9th May 2014 | Articles

Rupert Butler & Thomas Horton discusses how constructive trusts establish beneficial interests in property, read the article below.

Constructive feedback

A constructive trust establishes beneficial interests in property, as rupert Butler & Thomas Horton report

The declaration of a constructive trust presents one of equity’s practical responses to determine proprietary interests where a claimant has acted to his detriment upon a promise as to the ownership of property. The effect is that the legal owner of the property must accept his role as trustee to the extent of the claimant’s beneficial interests. The recent decision of the Court of Appeal in Agarwala v Agarwala [2013] EWCA Civ 1763, [2014] All ER (D) 150 (Feb) fittingly restates the principles of how a constructive trust establishes beneficial interests in property.

Agarwala: the facts

Jaci Agarwala was Sunil Agarwala’s sister-in-law. Due to Sunil’s poor credit rating, he discussed with Jaci the purchase of a property in her name, which was to be converted into bed and breakfast accommodation. In April 2007, the property was purchased in Jaci’s name, who held the legal title, with the mortgage also in her name. It was agreed that Sunil would operate and manage the bed and breakfast business, and undertake any necessary works needed on the property.

The parties fell out in July 2008, which resulted in Jaci and her husband taking over the day-to-day running of the bed and breakfast. They changed the locks to prevent Sunil’s access.

Sunil issued proceedings claiming beneficial ownership of the property. The heterogeneity between the parties’ accounts of their agreement upon which the property had been purchased did not resolve the issue of beneficial ownership. Jaci argued that the property and the business were to be hers, and that Sunil would convert the property and run the bed and breakfast business at no charge. Sunil, on the other hand, argued that Jaci had agreed to help him purchase the property only because of his bad credit rating, and that since he provided the funding of the conversion and mortgage payment, the property and the business were his.

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