Land ownership – Co-owners and distribution of profits

In my blog titled ‘Ownership of Property – The Basics Explained’, I outlined the differences between properties owned as roommates and tenants in common, Click here to read my previous blog. Each party’s shares effectively refer to the share of the sale proceeds that they will receive when the property is transferred – roommates will receive equal shares, while common tenants may receive unequal shares. However, there are situations where the property is not sold, but generates income which must then be divided.

In most cases, the parties will sit down together before the profits are generated and agree on how the profits will be distributed. However, this does not always happen (this is probably less likely in the case of a family business than in the case of a purely commercial enterprise).

The Rashid case v (1) Munir, (2) Khalil (3) Rashid and others [2018] EWHC 1258 has addressed this point. It involved four brothers who owned a number of properties as roommates who inherited their father’s business empire (of which the properties formed a significant part). The second defendant ran the business and the plaintiff worked there. The plaintiff decided to break up the roommates, instead upsetting the defendants in the process, and was quickly dismissed (his claim to the Labor Court had already been settled with a substantial payment to the plaintiff). The remaining issue was the plaintiff’s share of the beneficial interest in the properties, and his claim for a share of the rent payments that had been received.

The case attracted some attention because trial and appellate judges were scathing about the testimony on both sides. On appeal, Justice Turner said that “every witness tries to outdo themselves in a rich display of competitive dishonesty.” He called the business “fiscally underground” and said the operations and profitability of the business were “but lightly referred to in the defendants’ tax returns.” Both the trial judge and the appeal judge remitted the case to the DPP. However, none of this suggests that the judge at either stage was wrong about the law.

With respect to the beneficial share of properties, the courts have held that fairness follows the law in the absence of any credible evidence to suggest otherwise. When the parties have been roommates, it is to be expected that they will understand that they will own an equal share of the property after the termination of the co-ownership.

Regarding the distribution of the profits generated by the properties, the trial judge refused to grant anything to the plaintiff on the grounds that this was not the common intention of the parties. The claimant appealed, but was unsuccessful – the judge upheld the ruling that there was no common intention that he receive a share.

While a co-owner is normally entitled to claim a share of the rental profits in proportion to their share of interest, the court must ultimately determine the common intention of the parties with respect to the payments. In the present case, the judge determined that there was no common intention to share the profits – evidenced by the fact that the rents had not previously been distributed in accordance with beneficial interests (he characterized the arrangements of “unorthodox”). The judge was clearly extremely unhappy with the standard of proof provided and the conduct of the parties, but that does not change the position on the law.

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