Podcast: the Fair
Jeremy, Keith and Lucy, good friends at university, agreed after they graduated in 2009 to club together to buy a house in London. Malcolm, an uncle of Lucy, had recently moved into sheltered accommodation and offered to sell his house to her for £200,000, a price which represented a £25,000 discount on the market value at the time. The friends were delighted. Jeremy contributed £25,000 in cash and Keith contributed £25,000 that he obtained from his father, Freddy. The balance of the purchase price, £150,000, was raised by way of mortgage with Southern Rock Bank. At the bank's insistence, the house was registered in the joint names of Jeremy, Keith and Lucy, with each of them undertaking joint and several liability for the mortgage repayments.
Malcolm hated life in sheltered accommodation, and in 2010 he moved back to the house, living in an extension that was built using some of the money he had received from the sale of the house in 2008. Keith initially objected to the arrangement, saying that the presence of an elderly man would cramp their lifestyles, but reluctantly accepted when Jeremy and Lucy insisted and pointed out that the extension would increase the value of the house.
Keith has suddenly disappeared without telling anyone he was leaving. The others have just discovered that some months ago Keith forged the signatures of Jeremy and Lucy on a mortgage in favour of Tealeaf Building Society to secure an advance of £250,000. Part of this money was used to redeem the mortgage in favour of Southern Rock Bank; the rest has vanished with Keith.
Jeremy, Lucy and Malcolm cannot afford to shoulder this unexpected debt and are fearful of losing the house.
Advise them as to their legal position.
Podcast: the Fair
The transfer of legal title to J, K and L will mean that they are trustees of the legal title to the house, by virtue of a statutorily imposed trust of land. Co-ownership of the legal estate can only take the form of a joint tenancy (section 1(6) LPA). However beneficial ownership might be able to exist as a joint tenancy or a tenancy in common. I am going to assume that there is no declaration by the parties regarding their interests and so everything now depends on the facts. This looks like a domestic arrangement and so Stack v Dowden applies to it.(1) There is no attempt to introduce the topic and the answer "jumps in" to the problem without evidence of thought or structure. The candidate makes the great error of assuming something. "I am going to assume" are words that should never be written in a land law answer.
In that case, which concerned an unmarried couple with the man (unusually) trying to claim a larger share, the House of Lords said that equity follows the law. There is therefore a presumption that J, K and L are joint tenants in equity. The presumption will give way if one party can establish that they intended the beneficial ownership to be different from the legal ownership. (2) There is no case law, no analysis and no detail. For all the Examiner knows, this could be made up.
J and K may try to claim a larger share than L in order to reflect the fact that they made an additional £25,000 contribution to the purchase price. The judges in Stack(3) The candidate gives no analysis of Stack, nor explains its significance. suggested that this depended on all the facts, (4) It could be said of most legal problems that they "depend on the facts". This is a frequent error made in examinations and gives the impression that the candidate does not understand the principles behind the law. To say that "the judge must decide" or "it depends on how the facts are viewed" is not a substitute for you're your own analysis. It makes the answer appear weak. which included how much money that had paid for the house. It is up to J and K to prove that they have a larger share based on all these facts. I think it is likely that J and K will have a larger share because it does not seem fair that they have the same as Lucy when they paid more money. (5) What are the reasons for this conclusion, and what case law supports it? General unsupported statements gather very few marks. L might argue that she has also done a lot – by getting her uncle to sell them the house – but it is not certain that this will count. (6) Again, why and on what basis? Therefore J and K may be entitled to a larger share of the beneficial ownership than L. In fact, it is possible that M (the uncle) might(7) This gives the impression of uncertainty – what conclusion do you reach, and why? be able to claim a share because he sold them the house cheaply and he paid for the extension. In a number if cases,(8) References to "a number of cases" does not impress an examiner: it could be said of everything! Case names must be given, although there is usually no need to recite the facts. this has been found to be sufficient to get an interest in property. Cases after Stack have tried to apply the law to a range of different situations but they have not been consistent. (9) Give examples. Consequently, the judge will have to decide. Overall, I think that J and K have a larger share than L and that M also has a share. The house is held on trust for all of them.
When the house is mortgaged by K, this is a fraud because the others have not signed the mortgage. This means that the Building Society have a problem because they cannot obtain priority over J and L and M. They will have to sue K, if they can find him. It might be possible for the Building Society to argue that they do have a mortgage over K’s share in the land, but this is not worth very much as he only owns part of it – see Ahmed v Kendrick. The Building Society will want to get their hands on the property in order to sell it, but because they don’t have a legal mortgage, this is going to be difficult. They can apply to the court for an order for sale, but because they do not have a mortgage over all of the property, this is not likely to succeed. (10) This is probably the best part of the answer. Accurate and with some case law. Of course, it could be more precise.
Because of K’s fraud, J and L and M are lucky because they may be able to stay in the property. Keith owes the Building Society a large amount of money and they can make him bankrupt. If they do, they might have a better chance of selling the property – see the Insolvency At 1986 and Slayford. (11) Failure to mention relevant statute law – here TOLATA 1996 – creates a very poor impression. This is especially so if you have been permitted to take the statute book in to the examination with you.