Varying express declarations of trust in respect of property

It is well established law that an express declaration of trust is conclusive to establish the beneficial interests in a property unless varied by subsequent agreement or affected by proprietary estoppel. When purchasing a property, the owners can declare their beneficial interests by ticking the relevant box on the transfer deed and/or by executing a separate declaration of trust deed. Both are express declarations of trust.

However, life and circumstances change and where is a property is owned jointly, the owners may later agree that they wish to own the beneficial interests in the property differently from that stated in the express declaration of trust. For example, following separation a couple may agree that one person is to remain living in the property, take over payment of the mortgage and outgoings and own the entire beneficial interest in the property.

However, significant problems can arise if the parties fail to properly document any subsequent agreement reached and deal with the legal formalities e.g. arranging for the property to be transferred from joint names into the sole name of the remaining owner.

In Nilsson and another v Cynberg [2024] EWHC 2164 (Ch) (https://www.bailii.org/ew/cases/EWHC/Ch/2024/2164.html), the parties, who were married, had failed to document their agreement reached on separation that Mrs Cynberg was to keep the family home and that Mr Cynberg did not wish to retain an interest in it. Although they later divorced, they did not formalise the agreement reached by way of a court order or express declaration of trust and the property remained in their joint names. Mr Cynberg was subsequently made bankrupt and his trustees in bankruptcy sought for the property to be sold so that they could recover his 50% interest in the property.

Luckily for Mrs Cynberg, she was able to successfully argue that the express declaration of trust that they held the property as joint tenants, which was made on the transfer deed when they purchased the property, had been varied by their subsequent agreement which amounted to a common intention constructive trust or, alternatively, a proprietary estoppel arose, which meant that Mrs Cynberg was the sole beneficial owner of the property. Accordingly, Mr Cynberg’s trustees in bankruptcy were prevented from obtaining an order for possession and sale.

However, although the court ultimately found in Mrs Cynberg’s favour, she had to endure stressful and costly court proceedings, including an appeal by the trustees in bankruptcy, in order to prevent her home being sold and losing 50% of its value. Had the parties documented the agreement reached at the time either by way of a declaration of trust deed, transfer of the property into Mrs Cynberg’s sole name or a court order documenting the agreement reached, then the litigation could likely have been avoided or resolved at a much earlier stage.

This case therefore emphasises the importance of parties seeking legal advice in the event that they separate from their partner or spouse and, in particular, if they wish to change how a property is to be owned going forwards. To avoid later and potentially costly disputes, they must properly document any changes/agreements and, ideally, obtain a court order by consent confirming what has been agreed so that this can be raised as a defence to a later claim by the other co-owner, or by a third party such as a trustee in bankruptcy. The outcome of litigation can be hard to predict and is fact specific and so not everyone will achieve the same outcome that Mrs Cynberg was able to.

If you need advice and assistance in documenting the beneficial ownership of a property or in respect of dispute as to the correct beneficial ownership of a property, then please contact Lindsay Davies who will be pleased to assist.