Buying property together and the importance of clearly identifying beneficial ownership

Whether you are partners buying your first home together or investing with family and friends in the purchase of a property, it is incredibly important that you identify how you intend to own the property from the outset. Normally, you will be asked to complete a form known as ‘TR1’. This is the transfer deed and within it, is contained a declaration of trust which identifies how the purchasers intend to own the property. Purchasers can elect to own the property jointly or as tenants in common in equal or unequal shares.

Caught up in the excitement of the transaction, purchasers can simply tick a box without understanding or giving due consideration to what they are actually ticking and agreeing.

The transfer deed will be the starting point for identifying the purchasers’ intended beneficial ownership. If either party seeks to argue otherwise, he or she will have to produce strong evidence to convince the court that what they had stated in that deed was not their true intention.

In the recent Court of Appeal case of ‘Ralph v Ralph’, Mr David Ralph (father) failed to obtain an order for rectification of a transfer deed based on common mistake.

The facts

In October 2000, David was unable to get a mortgage to buy a property and he asked his son, Dean Ralph, to assist him. Dean obtained a mortgage against the property and David paid the balance of the purchase price. The property was transferred into their joint names and box 11 of the TR1 form which deals with declarations of trust, had been ticked to indicate that the purchasers intended to own the property as tenants in common in equal shares. The TR1 form was only signed by the transferors.

The Court of Appeal considered the findings of the lower courts and found that they had been incorrect to allow the TR1 to be rectified but they accepted that the trial judge had found on the facts that there had not been a continuing common interest as to the split in the beneficial ownership of the property.

The Court of Appeal acknowledged that, since the parties had not discussed their intentions at all,  rectification was not possible. For rectification to be available, the parties’ needed to have discussed their intentions at the very least.  In the absence of any discussion as to intention, the Court could not order rectification for common mistake.

Points to note

A party seeking rectification of a document based on common mistake needs to prove that a common intention existed between the parties for a mistake to have occurred. If the party is unable to demonstrate common intention, then the court cannot rectify the document.

This case illustrates why joint purchasers need to discuss and identify how they intend to share their beneficial interest in the property before completing the TR1 form. It is also good practice for conveyancing solicitors to check that the purchasers have understood the significance of the TR1 form and have signed it.

Upon the death or insolvency of a joint owner or following the breakdown in a relationship, many clients find themselves in protracted litigation seeking to prove their beneficial interest in a property. The solicitor instructed to advise on the purported claim to beneficial ownership, will always consider the prospects of any claim by referring back to the conveyancing file and the declaration of trust specified in the TR1. What they find will often mean the difference between a strong or weak claim.

If you need assistance

Whether or not you intend to sell your property soon or in the future, it is worth checking how and if your interests in a property have been recorded. It is better to fix any problems now by having a new declaration of trust drawn up rather than wait for a dispute to arise. If you find yourself in dispute about your interests in a property  and  you require legal advice or guidance in either bringing or defending a claim, please contact Patricia Wollington in our London litigation team on 020 7481 2422 or email or call 020 8464 4242 for our Bromley team.