Pitfalls to Avoid When Co-Investing in a Property
Written by Wilbur Lua
It is not uncommon for couples, family members or even close friends to co-fund the purchase of a property. In such instances, parties can neglect to properly document their intentions regarding who should have the beneficial ownership of the property. However, when a dispute arises, the process of determining their rights over the property can be a long and complicated one.
Despite the emergence of novel alternative investment instruments, real estate continues to be the investment of choice for many in Singapore today. An investment in real estate is widely considered to be a reliable way of asset preservation, while at the same time offering the property owner an opportunity for capital appreciation and income generation.
Given the high property prices in Singapore, it is not uncommon to find that many opt to fund the purchase of a new property with their loved ones or even their closest friends. In such situations, whether for the sake of convenience or otherwise, parties may choose to simply register the property in only one person’s name.
The closer the ties of affection at the time of purchase, the less likely it is that parties discuss the important question of how the ownership of the property should be divided. Parties often cannot imagine (or perhaps, do not wish to think about) the possibility that a dispute may occur one day. As such, this is often left unaddressed, or, if addressed, not properly documented.
In reality, however, relationships can break down and spouses can become estranged. Factions may also appear in the family over time, and the dispute over ownership may surface only after the death of the original purchasers.
If a dispute over property occurs between parties who are married, then the provisions in the Women’s Charter would apply if divorce proceedings are initiated, and each party will receive what the court determines is just and equitable from the pool of matrimonial assets. However, if parties are not married or if they choose not to initiate divorce proceedings, then the process of determining ownership is much more complicated.
How ownership rights of a property are determined under the common law
In Chan Yuen Lan v See Fong Mun [2014] SGCA 36, the Plaintiff sued his wife to obtain a declaration that he was the beneficial owner (i.e. the actual owner) of a property that was purchased in her sole name in 1983. The property was funded mostly by the husband and partly by the wife. The husband claimed that the portion funded by the wife was a loan to him, and it was intended that he should hold the entire beneficial interest of the property. As no divorce proceedings had been initiated by either party, the Court had to determine the dispute based on common law principles.
When the case was brought to the Court of Appeal, the Court laid down the following framework to determine the question of beneficial ownership in a property dispute involving parties who contributed unequal amounts towards the purchase price of a property:
First, the Court will ask if there is sufficient evidence of the parties’ respective financial contributions to the purchase price of the property. If the answer is “yes”, it will be presumed that the parties hold the beneficial interest in the property in proportion to their respective contributions to the purchase price. If the answer is “no”, it will be presumed that the parties hold the beneficial interest in the same manner as that in which the legal interest is held.
Next, the Court will ask whether there is sufficient evidence of an express or an inferred common intention that the parties should hold the beneficial interest in the property in a proportion which is different from that set out in (1). If the answer is “yes”, the parties will hold the beneficial interest in accordance with that common intention instead and not in the manner set out in (1).
If the answer to both (1) and (2) is “no”, the parties will hold the beneficial interest in the property in the same manner as the manner in which they hold the legal interest.
If the answer to (1) is “yes” but the answer to (2) is “no”, then the Court will ask if there is nevertheless sufficient evidence that the party who paid a larger part of the purchase price of the property (“X”) intended to benefit the other party (“Y”) with the entire amount which he or she paid, then X would be considered to have made a gift to Y of that larger sum and Y will be entitled to the entire beneficial interest in the property.
If the answer to (4) is “no”, then the Court will ask if parties are in a relationship which attracts the presumption that a gift was intended. If the answer is “yes”, then: (i) where the property is registered in Y’s sole name, Y will be entitled to the property absolutely; and (ii) where the property is registered in their joint names, the parties will hold the beneficial interest in the property jointly. If the answer is “no”, the parties will hold the beneficial interest in the property in proportion to their respective contributions to the purchase price.
Finally, notwithstanding the situation at the time the property was acquired, the Court will consider if there is sufficient and compelling evidence of a subsequent express or inferred common intention that the parties should hold the beneficial interest in a proportion which is different from that in which the beneficial interest was held at the time of acquisition of the property. If the answer is “yes”, the parties will hold the beneficial interest in accordance with the subsequent altered proportion. If the answer is “no”, the parties will hold the beneficial interest in one of the modes set out at (2)–(5) above, depending on which is applicable.
In the subsequent case of Su Emmanuel v Emmanuel Priya Ethel Anne and another [2016] SCGA 30, the Court of Appeal further clarified that if the property is partially financed by a mortgage, payments towards the mortgage loan would not be considered as a direct contribution to the purchase price unless there was a prior agreement between parties at the time the mortgage was taken out as to who should repay the mortgage.
Conclusion
Disputes over the ownership of property usually only appear many years after the property is purchased. By then, evidence of parties’ actual intentions may no longer be available, and parties will have to navigate a complex set of legal rules in order to ascertain their rights to the property. Even then, the decision of the Court will have to depend on the state of available evidence, and if parties fail to retain the evidence supporting their intentions, they are subject to the risk of facing a disfavourable outcome by the Court.
As such, it is always prudent for purchasers to discuss how they intend to share the ownership of the property, and seek legal advice on how such agreements between parties can be properly documented at the time of purchase. By enlisting the services of a competent and trusted set of lawyers to properly document parties’ intentions, parties can avoid the risk that they (or their loved ones) would be subject to a long and protracted legal battle in the Courts.