Property Co-ownership: What happens when a relationship breaks down?

When a cohabiting couple separates, the parties often want to know what happens with the property. Are they able to sell it? How is the equity split between them? Ultimately, if the parties are unable to agree between themselves, then the Court has wide-ranging powers and can make an order that the property is sold and/or how the equity should be split.

Trust of land

The first step in the process is to determine how the legal and beneficial interest in the property is held between the parties. Whenever land is co-owned, a trust is created, known as a trust of land.  This has the effect of separating the legal and equitable title to the land between the trustees (legal owners) and the beneficiaries (equitable owners).

Different issues can arise when co-owning a property:

1. Where a property is registered in the names of both parties; or
2. Where the legal title is registered in the name of one party only, and the other wants to establish that they have a beneficial interest in the property.

The presumption where one party owns the legal interest in the property is that the owning party has 100% of the beneficial interest in the property.  However, the other party may be able to prove that they have a beneficial share under an implied trust.

This can be done in a number of ways. Firstly, having an express agreement about sharing ownership, but there must also be detrimental reliance on that agreement. Examples can include discussions with the other party that the property is for the benefit of us both or that everything is 50:50. Evidence of detrimental reliance can include paying for renovations and substantial expenses.  Decoration and paying for furniture are not enough for detrimental reliance.

Secondly, despite there being no express agreement, there could be evidence of a common intention for the other party to have a beneficial interest in the property.  Examples include making a direct contribution to the property, such as making the mortgage payments or enabling the other party to pay the mortgage.

The burden of proof is on the party seeking to show they have an interest in the property to provide the evidence and show that the presumption is incorrect.

Declaration of trust

Where the legal title to the property is registered in both names, then normally, their beneficial interest in the property is stated in a declaration of trust. The transfer document itself includes a declaration of trust within it. If there is a declaration of trust, then this is normally determinative of how the beneficial interest in the property is held. If there is no declaration of trust, which is quite rare nowadays, then the assumption is that they hold the property in equal shares.

Once it has been decided how the legal and beneficial interest in the property is held, then if the property is sold or one party decides to ‘buy out’ the other party’s interest in the property, then it may be necessary for one party to pay to the other party an amount out of their share of the equity through “equitable accounting”.