Cohabitation – the importance of formalising agreements into a legally binding document
The recent Court of Appeal case of Ely v Robson highlights the ‘dangers’ of not formalising an oral agreement into a legally binding document on relationship breakdown.
The background
Mr Ely and Ms Robson met in 1986.
In 1997, Mr Ely purchased the ‘family home’ in his sole name and they moved in together.
Ms Robson made no financial contribution towards the purchase of the family home, and the mortgage was in Mr Ely’s sole name.
In 2005 the couple’s relationship broke down, although they both continued to live at the property.
In 2007, Mr Ely asked Ms Robson to move out and, on her refusal, he issued a Court application for possession of the family home.
Mr Ely’s case was that the property was owned by him 100%, Ms Robson asserted that she had a beneficial interest in the property of 50% based on their ‘common intention’ that they owned the property equally.
The matter was listed for trial in September 2007.
In the meantime, in an effort to avoid the costs of litigation, the parties met in a park in August 2007 alone to try and reach an agreement.
Following that meeting, Mr Ely’s solicitors wrote to Ms Robson’s solicitors to ‘confirm’ the terms of agreement – Mr Ely would hold the property on trust for himself for life, with a remainder of 80% to his heirs and 20% to Ms Robson. Ms Robson would have a right to occupy the property for as long as her aunt and mother were alive (as they were living at the property at the time). When that right to occupy ended, Mr Ely would have the right to sell the property, and the proceeds would be divided 80/20.
A joint letter was sent to the Court signed by both parties’ solicitors to vacate the hearing listed in September 2007, to allow the parties to formalise their agreement into a legally binding document.
The hearing was vacated, but never relisted for trial.
In January 2008 the Court received a letter purportedly from Ms Robson indicating that the case had settled. Ms Robson maintains she did not send the letter, and Ms Robson’s solicitors have no record of the letter. The Court file has been destroyed.
First Instance decision
In 2014 Ms Robson’s aunt and mother died and Mr Ely issued an application for the sale of the property, and sought an order for declaratory relief on the basis of the agreement reached in 2007. Mr Ely further claimed that in allowing Ms Robson to remain in the property, he had relied upon Ms Robson’s representations that she would adhere to the terms of their agreement, to his detriment.
Ms Robson’s case was that no agreement was reached, as she would never have agreed anything less than an equal share.
At first instance, the Judge found in Mr Ely’s favour and determined that the parties’ were bound by the agreement reached in 2007. The Judge also ordered Ms Robson to pay all of Mr Ely’s legal costs.
Ms Robson appealed.
The appeal
On appeal Ms Robson’s application was dismissed. The Court found that the Judge at first instance was right in finding that Ms Robson was bound by the terms of the oral agreement reached in 2007 and was, therefore, entitled to the ‘agreed’ 20% of the proceeds of sale. The Judge found that the parties had intended their oral agreement to be binding, that they both understood and intended that agreement should be relied and acted upon, and that all that was left to do was to formalise that agreement into a binding legal document recording the terms.
Further, the Judge found that Mr Ely had relied on that agreement and, as a result, the property had been held on constructive trust for the parties in the shares agreed in 2007, 80% to Mr Ely, and 20% to Ms Robson.
The Court of Appeal ordered Ms Robson to pay Mr Ely’s costs of the appeal.
How can we help?
Whilst couples who live together do have some legal protection, there are no guaranteed rights to ownership of property on separation (unlike married couples or civil partners). The law in this area is complex, and couples should take steps at the outset of their relationship, and particular when purchasing property, to ensure they do not end up in costly litigation in the event of relationship breakdown.
Whilst this case shows that in certain limited circumstances, an oral agreement may be upheld by the Courts, which is a (costly) risk that can and should be avoided.
What should I do?
If purchasing a property together, cohabitees should consider entering into a declaration of trust to reflect how much each person has paid towards the property, and how the proceeds should be split in the future. This can be revised at a later date should one party input additional funds into the property for home improvements, for example, or should circumstances change.
In addition, we advise signing up to a Cohabitation Agreement which goes further than a declaration of trust. This is a legal document which encourages couples to discuss, agree and record their rights and responsibilities in relation to the property where they live or intend to live together, financial arrangements both during and following cohabitation, and the arrangements to be made if they decide they no longer want to live together.
It can include, for example;
how the mortgage and other household expenses are paid, by whom and in what proportions.
what should happen if one owner wants to sell the property, and the other does not.
financial support both during and after cohabitation ends.
living arrangements and financial provision to be made for the parties’ children, if cohabitation ends.
On relationship breakdown, couples should enter into a Separation Agreement to record how the finances and other matters should be dealt with. The parties in the above case would have saved considerable time and money if they had done so.
If you have any queries about this article please contact jonesnickolds on 0203 405 2300 or contact@jonesnickolds.co.uk