What is the position when partners jointly purchase commercial property as an investment and then fallout. How do you determine their ownership of the property?
Property is owned legally as well as beneficially. Legal interest in the commercial property may be different to the beneficial interest in the property. For example the legal owners can be holding the property legally on trust for themselves in different shares as beneficial owners or on trust for other parties as beneficial owners so the law looks at both legal and beneficial interest to determine ownership
Where the parties own property legally at say 50-50, the beneficial interest is presumed to correspond to the legal interest. In other words if two people hold the property at the land registry as 50-50 owners the law will treat that as also beneficially owning a 50-50 share.
However, where both the owners have contributed in unequal shares to the Property, even though they are registered as 50-50 owners the law will treat them as having a beneficial interest in the property in accordance with their monetary contributions. So, for example, if one of the parties has made an 80% contribution he will be treated in law as beneficially being entitled to 80% and the other to 20%. So effectively the legal owners hold the property on trust for themselves beneficially in the proportion of 80% and 20%. This type of trust is known as a resulting trust
However, what is the position when a commercial property is acquired as an investment by cohabitees?
It was always previously thought that the principle that beneficial interest follows legal ownership, unless a resulting trust can be shown to apply to property acquired for domestic purposes.
In the case of Marr v Collie (Bahama (2017) UKPC 17, (A) paid for a commercial property in full but (B) maintained he was responsible for the renovation, maintenance and furnishing of the properties of which he had funded himself and that he held a beneficial interest in the property.
The property was purchased in joint names but a dispute arose about their beneficial ownership. The case was appealed from the Supreme Court of Bahamas to the Privy Council in London.
The Privy Council’s Ruling
In the Privy Council the Court held that beneficial ownership does not necessarily follow legal ownership. Also, the Court could look at the party’s common intention and how they wished the property to be held.
This judgement emphasised that no one presumption, i.e. beneficial interest following legal interest, or resulting trust determined on the basis of the party’s contributions should apply.
Instead the focus should be on the parties’ intentions during the course of dealing with any investment commercial property. Without a detailed examination of the parties’ intentions there could be no proper determination made of the parties’ beneficial interest in the investment property.
This is a surprising decision because in the commercial context one would expect commercial owners to have agreed a written contract in respect of their ownership percentages in the property
Context is key.
This is a complex area of law and making your intentions clear by way of a written contract at the time of purchase of a commercial or residential property is key in the cohabitation relationship.
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