Fairclough v Salmon

Where co-owners agree that property is to be held in equal shares, that agreement can establish a constructive trust and fixed beneficial interests, even though the agreement is oral and contributions are unequal. The court may examine the parties’ common intentions, conduct and subsequent dealings to determine the trust and its extent. A later agreement to buy out a co-owner does not alter the beneficial interests or create a new constructive trust without reliance capable of founding such a trust. An agreement concerning land may also be void for non-compliance with Law of Property (Miscellaneous Provisions) Act 1989, section 2. Registration-based overriding interests do not govern disputes between co-owners.

The claimant and the two defendants acquired a leasehold flat as an investment. The trial judge found that they had orally agreed to hold it in equal beneficial shares. After one defendant was bought out with a family loan, the claimant and the first defendant remained entitled in equal shares. A later written agreement for the first defendant to buy out the claimant was never implemented.

The claimant obtained judgment for the value of her beneficial interest, subject to deductions, with transfer or sale orders. The first defendant sought permission to appeal on issues concerning severance, the buy-out, the 1991 agreement, the acquisition of the freehold reversion and his occupation of the flat. The Court of Appeal considered whether those matters altered the parties’ beneficial interests.

Permission refused; appeal dismissed. The trial judge was entitled to find that the parties’ oral agreement at acquisition was that they would hold the flat in equal shares. The words “in equal shares” operated as words of severance: although the legal title was held as a joint tenancy, the beneficial ownership was held in equity as a tenancy in common from the outset.

1. Constructive trust. The express oral agreement, together with the parties’ conduct and common intentions acted upon, established a constructive trust. The beneficial interests were not determined solely by direct financial contributions. The joint mortgage liability was consistent with equal ownership.
2. Buy-out of the third co-owner. The evidence supported the finding that the claimant and the first defendant jointly assumed responsibility for the £11,000 loan used to buy out the third defendant. His one-third interest was therefore acquired by both remaining co-owners, leaving them entitled in equal shares.
3. 1991 agreement. The later offer and acceptance acknowledged, but did not alter, the equal beneficial ownership. It was never implemented and there was no reliance, still less detrimental reliance, capable of creating a new constructive trust. In any event, the agreement was void for non-compliance with section 2 of the Law of Property (Miscellaneous Provisions) Act 1989.
4. Other arguments. The acquisition of the freehold reversion did not vary or terminate the leasehold trust. The principle in Protheroe v Protheroe was irrelevant because no freehold claim had been made. Overriding interests concern the effect of occupation on third-party purchasers or mortgagees, not disputes between co-owners. Later refurbishment expenditure affected accounting, not the size of the beneficial interests.

The order for transfer or sale was correct. Application refused.

• Court of Appeal (Civil Division): permission to appeal was refused and the appeal dismissed. The order of HHJ Levy QC in the Central London County Court was upheld in substance.