April 2013


31.3.94 Scope of this Part

This Part of the chapter gives guidance on valuing the property in which the insolvent has an interest and on establishing the extent of the insolvent’s interest in the property.

This Part contains the following guidance: 

Whether or not the insolvent is shown as an owner of the property, it/he/she may have an interest in the property, depending on their actions and intentions in relation to the property.  Guidance on these matters is in this Part.

Certain of the concepts explained in this Part will occur only in bankruptcy cases and the guidance has that in mind.


31.3.95 Establishing the insolvent’s interest in the property

The ultimate purpose of establishing the insolvent’s interest in the property is to establish how the property may be dealt with.  The first stage in this process will generally be the valuation of the property itself (see paragraphs 31.3.96 to 31.3.112)  Guidance on realisation of property can be found in Part 5. The official receiver should also be aware of the guidance in Part 6 regarding low value homes in bankruptcy.


31.3.96 Valuation of a property – verifying information provided by the bankrupt

The initial valuation of the property will be provided by the director/bankrupt in the statement of affairs or PIQ.  If this valuation is sufficient to demonstrate that the property is a low value home (i.e., one where the bankrupt’s interest is below £1,000 – see Part 6) then the official receiver need not verify the valuation provided.

Otherwise (and especially if the insolvent’s interest is to be sold), the official receiver in his/her capacity as liquidator/trustee should carry out a valuation (see paragraph 31.3.97) unless there has been a professional valuation carried out within the previous six months.


31.3.97 Methods by which the value of a property can be established

The value of a property may be established in a number of ways, as follows.   

The official receiver should decide which method is most appropriate on a case-by-case basis.


31.3.98 Professional valuation provided by insolvent

An estate agent or surveyor’s report obtained by the director/bankrupt will provide the most accurate valuation, given that the estate agent/surveyor is likely to have visited the property and will have knowledge of the current market condition in that particular area.

Where there are doubts, the official receiver should seek verification that the valuation provided by the director/bankrupt is genuine – contacting the valuer where necessary.  Similarly, the official receiver should check that the valuation was not conducted on the basis of a ‘quick sale’, as such valuations are typically lower.  Any valuation that is more than six months old should be verified by one of the other methods outlined at paragraph 31.3.97.


31.3.99 Local knowledge to assist in establishing a valuation

The official receiver’s local knowledge may be of assistance in verifying a valuation obtained by one of the other available sources but is unlikely to be sufficient in its own right.


31.3.100 Valuation information from mortgagee

Mortgagees often hold information relating to the value of a property, but this will usually date from the time the property was purchased, or the date it was remortgaged.  Any valuation supplied by a mortgagee that is more than six months old should be verified by one of the other methods outlined in paragraph 31.3.97.

The historical valuation that a mortgagee can provide will be useful in obtaining an internet valuation (see paragraph 31.3.101).


31.3.101 Use of internet valuations – average of at least two valuations to be used

When using internet valuation sites to establish the value of the property, the official receiver should obtain an average of two internet valuations. The  official receiver should note that not all sites will give a reliable valuation of the property, and the following sites should preferably be used:

The following website takes an average of the Nationwide and Lloyds TSB (Halifax) valuations:

The average valuations, taken together with the official receiver’s local knowledge, information provided by the bankrupt and information provided by the mortgagee should be sufficient to provide an accurate valuation, subject to the guidance in paragraph 31.3.102.


31.3.102 Internet valuations – need to exercise judgement

Internet valuations work on the basis that the valuation is arrived at by extrapolation of a known historical valuation (usually the purchase price – see paragraph 31.3.107).  The calculation can, therefore, be thrown out if there have been significant changes to the property since the last known valuation (an extension, for example).

The official receiver will need to exercise judgement on whether or not to accept the average internet valuation where the property has been significantly altered (for good or ill) since the last known valuation.  In cases of doubt, and in the absence of an acceptable valuation provided by the insolvent (see paragraph 31.3.98), consideration should be given to obtaining a drive-by valuation of the property (see paragraph 31.3.108), with details of the alterations to the property being notified to the agents conducting the valuation.


31.3.103 Internet valuations – commercial property

The effectiveness of an internet valuation of commercial property is likely to be low and, in such cases, the official receiver should consider arranging for a drive-by valuation instead (see paragraph 31.3.108).


31.3.104 Internet valuations – significant difference in internet valuations

Subject to the guidance given in paragraph 31.3.102, where there is a difference of greater than 10% between the two valuations (prior to calculating the average), the official receiver should obtain a third valuation, either from the internet or from a drive-by valuation (see paragraph 31.3.108).  The average of the three valuations should then be used as the property valuation.


31.3.105 Internet valuations – exceptions to requirement to get third valuation

Where two internet valuations have a difference of 10%, the official receiver need not get a third valuation (see paragraph 31.3.104) if both valuations show that the bankrupt’s interest is less than £1,000, or if both show the bankrupt’s interest to be above £10,000 and an insolvency practitioner is to be appointed (see Chapters 16 and 17).                                                                                                                               


31.3.106 Dispute over valuation

Where there is a dispute over the valuation of a property, the disputing party should be asked to obtain his/her own valuation, which may be used as the third valuation referred to in paragraph 31.3.104.


31.3.107 Establishing the purchase price and date for the purpose of conducting a valuation

Where it is necessary to obtain information relating to the value of the property at the date it was purchased, such information may be obtained, for properties purchased after 1 April 2000, from the title register held at the Land Registry (see paragraph 31.3.24).

The information can also be obtained from the mortgagee (see paragraph 31.3.100), from paperwork held by the bankrupt or the conveyancing agent used in the original purchase.


31.3.108 Use of a drive-by valuation

Due to cost implications, drive-by valuations should be used only rarely – where, for example,  there is no available professional valuation (see paragraph 31.3.98), there is a discrepancy in the internet valuations (see paragraph 31.3.104) or where the property is a commercial property.


31.3.109 Drive-by valuation - general

A drive-by valuation is a valuation carried out by the valuer assessing a property from the street.  It can be more accurate than an internet valuation (see paragraph 31.3.102), as it is based on the knowledge and skill of the valuer.  A drive-by valuation is subject to the same limitations as an internet valuation, in that the valuer will not be aware of the exact condition of the property or may not be able to see any extensions to the property from the street.


31.3.110 Drive-by valuations – Connells Group

Where a drive-by valuation is considered necessary, it may be obtained it may be obtained via Connells Group, who offer a fixed fee service for residential property of £65 plus VAT.  To instruct Connells Group, the form attached as Annex A should be completed and e-mailed to  Further information about the use of this service can be obtained on the ORBS pages of the intranet.

Official receivers are not bound to use this provider and, instead, a local agent may be engaged.


31.3.111 Drive-by valuations – commercial property

The Service does not have a fixed fee arrangement with Connells Group for the valuation of commercial property.  Connells Group will undertake these by agreement on a case-by-case basis, or the official receiver’s usual agents may be used.


31.3.112 Charges affecting the value of the insolvent’s interest in the property

Once the value of the property has been ascertained, it will be necessary to establish the whether there are any secured debts, such as a mortgage (see or other charges (see paragraph 31.3.113) against the property.

Details of charges may be obtained from the Land Charges Department (see paragraph 31.3.30), the Land Registry (see paragraph 31.3.24) or from other chargeholders (see paragraph 31.3.9).


31.3.113 Mortgages

The most likely factor affecting the value of the insolvent’s interest in a property will be a secured debt in the form of the mortgage used to purchase the property. The mortgage is secured by a charge registered against the property at Land Registry.

Mortgages may be repayment (where the debt and interest are repaid over the term of the loan) or interest only (where the interest on the loan is paid, with the original loan being repaid in full at the end of the loan term). 

The debt due under a repayment mortgage will decrease at a greater rate in the latter years of the mortgage term as the early years’ repayments are mainly allocated to interest.   Borrowers in an interest only mortgage are often required to have some means to repay the loan at the end of the term.  Generally, this is an endowment policy (see Chapter 31.5, Part 6).  In respect of some investment properties, the purchaser will intend to repay the mortgage from the capital value of the property.


31.3.114 Second or subsequent charges against the property

In addition to the mortgage, the property may have further sums secured against it in the form of a charge registered at the Land Registry.

Charges against land/property generally have priority in the order that they are registered [note 1], unless there is an agreement to the contrary between lenders and one party has acted in detriment in relation to that agreement [note 2].

Where charges have the same date of registration, it is the date of the interim order that determines priority, providing that the charging order is made absolute (final) prior to the date of the insolvency.

The registration of charging orders by a creditor after bankruptcy is covered in Chapter 9, Part 4.


31.3.115 Validity of the charge

Where there is doubt as to the validity of a charge, the official receiver should check with the mortgagee or chargeholder that any mortgage or charge created over the bankrupt’s interest in the property has been properly executed and made final (see Chapter 9, Part 4). The official receiver should also verify that the amount of the loan has been received in full. This is of particular importance where a charge has been granted to a family member, relative or other associate, or connected party. 

Where the monies have not been received in full, the official receiver should consider whether there has been a matter in relation to which the official receiver should seek recovery (see Chapter 31.4A).


31.3.116 Validity of charges – company

In a company case the official receiver should check that the charge has been properly registered with the Registrar of Companies (see Chapter 9, paragraph 9.94).

It is not necessary for a fixed charge to be registered with the Land Registry.


31.3.117 Equity in the property and the insolvent’s interest therein

The difference between the value of the property (see paragraph 31.3.97) and the amount outstanding under the secured loans (see paragraph 31.3.112) is known as the equity.  Any beneficial interest in the property will be an interest in the equity of the property (see paragraph 31.3.14).  The level of an insolvent’s beneficial interest in the property can be affected by a number of factors, i.e.: 


31.3.118 Only one party benefits from the proceeds of a secured loan – equity of exoneration

A property is often the most significant asset a person owns and, when an individual seeks finance for a business, it is not unusual for the property to be used as security.  If the property is jointly owned the lender will usually ensure that both owners execute charges over the property for the loan.

Similarly, a charge may be obtained to secure a debt incurred in the course of business.

If there is such a charge on a jointly owned property to secure the debts of only one of the joint owners, the other joint owner, being in the position of surety (i.e., one with an obligation to pay the debt), may be entitled to have the secured indebtedness discharged so far as possible out of the beneficial interest of the other joint owner.  This is known as equity of exoneration and is generally a presumptive right depending on the intentions of the parties, subject to certain principles [note 3].


31.3.119 The application of equity of exoneration

If it is proven that the loan/expenditure on which a charge was created was created purely for the benefit of the business of (for example) the husband, and the wife derived no direct benefit from it, then the wife may be entitled to have the secured debt discharged (so far as is possible) out of the husband’s share of the equity.

Such a situation may also apply where the monies were applied solely for the benefit of (for example) the husband’s second household, or to support another person (Annex B of this Chapter provides a worked example of equity of exoneration in effect).


31.3.120 The application of equity of exoneration – scope of the guidance

The guidance in the following paragraphs assume that it is the bankrupt that benefitted from the money, and the principle of equity of exoneration (see paragraph 31.3.118) is being applied in favour of the non-bankrupt joint owner.

Official receivers should however bear in mind that the situation may be in reverse, with the non-bankrupt joint owner being the party who benefitted from the loan monies.  In which case, the guidance should be considered in reverse, as it were.


31.3.121 The application of equity of exoneration in a bankruptcy case

If a non-bankrupt joint owner of a property wishes to rely on exoneration (see paragraph 31.3.118) to establish a greater share in the equity of the property then the official receiver, as trustee, should request evidence to show the extent to which the monies/expenditure secured by the charge were incurred solely for the benefit of the bankrupt and that the non-bankrupt joint owner did not derive any consequential benefit [note 4].

Where the non-bankrupt joint owner has no independent income and the household relies on the business income of the bankrupt for financial support, it is unlikely that the principle of exoneration would apply [note 5].


31.3.122 Effect of official receiver agreeing that equity of exoneration applies

Any agreement by the official receiver, as trustee, that the principle of equity of exoneration applies does not affect the joint-owner’s responsibility to the chargeholder to discharge the debt.


31.3.123 Circumstances where the charge may not be discharged firstly out of the bankrupt’s interest

The official receiver should not agree that a debt under a charge can be discharged first from the bankrupt’s interest under the principle of exoneration in the following circumstances: 

  • That the non-bankrupt joint owner intended to make a gift to the bankrupt [note 6]; or 
  • That the money raised was to pay debts of the bankrupt incurred to maintain the lifestyle on the part of both parties [note 7]; or 
  • That the money raised was used to discharge the debts of the non-bankrupt owner [note 8]; or 
  • That the money was used for the benefit of the non-bankrupt owner, either wholly or jointly with the bankrupt.  This will include money used to pay their general household and living expenses [note 9].


31.3.124 Other reasons why a charge may be set aside

A party to a charged debt may have grounds to have the charge over his/her interest set aside in certain circumstances, as follows: 

Depending on the situation, the setting aside may be to the benefit or detriment of the insolvent estate, depending on whether the insolvent committed the wrongful act, or is the victim.


31.3.125 Charge set aside on the grounds of fraud

A charge on a person’s interest in a property may be avoided or set aside if it can be shown that the charge was obtained by fraud, fraudulent misrepresentation or forgery of that person’s signature [note 10].

The complicity of the insolvent in the obtaining of the charge is covered in paragraph 31.3.107.


31.3.126 Charge set aside on the grounds of duress

A charge may be set aside on the grounds of duress if the party seeking to have the charge set aside can show that the charge was executed because they were subject to violence, threat of violence or actual or threatened imprisonment [note 11].


31.3.127 Charge set aside on the grounds of undue influence

Undue influence is the taking advantage of a position of power or trust over another.

Before a presumption of undue influence can arise it is necessary to show that the disadvantaged party placed trust and confidence in the party taking advantage, and that the transaction is not readily explainable by reference to their relationship [note 12].  If that is so, there are certain relationships where the presumption of undue influence is irrebuttable, such as parent/child [note 13] or solicitor/client [note 14].

If the parties were husband and wife or civil partners, then the presumption will arise, but it is rebuttable.  In that case, it will be for the person who benefitted from the arrangement to show that it was free from undue influence [note 15]. 


31.3.128 Undue influence – position of mortgagee

Where a loan is entered into between a lender and a husband and wife or civil partners, any undue influence (see paragraph 31.3.127) will not affect the enforceability of the mortgage provided the lender was unaware, or has no reason to suspect, that there was undue influence, and the lender believed that the transaction was to the benefit of the husband and wife or civil partners [note 16].

If the spouse/civil partner merely guaranteed the loan made to the other spouse/civil partner, the security will be rendered invalid if the lender did not take steps to ensure that the spouse/civil partner gave an informed and true consent to the guarantee [note 17].


31.3.129 Establishing beneficial shares in a property – background

The law on how beneficial interest (see paragraph 31.3.14) should be calculated is unclear.  Most of the legal principles in determining beneficial interest have arisen to decide matters where unmarried couples have split.  Where couples have been married and subsequently separate the court has the power to make a property adjustment order (see paragraph 31.3.281) [note 18]. The legal principles in determining beneficial interest are equally applicable to deciding property shares in bankruptcy – whether the parties are married or not.

The following paragraphs 31.3.130 to 31.3.146 provide guidance on the principles to be applied when there is a dispute over the beneficial interest held by the bankrupt.  Such a dispute may arise where a third party believes he/she is entitled to a (greater) share in the property, or may arise where the official receiver, as trustee, believes that he/she has a claim to a (greater) share of a property jointly owned by the bankrupt or owned by a third party.


31.3.130 Establishing the beneficial interest in a property – starting position

Unless there is an express declaration of trust providing otherwise [note 19] (see paragraph 31.3.135) the presumption is that beneficial interest will follow legal title. 

Consequently the starting point for the official receiver when considering beneficial interest in a jointly owned property is that the bankrupt has a 50% beneficial interest in the property (where there is one joint owner) and, for a property solely-owned by the bankrupt, that the bankrupt has a 100% beneficial interest in the property.  Unless evidence is produced to the contrary (see paragraph 31.3.131) the official receiver should proceed on that basis.

The court has rejected the notion of determining the interest solely on the basis of a contributions to the purchase price or deposit [note 20].


31.3.131 Claim of contrary intention to beneficial interest following legal title

Where there is a claim that the parties held a contrary intention as to how the beneficial interest would be split so as to override the principle that it will follow legal title (see paragraph 31.3.130), it will be for the party claiming that the position is different  to make representations to the official receiver, as trustee, and to provide the evidence to substantiate the claim [note 21].  Paragraph 31.3.132 provides guidance as to the types of information that the bankrupt/third party should be asked to provide back up such a claim.

In a solely-owned property, a party whose name is not on the proprietorship register particularly has the burden of establishing an interest in the property – through contributions, for example [note 22] [note 23] [note 24] (see paragraph 31.3.138).


31.3.132 Factors to take into account in deciding if there was an intention to share beneficial interest and, if so, in what proportions

The court has held that, in deciding the shares in which a property is to be held, each case will turn on its own facts. Matters to be taken into account include: 

  • Creation of a trust (see paragraph 31.3.134).
  • Advice or discussions at the time of transfer which shed light on the parties’ intentions.
  • The reasons why the home was acquired in joint names or in a sole name.
  • The reasons why (if so) it was intended that the property would pass to the survivor should the other party die (jointly owned only).
  • The purpose for which the property was purchased.
  • The nature of the parties’ relationship.
  • Whether the parties’ had children for whom they both had a responsibility to provide a home.
  • How the purchase was financed initially.
  • How the monthly mortgage repayments were made and by whom.
  • How the parties arranged their finances, whether separately, together or a bit of both.
  • How they discharged the outgoings on the property and other household expenses.
  • Any capital improvements to the property and who financed them/made loan repayments. These should be significant. Repairs and decoration, unless significant should not be taken into account [note 25].
  • Consideration of life events e.g. separation of the parties.
  • Liquidation of other joint assets after purchase of property.

The court has held that, even taking all this into account, cases in which the joint legal owners intended that their beneficial interests would be different from their legal interests would be very unusual [note 20].


31.3.133 Establishing the beneficial interest in a property where there is a dispute – appointing an insolvency practitioner

Depending on the value of the share of the property that is in dispute, it is likely to be appropriate to seek the appointment of an insolvency practitioner as trustee if the dispute cannot easily be resolved and the bankrupt’s interest in the property is likely to be in excess of £10,000 (see paragraph 31.3.173).


31.3.134 Creation of trust

As outlined in paragraph, the law is unclear on how a beneficial interest can be created.  Existing case law [note 26] [note 27] suggests that when a party is claiming a beneficial interest that party will rely on the equitable doctrines of trust law, namely: 

Advice regarding protective trusts is in paragraph 31.3.15.


31.3.135 Express declaration of trust

An express declaration of trust clearly sets out the parties intentions. HM Land Registry has since April 1988 provided for a box on the relevant form [note 28] for the transferees to declare how the beneficial interest in a property is to be held [note 29] and where this is available this should avoid any uncertainty in the parties’ intentions at the time the property was purchased.

The fact that the beneficial interest is determined by  an express declaration at the date of acquisition does not mean that it cannot alter thereafter.


31.3.136 Verifying substance of an express trust

Official receivers should take steps to satisfy themselves as to the veracity of any trust deed.  These enquiries should seek to establish if the deed was created following advice from a solicitor and, if so, the solicitor and witnesses should be contacted to conform that the deed was created on the date purported.  The official receiver should, in particular, ask the witnesses to confirm that they saw the signatures being appended to the deed on the date stated.

If the trust deed was prepared by a solicitor or other professional who confirms the facts then this is likely to be conclusive evidence of the veracity of the deed.  


31.3.137 Resulting trust

In general the application of a resulting trust is now limited (see paragraphs 31.3.139 and 31.3.140) and a beneficial interest will not arise unless there is also an intention to create a trust as between the parties.

The basic principle in relation to resulting trusts is that where the legal estate is conveyed into the name of one person but another party has contributed to  some or all of the purchase price, there will be a rebuttable presumption that party making the payment will own part or all of the beneficial ownership of the property [note 30].

For a resulting trust to exist the party claiming a beneficial interest must have made a direct financial contribution to the purchase price of the property.  It is considered that there is no requirement that there was also a common intention between the parties as to the existence or extent of the resultant beneficial interest. The larger percentage of the purchase a party pays the greater the resulting trust and thus the beneficial interest will be.


31.3.138 Constructive trust

This is an implied trust that has been ‘constructed’. A constructive trust will arise where there has been no express declaration of trust (see paragraph 31.3.135) (or there was an express declaration but the position changed over time) and is an equitable remedy.  Therefore the actions, conduct and intentions of the parties need to be considered.  For a constructive trust to exist there must be a common intention that a trust is to be created, and second, that there has been some material alteration in the claimant's position which it would be inequitable to deny.  Where there was an express trust and a party claims that the intentions have changed, possibly creating a constructive trust,  the burden will be on that person to provide the evidence to prove the claim. The intention of the parties can be constructed from their conduct.   Guidance on matters to be considered in deciding whether a constructive trust has arisen is in paragraph 31.3.144.


31.3.139 Beneficial interest, trusts and jointly owned property

It has been held that there cannot be a resulting trust (see paragraph 31.3.137) in relation to a jointly-owned matrimonial or quasi-matrimonial home.  This is because there is a presumption that, in the absence of evidence of a contrary intention (see paragraph 31.3.141), where a property is purchased jointly as a home the couple have made an emotional and economic commitment to a joint enterprise.  Consequently, where a domestic property is conveyed into the joint names of the cohabitants (whether in a relationship or not) the starting point is that the legal and beneficial interests are joint and equal (see paragraph 31.3.130) [note 31] [note 32] [note 33].


31.3.140 Beneficial interest, trusts and solely-owned property

Where the non-owner has contributed towards the acquisition of the property without any express (written) statement that the contributions will give rise to a beneficial interest, a constructive trust may arise to protect the non-owner’s position (see paragraph 31.3.138).

In determining the value of the non-owner’s beneficial interest in these circumstances, there is a rebuttable presumption that the shares will be held in proportion to the contributions of each party [note 34] [note 35]. 


31.3.141 Evidence of a contrary or change of common intention

In establishing whether there was any intention to hold the beneficial interests in the property in shares other than in the same proportions as the legal title (see paragraph 31.3.130), it is necessary to establish if there is evidence of an actual common agreement, arrangement or understanding between the parties, possibly based on evidence of discussions between them, however imperfectly remembered or imprecise the terms.  Such an agreement can be inferred from the parties’ conduct (changing the nature of the legal title, becoming party to a mortgage on the property or, even, simply discussions) in relation to the property, but cannot be attributed in the absence of any agreement or discussion [note 36] [note 37].

Further, it would be wrong for the parties to intend, at one and the same time, for the beneficial interest to be shared equally should they separate on amicable terms but to be shared unequally were they to split on acrimonious terms, or if one were to be made bankrupt [note 38].


31.3.142 Change of common intention – acting in a contrary manner

The fact that one party apparently acts in a manner contrary to an agreement (see paragraph 31.3.141) will not change the agreement unless he/she communicates a change of understanding or agreement to the other party [note 39].


31.3.143 Establishing the shares in which equity is held

If there is a common intention between the parties as to the shares in which the property is to be held, such that the presumption of equal shares (see paragraph 31.3.130) can be displaced then that common intention should be followed, but such a change should be scrutinised by the official receiver as a possible transaction at an undervalue (see Chapter 31.4A, Part 2).

Where the presumption can be displaced, but it is not possible for the parties to agree the proportion in which the shares were to be held, it is necessary to investigate the whole course of dealings in the property to reach a fair division of the shares.  Each case will turn on its own facts and, whilst financial contributions to the property will clearly be an important factor, there will be other factors that might be relevant (see paragraph 31.3.132) [note 40] [note 41].

It has been held that:

‘once the court was satisfied that it was the parties' common intention that the beneficial interest was to be shared in some proportion or other, the court might have to give effect to that common intention by determining what in all the circumstances was a fair share.’ [note 42].

The court has however held that:

‘In family disputes, strong feelings are aroused when couples split up. These often lead the parties, honestly but mistakenly, to reinterpret the past in self-exculpatory or vengeful terms. They also lead people to spend far more on the legal battle than is warranted by the sums actually at stake. A full examination of the facts is likely to involve disproportionate costs. In joint names cases it is also unlikely to lead to a different result, unless the facts are very unusual’ [note 43].


31.3.144 Contributions to the property leading to a beneficial interest

It will be difficult for the non legal owner of a property to rebut the presumption of equity following ownership (see paragraph 31.3.130) unless they have made some financial contribution to the property.

Fulfilment of domestic duties alone will not be sufficient to demonstrate a beneficial interest [note 44]. Funding substantial improvements to the property usually will be sufficient [note 25], and the amount of the interest will generally relate to the financial value of the improvement [note 45].  There is similar provision in the legislation relating to civil partnerships [note 46].

The discount available under a council right to buy scheme may be considered to be a financial contribution to the property for the purposes of proving a beneficial interest [note 47].


31.3.145 Summary of guidance relating to division of beneficial interest

A summary of the guidance as regards the division of beneficial interest is as follows: 

  • Beneficial interest will follow legal interest unless the contrary can be proved (see paragraph 31.3.130). 
  • It will be difficult to prove the contrary where the property was purchased as a domestic home for the purchasers unless there is evidence an agreement to this effect (see paragraph 31.3.139). 
  • If there is an intention to share the beneficial interest in different proportions to the legal interest then this should be followed (see paragraph 31.3.135). 
  • The intention can be changed by events, such as the division (or joining) of financial affairs (see paragraph 31.3.141). 
  • If there is evidence of an intention to share the beneficial interest in different proportions to the legal interest, but the proportions are in dispute then the whole of the dealings in the property should be taken into account to decide the shares (see paragraph 31.3.144).


31.3.146 Investment properties

It is unlikely that the legal principles in relation to matrimonial homes or quasi-matrimonial homes (see paragraph 31.3.129) would apply to properties purchased as, or used as, investment properties.  In such a case, it would be necessary to look to the shares in which the property were purchased, in the absence of any express agreement in which the property was to be held.


31.3.147 Equitable accounting - general

In some cases, there is a further principle to be applied in establishing the bankrupt’s beneficial interest, which is the principle of equitable accounting (see paragraphs 31.3.148) [note 48].  This principle is to do with establishing how the parties’ financial contributions in the property affect their beneficial interest and is applicable following one party leaving the house and in connection with the subsequent sale or other disposal of the property.  Equitable accounting occurs only to work out contributions made to a property after a couple no longer cohabit, the transactions when the couple are together do not count.

The starting point for the calculations will be to establish the proportions in which it was intended that the property be held (following the advice in paragraphs 31.3.129 to 31.3.146).  The equitable accounting principles would seek to establish how/if those proportions should be changed.


31.3.148 Equitable accounting – principles

Equitable accounting can only apply to an increase in equity that arises directly from a reduction in the mortgage balance and/or structural improvements to the property. It does not apply where any increase in the equity is due to a rising property market.

The principles of equitable accounting will take into account the following: 


31.3.149 Equitable accounting – mortgage repayments

A party making a greater contribution to the mortgage repayments (but not interest payments) may be entitled to a greater share of the sale proceeds of the property [note 49].  Generally, the person making the mortgage repayments will be entitled to one-half of the reduction in the outstanding mortgage, subject to an offset for occupation rent (see paragraph 31.3.150).


31.3.150 Equitable accounting – occupation rent

Where one party remains in occupation of the property, that party may be required to account to the other for ‘rent’ for having had exclusive use of the property. This is known as occupation rent. Occupation rent and mortgage interest repayments (see paragraph 31.3.149) are often off-set [note 50] [note 51] [note 52] [note 53] [note 54]. Where the person in occupation cannot control the date of the sale, it may not be possible to charge occupation rent [note 55].  Similarly, it may not be possible to charge occupation rent where the property was needed by minors [note 56].     


31.3.151 Equitable accounting – renovations and improvements

Where a property has been renovated and improved, the party who has made the renovations/improvements may be awarded with a greater share of the proceeds to reflect the resulting increase in the value of the property [note 57], but this principle would not apply to improvements made whilst both parties were still in occupation [note 58] . Generally, the person funding the improvements will be entitled to one-half of the increase in value of the property resulting from the improvements.


31.3.152 Changes in beneficial interest division and equitable accounting

Where a change in beneficial interest occurs and moves from the usual split starting point of 50:50 (see paragraph 31.3.130) this change could be considered as having satisfied any call for equitable accounting to be considered.


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