Wednesday, May 26, 2010

Kernott v Jones: A cautionary tale

"This is a cautionary tale, which all unmarried couples who are contemplating the purchase of residential property as their home, and all solicitors who advise them, should study." So said Lord Justice Wall, introducing his judgment in Kernott v Jones [2010] EWCA Civ 578.

The Facts: The parties were an unmarried couple who purchased a property together in 1985. The parties separated in 1993, at which time it was accepted by common agreement between them that the property was held by them beneficially in equal shares. The respondent remained in the property and paid all outgoings, including the mortgage. In 2007 she issued proceedings seeking a declaration that she owned the entire beneficial interest in the property. The judge at first instance decided that the value of the property should be divided as to 90% for the respondent and 10% for the appellant. That decision was upheld on first appeal, and the appellant appealed to the Court of Appeal.

The Decision: Lord Justice Wall and Lord Justice Rimer allowed the appeal, and declared that the parties hold the severed joint tenancy as tenants in common in equal shares. Lord Justice Jacob dissented, and would have dismissed the appeal. The crucial part of Lord Justice Wall's judgment comes at paragraphs 61 and 62:
"I described this case as a cautionary tale. So, in my judgment, it is. The purchase of residential accommodation is perhaps the single most important financial transaction which any individual transacts in a lifetime. It is therefore of the utmost importance, as it seems to me, that those who engage in these transactions, and those who advise them, should take the greatest care over such transactions, and must – particularly if they are unmarried or if their clients are unmarried – address their minds to the size and fate of the respective beneficial interests on acquisition, separation and thereafter. It is simply impossible for a court to analyse personal transactions over years between cohabitants, and the costs of so doing are likely to be disproportionate in any event. Cohabiting partners must, it seems to me, contemplate and address the unthinkable, namely that their relationship will break down and that they will fall out over what they do and do not own.

If this appellant and this respondent had truly intended that the appellant's beneficial interest in the property should reduce post separation, or if the property was to belong to the respondent when the appellant acquired his own house, they should have so decided and acted accordingly by adjusting their beneficial interests in the property. I cannot spell such an intention out of their actions. If anything I find equal interests on separation and an agreement by the appellant to defer realisation for a number of years prior to the severance of the joint tenancy, an action which, in my judgment, crystallises his 50% interest."

Lord Justice Jacob, on the other hand, found that the facts of the case were sufficient for the judge at first instance to have reasonably inferred or imputed a shared intention that the parties' interests in the house were to vary over time.

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