ownership was ever made.

The case concerned a cohabiting couple – Mr Barnes and Ms Phillips – who had been together since 1983 and had two children together. In 1996 the couple purchased a property as joint tenants for the sum of £135,000. Some years later, when the property had increased in value to £350,000, the couple remortgaged and used £66,069 of the funds raised to pay off business debts that had accrued to Mr Barnes while the balance was used to redeem the original mortgage.

Shortly thereafter, the parties’ relationship broke down and it fell to the Court to determine the parties’ respective interests in the property. On the basis that one party (Mr Barnes) had received the sole benefit of 25% of the equity in the property when the property was re-mortgaged, the Court of Appeal held that there was to be inferred a common intention at that point to vary their interests in the property. Taking into account the extent of each party’s contribution towards the children (including sums outstanding due from Mr Barnes to the CSA), repairs to the property and mortgage repayments since the breakdown of the relationship; the Court of Appeal upheld the conclusion of the first instance judge that a fair division was 85/15 in Mrs Phillips’ favour.

This decision represents a shift away from previous precedent which suggested that where property is owned as joint tenants, a common intention to depart from a 50/50 division could only be established in the most unusual of circumstances.