TOLATA concerns the area of law where unmarried cohabitants reach a dispute about the way a property is held. This can become complex when a home has been sold long before a dispute about its ownership reaches Court. For example, the sale proceeds may have funded another purchase, passed through several bank accounts or been spent by one or both parties. An existing beneficial interest can sometimes be enforced against the proceeds or a replacement asset, if it is deemed that they had a quantifiable interest in the original asset. In order to achieve a successful outcome, the circumstances require proving both the original entitlement and what has happened to the value representing it. This is known as ‘tracing’.
Most commonly, a party may state that an agreement gave them a share of an earlier property, when the other now owns a different property and pleads that the old arrangement is irrelevant as the property is not in existence to draw from. A sale does not answer the dispute on its own, and does not always mean a claim cannot be brought. Equally, a share in the first property does not automatically become the same percentage share in the next. This will turn on the facts of the case.
Tracing is the legal process of identifying the substitute for an asset, by following the money that was originally said to be invested, or joint in nature. Tracing concerns the movement of value, rather than locating the same physical cash and seeking to restore it separately.
In Foskett v McKeown (2001), the House of Lords explained that tracing identifies property against which a claim can be made – to include new property or property held differently to the original status. Of course, a claimant must still establish a legal basis for recovering the identified property before tracing is considered the most likely process.
If a property has been demolished or sold, the land and the interests in it may still exist.
The Court must first establish the original interest prior to the property being moved or sold. The Court must decide what the claimant actually owned historically. A declaration of trust, transfer document or properly recorded agreement may be decisive. Its wording also matters, i.e. did it provide a percentage share, repayment of a particular contribution, or some other arrangement such as equality of ownership despite the title providing for sole proprietorship.
Where there is no express declaration, the legal ownership provides the starting point.
In Jones v Kernott (2011), the Court confirmed that, when joint names can be seen on the title, the starting point is joint beneficial ownership. A different shared intention, including evidence of texts/email correspondence, a formal deed, or implied conduct, can displace it if proven. Sole ownership has a different starting point, where the claimant must first establish that they have any beneficial interest. The Court cannot simply award an interest without assessment of the facts. Cohabiting is not sufficient.
An informal agreement requires awareness as to risk. In Hudson v Hathway (2022), the Court of Appeal confirmed the importance of detrimental reliance where a party relies on a common intention to change the shares. In simple terms, the claimant must have acted to their disadvantage when relying on the arrangement. The Court also held that signed emails between the parties satisfied the requirements for disposing of the existing beneficial interest. Not every email or conversation will have the same effect.
The practical question then becomes what happened to the claimant’s entitlement when there are expended sale proceeds. Was it paid out, reinvested by agreement or diverted without consent? The parties’ intentions concerning a replacement home must also be considered.
The evidence with ‘tracing’ should connect the original interest to the asset now claimed. Useful records include the original purchase and sale files, completion statements, mortgage redemption figures, bank statements and documents for any new purchase. Agreements, emails and evidence of a settlement help explain why particular payments were made. It is usually necessary to examine the net proceeds after the mortgage and sale costs, then identify the claimant’s entitlement and follow where it was applied.
In Relfo Ltd v Varsani (2014), the Court of Appeal agreed that tracing was possible based on inferences from the evidence despite gaps in the actual payment trail. The Court can imply that there was an agreement if the circumstances are persuasive enough without hard evidence.
Mixing money with other funds does not necessarily prevent tracing, but it complicates identification and allocation. A later purchase may include the former partner’s own money, a new partner’s contribution and mortgage borrowing. Each source and any competing rights need to be examined before pursuing. Spending the proceeds can be more damaging and harder to recoup. Money depleted on ordinary living expenses may leave no substitute asset to claim if the expenditure was genuine.
When sold, a purchaser who acquired the legal interest for value and was not aware of the claimant’s interest is not likely to be compelled to take action. There is no assumption that there are monies owed by them to the claimant as a third party.
Early advice should consider whether there is a worthwhile asset to pursue. If a further sale or transfer is imminent, the need for interim protection should be assessed promptly. An application can be made to the Court to freeze a transaction, where an ordinary UN1 restriction to prevent sale or disposition might fail if the property is a newer acquisition and was not necessarily the cohabiting property.
Possible outcomes include recovery from identifiable proceeds (deciding that the claimant has rights over a particular sum of money in the new property despite not having lived there or any agreement covering a previous property), or a personal monetary claim separately if there is no real prospect of recovering an interest from a property (i.e. where there was a sale and no onward purchase).
An unsuccessful tracing exercise does not necessarily prevent any other remedy. A personal claim for breach of trust or another established cause of action may remain, which falls outside the scope of Family Law, but its value can depend on the defendant’s ability to pay. Also, a claim may fail entirely if the original interest or substitution cannot be proven.
In order to consider your claim, you will be asked to provide documents establishing the original agreement, the conveyancing paperwork and the available financial records to demonstrate your involvement in the original property. The Court will also want to consider any settlement or agreement about reinvestment, and the circumstances of how this occurred (i.e. based on a promise, without their knowledge, or did they acquiesce at the time without full appreciation of the risks?).
In summary, a claimant’s interest will not be resolved simply by a sale taking place or transfer. The Court have the ability to follow their interest, if proven, and interfere with a subsequent asset if proportionate. However, the fact that a beneficial interest existed must be established first and the Court must consider the available replacement assets and their capability of being used to repay this interest. Early legal advice is vital, in particular as TOLATA operates under the Civil Procedure Rules where there are cost consequences for failing in the claim brought before the Court. Disclosure and preparation of a timeline, to show where the money has been distributed, is paramount.
