Our client contacted us to resolve a dispute that had arisen between himself and a business partner that had jointly purchased a buy to let property. In essence the agreement was that the property would be purchased by the pair registered in joint names and each would be entitled to an equal share of the profits from the rent and any equity that may arise on a sale.
The two gentleman found a suitable property and a large local conveyancing firm was instructed on the recommendation of their agent to carry out the work related to the purchase. Unfortunately, during the course of the purchase our client’s business partner said that he was struggling to find his share of the contribution required to fund the purchase as it was delayed pending the sale of another property. Our client agreed that he would provide all the funding for the purchase as long as his business partner agreed to pay him the contribution once the other property had been sold. Both parties agreed that this was a sensible solution. Despite our client telling the conveyancing solicitor of the new position, the only step that was taken in response was that the request for monies on completion was made to just our client rather than to both parties. Apart from this everyone proceeded to completion as normal and the solicitors registered the property in joint names as per their original instructions.
A dispute arose, because despite many requests on the part of our client over a period of 8 years, the business partner never contributed a single penny to the property let alone pay any bills, utilities or even take part in the management of the asset. Our client had even tried to communicate with the business partner with a view to selling the asset, however, the business partner refused to cooperate. Our client approached us and asked whether it would be possible to apply to the court to sell the asset and recover both the monies that he had paid and keep any equity that had of course now built up in the property. It was our client’s view that he alone was solely entitled to the equity as it had been his money that had been used to buy the property and his hard work and time that had gone into maintaining and looking after it over the years.
Upon reviewing the papers we noticed that the solicitors acting on the purchase had actually registered the property as ‘tenants in common in equal shares’. In essence this meant that although the business partner had not contributed a single penny towards the purchase he was nevertheless still entitled to a 50% share of the equity from the sale proceeds. The only saving grace was that this was subject to the legal principle of ‘equitable accounting’. In essence this meant that our client could deduct from the business partner’s share of the property 50% of all the costs and expenses (in addition to the original purchase cost and deposit monies) expended on the property. This still however left the business partner with some money from the proceeds of the sale of the property having done nothing to actually earn it!
Unfortunately the business partner in this case failed to agree a settlement on this matter. Ultimately he wanted our client to keep the property and continue to make the mortgage payments each month and wait until the equity in the property was far greater. Our client of course, objected to this on the grounds that this ‘gain’ was essentially being made at his expense and he saw no reason why he should ‘bankroll’ such an endeavour. It wasn’t until court proceedings had become very advanced and it was clear that the Judge hearing the matter was not going to make a finding any different to that which we had already proposed did he finally agree to reach a negotiated settlement.
Although we successfully managed to obtain the result that our client wanted, both parties expended considerable time, money and energy in these proceedings. The real take away from this case however was the importance of taking proper legal advice when purchasing property in joint names so that if a dispute does arise, there can be some proper framework around how that dispute might be resolved. In this case had our client been properly advised by his original conveyancing solicitor he would have been told to put in place a Declaration of Trust document which set out the basis on which each party held the property, what each party was required to contribute and of course what would happen in the event of a sale following a dispute.
If you are considering purchasing a property or entering into a new business venture with a friend or relative, contact Fitz Solicitors today for specialist advice on the steps you should take to properly protect yourself and your business partner in the event of a dispute.