The Absent Owner – Varying Beneficial Interests Upon Separation: an Analysis of the Leading Cases

It is relatively common to see TLATA cases where A and B are joint owners of a family home, the relationship breaks down, and A vacates leaving B in occupation and financially responsible for the property when A returns years later seeking their share of the net equity.

In cases of this type the courts must determine, first, whether the parties had the requisite common intention to vary their beneficial interests post purchase, and secondly, if so, how should their respective shares be quantified? How does the court then quantify their respective shares?

Jones v Kernott [2011] UKSC 53 remains the seminal decision for cases of this nature. Allen v Webster [2024] EWHC 988 (Ch) is a relatively recent decision of the High Court which suggests it may be easier to establish that the parties’ interests have changed than was previously thought and raises some interesting questions about how the court should approach quantification of a ‘crystallised’ interest.

The majority view of the Supreme Court in Jones v Kernott was that in circumstances where the relationship ends; a joint owner vacates, stops contributing towards the property, cashes in a life insurance policy and buys themselves an alternative home it can be inferred that they intended to crystallise their beneficial interest in the property.

Since the decision in Jones v Kernott it has been confirmed by the Court of Appeal in Geary v Rankine [2012] EWCA Civ 555 that a common intention to vary the parties’ beneficial interests must be established by an express agreement or by inference. It is not open to a court to impute such an intention, i.e. it cannot give the parties an intention which they never actually held to vary their beneficial interests.

‘An imputed intention only arises where the court is satisfied that the parties’ actual common intention, express or inferred, was that the beneficial interest would be shared, but cannot make a finding about the proportions in which they were to be shared.’

As Lord Neuberger identified in his dissenting judgment in Stack v Dowden an intention which can be inferred is a very different animal to one that is imputed;

‘An inferred intention is one that is objectively deduced to be the subjective actual intention of the parties, in light of their actions and statements. An imputed intention is one which is attributed to the parties, even though no such actual intention can be deduced from their actions and statements, and even though they had no such intention. Imputation involves concluding what the parties would have intended, whereas inference involves concluding what they did intend.’

The facts in Jones v Kernott

Ms Jones and Mr Kernott purchased 39 Badger Hall Avenue in 1985 with the benefit of a joint endowment mortgage. They lived in the property together for 8.5 years, sharing the household expenses including the mortgage and endowment policy. In 1993, when the relationship ended, Mr Kernott left, leaving Ms Jones and their two children in occupation and solely responsible for meeting the mortgage and endowment instalments and costs of maintaining the property.

In 1995 the property was marketed for sale for £69,995 but was not sold. At some point the parties agreed to cash in a joint life insurance policy and divide the proceeds equally between themselves. This was found by the trial judge to be to enable Mr Kernott to put down a deposit on a home of his own. This he did in 1996, paying £57,000 for 114 Stanley Road and putting down a deposit of £2,800.

Thereafter Mr Kernott had no further involvement with 39 Badger Hall Avenue; he made no more contributions towards the joint endowment policy or mortgage and made no contributions towards the costs of maintaining the property. He ignored the property until he sent correspondence claiming his interest in 2006. In response, Ms Jones began proceedings in 2007 claiming a declaration that she owned the entire beneficial interest.

At the time of the trial in 2008, 39 Badger Hall was valued at £245,000. The outstanding mortgage debt was £26,664. The supporting endowment policy was worth £25,209. On the basis that Ms Jones had, by the time of trial, contributed towards the endowment policy by herself for 14.5 years, it was found that she was entitled to £20,497 of the endowment. Mr Kernott’s property at 114 Stanley Road was valued at £205,000 with an outstanding mortgage of £37,968. The equity in 39 Badger Hall Avenue was therefore £243,545 and the equity in 114 Stanley Road £167,032.

At trial it was conceded by Ms Jones that at the time of purchase, the presumption that their equitable interests in 39 Badger Hall Avenue would reflect the legal title would prevail. However, Ms Jones succeeded in in establishing that those original intentions changed as evidenced by Mr Kernott’s purchase of 114 Stanley Road. Given his finding that the parties’ common intentions as to ownership had changed so that they no longer intended to hold equally the trial judge had to consider what they intended as to shares thereafter. He approached this by considering ‘what was fair and just between the parties having regard to the whole course of dealing between them’ per Stack v Dowden and Oxley v Hiscock [2004] EWCA Civ 546.

The trial judge concluded that the value of the property should be divided 90/10 in favour of Ms Jones. Had the property been sold that would have given Ms Jones £219,190 and Mr Kernott £24,355 (giving him a total of £191,387 including 114 Stanley Road).

On appeal to the High Court, Mr Nicholas Strauss QC upheld the finding that the parties’ intentions had changed after their separation and decided the quantification approach adopted at trial had been fair. The trial judge’s assessment was justified given Ms Jones’ direct contributions to the property were around 4:1 in her favour, the largest increase in value occurred after the parties separated, and Mr Kernott stopped contributing in 1993. Further, by electing not to contribute towards the costs of the property, Mr Kernott had been able to buy 114 Stanley Road which itself had appreciated in value by nearly as much as 39 Badger Hall Avenue.

In dismissing Mr Kernott’s appeal, Mr Nicholas Strauss QC concluded that it was open to the trial judge to either infer from the circumstances, or impute if necessary, an intention by the parties to alter their beneficial interests in 1993. In finding that it was open to the judge to impute such an intention he referred to Baroness Hale’s reference to intentions in Stack v Dowden [2007] UKHL 17 where she referred to intentions ‘actual, inferred or imputed’.

The Court of Appeal, by majority, allowed Mr Kernott’s appeal, finding there was no intention to alter their beneficial interests. In the dissenting judgment there was no criticism of the judge’s assessment of a fair proportion.

The Supreme Court unanimously allowed Ms Jones’ appeal and restored the original 90%/10% property share split, although their Lordships’ reasoning for allowing the appeal differed. The majority of their Lordships upheld the trial judge’s conclusion on the basis that it was appropriate for him to infer that there was a common intention in 1993 that the parties would cease to continue to hold their beneficial interests equally and that Mr Kernott’s interest would crystallise at that point in time. Lord Walker and Lady Hale at [48]:

‘In this case there is no need to impute an intention that the parties’ beneficial interests would change, because the judge made a finding that the intentions of the parties did in fact change … He did not go into detail but the inferences are not hard to draw … Around that time a new plan was formed. The life insurance policy was cashed in and Mr Kernott was able to buy a new home for himself. He would not have been able to do this had he still had to contribute towards the mortgage, endowment policy and other outgoings on 39 Badger Hall Avenue. The logical inference is that they intended that his interest in Badger Hall Avenue should crystallise then. Just as he would have the sole benefit of any capital gain in his own home, Ms Jones would have the sole benefit of any capital gain in Badger Hall … it is clearly the intention which reasonable people would have had had they thought about it at the time.’

Lord Kerr and Lord Wilson disagreed with the conclusion of Lord Walker and Lady Hale that it should be inferred from the sale of Badger Hall Avenue in 1993 that Mr Kernott intended his interest should crystallise at that time. They approached the issue on the basis that the intention to share 90/10 could not be inferred but should be imputed. Lord Kerr stated:

‘I would find it difficult to infer that it actually was what he intended. As the deputy High Court judge, Nicholas Strauss QC put it in para 48 of his judgment, the bare fact of his departure from the family home and acquisition of another property are slender foundation on which to conclude that he had entirely abandoned whatever stake he had in the previously shared property.

On the other hand I have no difficulty in concluding, as did Mr Strauss and as would Lord Wilson, that it was eminently fair that the property should be divided between the parties in the shares decreed by Judge Dedman.’

Lord Wilson stated:

‘I regard it, as did Mr Strauss, at 48 and 49 of his judgment, as more realistic, in light of the evidence before the judge, to conclude that inference is impossible but to proceed to impute to the parties the intention that it should be held on a basis which equates to those proportions.’

Allen v Webster [2024] EWHC 988 (Ch)

In Allen v Webster the same intention was found to arise simply by virtue of the fact that, following a relationship breakdown, A vacated and ceased to make any further financial contributions.

The parties were the joint owners of a property which they purchased in 1988 for £69,995. By 1992 it was worth £74,000. At trial in 2023, it was inferred that their intentions as to beneficial ownership changed in 1994, two years after the relationship ended, when A ceased to make any further contributions towards the property including the joint mortgage. The additional factor of cashing in of a joint insurance policy to allow A to buy a new home (present in Jones v Kernott) was absent in this case.

In dismissing the appeal against the trial judge’s finding that such an inference arose, Marcus Smith J went so far as to say:

‘In 1992, the Respondent closed the joint account she held with the Appellant: at [43], [97]. At that point:
 
(1) The Appellant stopped contributing (as the Respondent must have known); and
 
(2) The Respondent began solely contributing to the mortgage (as the Appellant must, at least, have inferred from the fact that he could not pay into the joint account (it having been closed)) and from the Respondent’s continued occupation of the Property.
 
I consider that it is permissible to conclude, from these facts alone, that the common intention had changed. It would be extraordinary if the common intention to hold equally could survive these changes. In effect, the Respondent would be paying for the Appellant’s interest and that – given an acrimonious split – is just not likely.’

How to establish a common intention to vary beneficial interests

It now seems that the judges in the county court who are bound by the decision in Allen v Webster will, in the absence of countervailing factors, be required to infer that there was an a common intention that the parties’ beneficial interests would change simply because one party vacates and ceases to pay towards the mortgage and upkeep of their jointly owned property. Further it will be inferred that their intention was that the vacating party’s interest crystallised at that point in time.

The low bar which the majority of the Supreme Court in Jones v Kernott considered necessary to justify an inference of common intention appears to have been lowered further by this decision in Allen v Webster.

Is it in fact appropriate to infer that A actually intends to release or assign part of his beneficial interest to his ex-partner and give up all future increases in value due to house price inflation simply because the relationship has ended, he has vacated and stops paying towards the mortgage? Anecdotal experience would suggest not. For my clients the failure to continue to contribute towards a joint mortgage is simply a consequence of having to fund alternative accommodation. It is not, as Allen v Webster would suggest, a reflection of an intention to abandon pre-existing rights and any future benefit from house price inflation for the benefit of an ex-partner who continues to have sole use of the joint property. It could be argued that any concerns that a party who fails to pay their share of a joint mortgage should not benefit at the expense of the party who meets that joint liability is properly met by a claim for an account.

Analysis of quantification

Ultimately in Jones v Kernott the Supreme Court found that the outcome on their analysis would have produced a result so close to that which the trial judge produced that it would have been wrong for an appellate court to interfere:

‘Take the value of the property at £60,000 in late 1993 (or £70,000 in late 1995) and the value in 2008 as £245,000, and share the £60,000 (or £70,000) equally between the parties but leave the balance to Ms Jones that gives him £30,000 (£35,000) and her £215,000 (£210,000), roughly 12% (14%) and 88% (86%) respectively. This calculation ignores the mortgage which may be the correct approach as in 2008 the mortgage debt was almost fully covered by the endowment policy which was always meant to discharge it.’

The approach adopted by their Lordships, namely (i) quantifying Mr Kernott’s interest at 50% of the market value of the property in 1993 rather than 50% of the net equity at this time and (ii) ignoring the mortgage debt because it was largely extinguished by the endowment policy, produced a fair result in this case. However adopting that same formula would produce an unfair result in many cases.

In Jones v Kernott using market value and ignoring the mortgage worked because the property had increased significantly in value between the date that the parties’ intention was found to have changed and the date of trial. The market value went from £60,000 to £245,000.

The problem with using market value rather than net equity to calculate the value of a crystallised interest can be simply demonstrated by way of an example:

• A and B purchase a property together in 2015 for £500,000 with an interest-only mortgage.
• In 2019, after 4 years, they split, A vacates leaving B to meet all the associated property costs including the mortgage.
• In 2025 A brings a claim for his share of the net equity.
• At trial it is found that in 2019 the parties’ intention changed and A’s interest crystallised.
• In 2019 the property was worth £550,000.
• In 2025 the property has increased in value and by the time of trial is worth £700,000.

If one used the market value of the property at the time A’s interest crystalised as in Jones v Kernott, A’s share would be said to be 50% of the £550,000 being £265,000. This is far too high and produces a nonsensical result. In reality A’s beneficial interest was only worth £25,000 at that time.

In Allen v Webster, Marcus Smith J also elected to use the full market value rather than the net equity in valuing the claimant’s beneficial interest at the time it was said to have crystallised. This was found to be £37,000 which was 50% of the market value of the property at that time. For reasons which were not fully explained, the judge stated that he was expressing the value of the claimant’s interest as this figure rather than as a percentage of the market value at the time of trial.

If, as is claimed in both Jones v Kernott and Allen v Webster, the court has inferred that A intends to crystallise his interest at the time he stops paying the mortgage, it is illogical to calculate the value of that crystallised beneficial interest as 50% of the full market value rather than 50% of the net equity. The better approach would be to assess the value of the 50% interest as a percentage of the total value of the property at the time the interest crystallises and then declare that A is entitled to x% of the gross sale price after payment of costs of sale, as this further example illustrates:

• A’s 50% beneficial interest crystallises in 2010. The property is worth £500,000 but there is a £250,000 mortgage. A’s beneficial interest is worth £125,000 at that point in time. This is 25% of the market value.
• A brings his claim in 2025 at which point the property is worth £750,000 and the mortgage is £150,000.
• A’s interest is 25% of the market value: £187,500.

By expressing A’s crystallised interest as a percentage of the market value of the property at that time, A continues to benefit from the increasing value of the property as it relates to his limited interest and B benefits from the remainder. The added advantage of this approach is that one need not worry about how much capital repayment B has made since separation and that accounting exercise is avoided.

Conclusion

Since the common intention constructive trust became the acknowledged method of resolving ownership disputes between cohabitants, guidance from the appellate courts has focused on dictating what facts give rise to what inferences. In Lloyds Bank v Rosset [1991] 1 AC 107, Lord Bridge of Harwich famously opined that nothing less than a financial contribution to purchase price would likely suffice in proving an intention to share the beneficial interest. This seemed to artificially limit the court’s power to determine the parties’ actual intentions. By the time Stack v Dowden was decided in 2007, the House of Lords declared that matters had moved on. Determining the parties’ intentions would require broader considerations so that ‘many more factors than financial contributions may be relevant in divining the parties’ true intentions’. Arguably with the developments in Allen v Webster we risk travelling too far the other way; artificially inferring common intentions to vary beneficial interests where none exist.