To what extent can parties who are not a registered owner of a property – but contribute to the cost of improvements or mortgage payments – claim a share in the equity of the residence they occupy under a constructive trust?

Consider the case of Antoinette Woods for whom in 2001, her sister and nephew acquired a residence in Parramatta NSW in their names for her to live in while her divorce from husband Stephen played out.

Orlene and David McKinlay signed up a $415k mortgage in respect of which Antoinette later payed down $115k from the proceeds of her property settlement.

She also paid council rates, insurance and maintenance and effected improvements all the while making regular monthly payments to Orlene and David towards the loan re-payments.

There was no documentation between them stating the legal nature of their relationship.

The expense shortfall borne by the registered owners over the life of the loan – current balance $230k – was about $47k.

Orlene and David lodged tax returns showing rental income derived from the property and claiming deductions for the interest, land tax and other and outgoings.

A dispute began to fester from 2016 as a result of the differing expectations of the protagonists.

The difference boiled down to whether Antoinette was merely a tenant and the periodic payments she made constituted rent or whether on the other hand she was beneficially entitled to a share of ownership.

What confused that question was that each party considered it to be a landlord/tenant relationship at one time or another when it suited that party but a different type of relationship at other times.

When the dispute arrived before Justice Guy Parker in the NSW Supreme Court, he was quick to observe that “the parties did not consider how the equity in the property, if there was to be any, would be shared”.

He concluded from the history that Orlene and David held the property according to a “joint endeavour constructive trust” of which Antoinette was also a beneficiary.

He then had to decide as to how the equity should be divided.

Because the equity had grown “three or four times as a result of the huge increase in property values in Sydney over the last twenty years” the division should be based, he ruled having more regard to “the relationship between the parties” than to “the contributions made to the purchase price and the repayment of the mortgage principal”.

Noting that “equity favours equality”, he observed that the calculations should account for the greater “purchasing power” of funds contributed over two decades past.

He ordered an accounting exercise be conducted to calculate the capital inputs, Antoinette’s contributions and those of the registered owners.

The judgement contains a useful guide on what should be excluded as a party’s contribution for example in the case of Antoinette, rates and maintenance, because she was required to pay these under the arrangement that allowed her to occupy the residence.

The final order was for the property to be sold with the proceeds being divided equally between Antoinette and Orlene and David, in accordance with the accounting process described in the judgment.

Woods v McKinlay (No 2) [2021] NSWSC 1510 Parker J, 23 November 2021 Read case


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