Analysis
In 1997 the respondent and the appellant jointly purchased a property, contributing to the purchase price equally. The appellant and his family occupied the property. In 2007 the respondent was investigated for benefit fraud, and represented to the local authority that he had no beneficial interest in the property, being merely a nominal trustee for the appellant. He repeated that assertion in evidence before the Magistrates’ Court in defence of criminal charges, and later at the First-tier Tribunal in other proceedings. In March 2007 the respondent signed a form TR1 purporting to transfer his legal interest in the property to the appellant for no consideration. The form was never submitted to HM Land Registry, but was seen by the appellant. In 2016 the respondent sent pre-action correspondence asserting a 50% beneficial interest in the property.
Following a two-day trial, by an order dated 17 July 2020 the district judge declared that the appellant and the respondent initially held the property as tenants in common in equal shares. He found that the respondent intended to transfer his interest in the property to the appellant in 2007, and that the appellant thence believed the property was his alone. However, the district judge was not satisfied that there was any common intention to alter the beneficial ownership of the property, and so declared the property still to be held beneficially in equal shares.
The appellant appealed, submitting that (a) the respondent was estopped from resiling from his representation that he held the property for the appellant and had no beneficial interest; (b) on execution of a transfer of a legal estate, but before that transfer is perfected by registration, an equitable interest in the transferred property arises in the transferee; (c) this was a case where equity should perfect an imperfect gift; (d) the form TR1 constituted an equitable assignment; and/or (e) a constructive trust arose.
The issues to be determined were:
- 1) Did the execution of the TR1 form, prior to registration, give rise to a transfer of the equitable interest?
- 2) Should equity perfect the gift of the respondent’s beneficial interest?
- 3) Did the form TR1 constitute an equitable assignment of the respondent’s beneficial interest?
- 4) Was the respondent estopped from resiling from his representation that he held the property for the appellant and had no beneficial interest?
- 5) Did a common-intention constructive trust arise?
Held:
- 1) The transfer of a registered estate in land is not completed until registration and – until then – the transferor remains the proprietor of the legal interest. Before registration, and following execution of the transfer and payment of the purchase price, the transferee becomes the owner in equity – Scribes West Ltd v Relsa Anstalt (No 3) [2004]. However, this applies only to enforceable contracts; equity does not lend itself to the perfection of imperfect gifts, save in specific circumstances. Absent any contract there was no ‘registration gap’ to assist the appellant.
- 2) Equity will not generally rescue an imperfect gift, but it is no longer the case that the settlor must have done everything which was necessary to be done in order to transfer the property and render the settlement binding upon him – Milroy v Lord (1862) doubted. The touchstone is now one of unconscionability; a donor will not be permitted to change his mind where to do so would be unconscionable in the eyes of equity – Pennington v Waine [2002]. It would be unconscionable for the respondent to resile from his imperfect gift: the respondent had intended to make a gratuitous transfer, and had instructed solicitors and executed the TR1; the appellant had paid £400 stamp duty for the transfer; the transfer was to enable the respondent better to defend himself against criminal charges; the failure to register the TR1 was not deliberate, but due to the respondent’s failure to put his solicitor in funds. The judge below had applied the incorrect test, placing undue emphasis upon reliance and detriment rather than the unconscionability of the donor’s conduct.
- 3) The executed TR1 demonstrated certainty of object and subject matter, together with an intention to assign, and complied with the formality requirements of s53(1)(c), Law of Property Act 1925. Accordingly, there was an equitable assignment of the respondent’s interest in the property in 2007. This point did not appear to have been properly considered by the judge below.
- 4) The judge’s finding of fact that there was no reliance by the appellant was fatal to any proprietary estoppel or constructive trust argument.
Appeal allowed.
JUDGMENT MARCUS SMITH J: A. Introduction [1] By an order dated 17 July 2020 and sealed on 7 August 2020 (the Order), District Judge Shorthose declared that: ‘The Claimant and the Defendant are the joint legal proprietors of 1 Moor Park Drive, Bradford Moor, West Yorkshire, BD3 7ER (the Property1), which they hold on trust …Continue reading "Khan v Mahmood [2021] WTLR 639"