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Legal and Beneficial Ownership of Property – Do You Know the Difference?

The distinction between beneficial and legal ownership of property could hardly be more important but is very often misunderstood. As a High Court case showed, that is one good reason why real estate transactions should always be handled by professionals.

The case concerned a builder who was in the business of acquiring properties, doing them up and selling them on at a profit. Having run out of access to funding to buy properties in his own name, he sought the help of a mortgage broker. The broker agreed to help out by acquiring properties and taking out mortgages in his own name, but holding the properties on trust for the builder.

The result of that arrangement was that, although the broker held legal title to the properties, the builder was their beneficial owner. However, the broker argued that the position subsequently changed in that the builder had, by agreement, relinquished his beneficial interest in the properties. He was said to have done so because he owed the broker a substantial sum of money.

Ruling in favour of the builder, however, a judge found that, at the relevant time, it was the broker who owed the builder a considerable sum. On the basis that the only agreement reached between them was that the broker would take over receipt of rents and management of the properties, the judge found that the builder remained the properties’ beneficial owner.

Dismissing the broker’s appeal against that outcome, the Court noted that neither he nor the builder had a sophisticated understanding of a number of legal concepts relevant to the question of precisely what they had agreed to transfer: beneficial ownership or the right to receive rents and manage the properties. Overall, the Court detected no error of law in the judge’s conclusions.

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Published
11 July 2022
Last Updated
8 August 2022