Equitable Interests in Land
It is commonly thought that there are only two interested parties, when land ownership is concerned, the owner/s on the certificate of title, and the bank. However there are a number of ways in which equitable interests in land can be created, and can exist separate to the legal interests registered over the property. This is because the law of equity regards as done that which ought to be done and acts to ensure that parties receive the benefit from property that they are rightly entitled to, whether they are legally registered or not. It is important to understand equitable interest in property when you or a person with an interest in your property is facing bankruptcy.
Creation of Equitable Interests
The most common way that an equitable interest is created in a property is where the legal title is held on trust for another person. For example, A may hold the entire legal title to a house which both he and B have paid for, legally he holds 100% of the title, but at equity 50% of the title belongs to A, and 50% is held on trust for the benefit of B.
Another equitable interest which can arise is an equitable charge over land. An equitable charge over land is a form of security for payment which is not usually registerable (other than via caveat). A common example of an equitable charge arising is where B in the above scenario borrows money from C and secures the loan over her equitable title to her house. C can then claim against the property in the event that B does not repay the loan.
In general, the law of equity will recognise an equitable charge where there is sufficient evidence to show that the parties intended that certain property will act as collateral for a loan from lender to the borrower. Courts have previously found that sufficient evidence of this can be found in agreements which allow for registration of a caveat, or grant interest in property upon default of a borrower.
In the absence of any express agreement equity will look to other factors such as the legal division of title, the actual contributions of both parties to the property, and any valuable consideration which passes between parties in relation to the property. To continue with the above example; where A invests more into the property than B such as paying off a mortgage, A holds a charge over B’s equitable interest in the property, so upon sale of the property A will be entitled to more of the sale proceeds than B.
This division becomes more complicated again where beneficial ownership of the property, such as receiving rent or living on the property, is not equal between the two parties.
Disputes over the existence or the value of equitable interest over land usually arise where a lender makes a call on their security or where the property in question is sold and the equitable charge holder seeks to enforce their rights to the proceeds of the sale.
It is important to get prompt and accurate legal advice if someone is claiming an equitable interest in your property.
If you wish to obtain personalised advice relating to the above information, please contact Stipe Vuleta, Director & Practice Leader – Litigation & Risk Managementat Chamberlains Law firm on (02) 6215 9100