FAQs - DISPUTES REGARDING BENEFICIAL INTEREST IN A PROPERTY
Why might a dispute arise concerning the beneficial interests in a property?
This is most likely to occur in relation to a bankruptcy case where a joint-owner or other third party is claiming a share, or a greater share, in a property which forms part of the bankrupt’s estate (see paragraph 31.3.129).
What action should the official take where such a claim is made?
The official receiver should ensure that the claimant recognises that the onus is on him/her to prove that the presumption that beneficial interest follows legal title should be displaced. Paragraph 31.3.132 of the Technical Manual contains guidance of the sort of evidence that should be provided.
You mention a presumption that beneficial interest follows legal title. What do you mean?
In it simplest terms, this means that where a bankrupt solely owns a property he/she will hold 100% of the beneficial interest and, where he/she jointly owns a property with another person, each party will hold 50% of the beneficial interest (see paragraph 31.3.130 of the Technical Manual).
What sort of evidence might there be to displace that presumption?
The most compelling piece of evidence will be an express declaration of trust between the parties at the date of the purchase of the property. This is a declaration, usually noted at the Land Registry, as to the shares in which the property is to be held (see paragraph 31.3.135).
Is this conclusive proof of the parties’ intentions?
Not necessarily so. It is possible for the intentions to shift over time if, for example, the parties separate (or join) their financial affairs. This is known as a constructive trust (see paragraph 31.3.138).
It is rare however that, in the absence of an express trust, it could be considered that a property purchased as a marital or quasi-marital home will be held in shares other than 50/50 (see paragraph 31.3.143).
Should the official receiver just accept an express declaration of trust?
No. The official receiver should investigate the veracity of the document, following the guidance in paragraph 31.3.136, as it is not unknown for an express trust to be back-dated in an effort to take a bankrupt’s interest in a property out of the bankruptcy estate. Even assuming that the document is genuine, it might be challenged as a transaction at an under-value, as appropriate.
What about resulting trusts?
A resulting trust is one where the shares in the property are decided, in the absence of a express trust, based on contributions to the purchase price. So, for example, the party that provided 60% of the purchase price would hold 60% of the beneficial interest.
The principle of a resulting trust cannot normally be applied to a marital or quasi-marital home (see paragraph 31.3.137), but is likely to be relevant when dealing with an investment property (see paragraph 31.3.146).