Richards v Wood

A secure tenant’s statutory right-to-buy discount is prima facie a contribution in money’s worth towards acquiring the property. Clear words are required before a declaration of trust will be construed as surrendering its value.

A recital recording the parties’ cash contributions is conclusive between them through contractual estoppel, even if it does not reflect the funds actually supplied. Where a trust deed provides that money spent on improvements increases the contributor’s interest, the historic expenditure is brought into the division mathematically. It is not limited to the resulting enhancement in value.

A trustee selling property must exercise the skill and care reasonable in all the circumstances. A sale within the reasonable valuation range supported by expert evidence may satisfy that duty.

Mr and Mrs Wood bought their council house under the statutory right to buy with funds supplied by their son-in-law, Mr Richards. A declaration of trust recorded their respective contributions, provided for improvement expenditure to increase the contributor’s interest, and required a sale at full market value.

Mr and Mrs Wood later sold the property to their son and daughter-in-law for £102,000. Mr Richards disputed the calculation of his share and alleged a sale at an undervalue. District Judge Matharu held that the statutory discount and the cost of double glazing formed part of Mr and Mrs Wood’s contribution, that no breach of trust occurred, and that the purchasers incurred no accessory liability.

The appeal concerned the construction of the declaration, the treatment of the discount and improvement expenditure, and whether the sale price breached the trustees’ duties.

1. Appeal dismissed. Lewison LJ, with whom Macfarlane and Aikens LJJ agreed, upheld the district judge on every issue remaining in contention.

2. The declaration of trust had to be construed objectively by reference to its language, purpose, other provisions, known background and commercial common sense. Subjective intentions were irrelevant. Its recital conclusively attributed £5,000 of the cash contribution to Mr and Mrs Wood and £4,400 to Mr Richards. Contractual estoppel bound the parties to that agreed allocation even though Mr Richards had actually supplied all the cash.

3. In the absence of an express contrary provision, a secure tenant’s statutory discount is prima facie a contribution in money’s worth towards the acquisition. The entitlement is valuable because the property could not be bought under the right-to-buy scheme without the secure tenancy. Clear words would ordinarily be needed to show that the tenant had surrendered that value. Clause 3 expressly recorded the market value and the discount to which Mr and Mrs Wood were entitled. Giving effect to the whole instrument, the discount therefore formed part of their initial contribution.

4. The cost of installing double glazing was properly treated as an improvement and added to Mr and Mrs Wood’s interest. The deed referred to the money expended, rather than the enhancement in value remaining at the date of sale. It contemplated a mathematical adjustment during the division of the proceeds, not a professional assessment of added value or a deduction from gross proceeds before division.

5. The trustees were required to exercise the prudence and diligence that an ordinarily prudent person would exercise in conducting their own affairs. Section 1 of the Trustee Act 2000, requiring reasonable skill and care in all the circumstances, did not materially alter that traditional standard.

6. No sale at an undervalue was established. Both experts regarded £102,000 as falling within an acceptable valuation or negotiation range, and market value was a matter of opinion rather than an exact fact. The district judge was entitled to accept their joint evidence. The deed required a sale at real market value, not at a price exceeding the value of the property in its actual condition. No breach of trust having been proved, the claims in knowing receipt and dishonest assistance did not arise.

1. Court of Appeal (Civil Division): By judgment reported at [2014] EWCA Civ 327, unanimously dismissed the appeal and upheld the district judge’s decision on the issues remaining in contention.

2. Manchester County Court: District Judge Matharu held that the statutory discount and double-glazing expenditure formed part of Mr and Mrs Wood’s contribution, that the sale was not a breach of trust, and that the purchasers were not liable in knowing receipt or dishonest assistance.