By Jackson McKinley
Legal and equitable interests are the two main types of property interests under Australian law.
Legal interests are those that are recognised by the law and are registered on a title or deed, whilst equitable interests are those that arise through principles of equity and fairness, rather than strict legal rights.
Equitable proprietary interests refer specifically to the types of equitable interests that can be held in property. There are several types of equitable proprietary interests recognised under Australian law, including:
- Equitable interests in land,
- Equitable Charges,
- Equitable Easements,
- Equitable Liens, and
- Equitable Estoppels.
Equitable interests in land
There are several different types of equitable interests in land, which include the following:
Trusts
Trusts involve a trustee holding and managing property for one or more beneficiaries. The trustee holds legal title whereas the beneficiary has an equitable interest. This means that the trustee holds ownership over the property on behalf of the beneficiaries. At a certain stage specified in the trust document, the trustee will transfer legal title to the beneficiaries. The common uses of trusts in Australia include estate planning purposes, where property is held for minors or people who are unable to manage their own affairs, and charitable purposes.
Resulting trusts
A resulting trust is a specific type of trust. It is created either automatically (where an express trust fails) or by presumption (where someone has supposedly gifted property to someone). Unlike constructive trusts, it is not the express intentions of the parties that give effect to a resulting trust, but their presumed intentions. For example, parents buying property for their children or a couple purchasing a home together, but only one person’s name is on the title are circumstances where a resulting trust could arise. Expanding on the second example, if a couple (A and B) bought a home together and paid proportionally 70%:30% of the purchase price — but A was the legal owner — a resulting trust would find that B would still have a beneficial interest in 30% of the property.
Constructive trusts
Where it would be unconscionable for one party to deprive another party of their beneficial interest in the property, the court may impose a constructive trust. The person who has been wronged has an equitable interest in the property, and the legal title holder holds the property on trust for them. Common instances where a constructive trust can arise include where there is a breach of fiduciary duty (e.g., a trustee misappropriating trust funds), fraud and/or unjust enrichment. An example of a constructive trust is that of Baumgartner,[1]where it was deemed unconscionable for the husband to have sole ownership of a property despite the wife having contributed 45% of the purchase price. As a result, the Court imposed a constructive trust to reflect the respective proportions the parties had contributed to the purchase price of the home.
Co-ownership
As its name suggests, co-ownership is a situation where two (or more) people own a property together. The two forms of co-ownership in Australia are joint tenancy and tenancy in common.
- In a joint tenancy, each owner has an equal share in the property. Uniquely with this form of co-ownership, there is a right of survivorship. This means that if one owner dies, their share automatically passes to the other owner.
- In a tenancy in common, each owner can have a different share in the property, and there is no right of survivorship.
Equitable mortgages
An equitable mortgage is a type of security interest in property that arises when someone lends money to a property owner in exchange for a charge over the property. The lender has an equitable interest in the property, while the legal title holder holds the property on trust for them until the lent amount is wholly paid. Equitable mortgages can be used when a formal mortgage is not possible or desirable.
Equitable charges
An equitable charge is a type of security interest in property that can be created without the need for a formal mortgage or other legal document. For example, if someone lends money to another person and takes possession of their property as security, they may have an equitable charge over that property. In circumstances where default arises, the borrower will retain the ownership of the property but have a claim on the proceeds from its sale.
Equitable easements
Put simply, an equitable easement confers a right to someone to use someone else’s property for a specific purpose. For example, if someone has been using a path on their neighbour’s land for many years, they may have an equitable easement to continue using the path.
Equitable liens
An equitable lien may arise if someone has provided goods and services to the property’s owner, but they have not yet been paid. So, as a result, they may have a beneficial security interest in the property. For example, if a builder completes work on a property but is not paid, they may have an equitable lien over the property until they receive payment.
Equitable estoppels
Equitable estoppel is a legal principle that prevents someone from denying a fact or statement that they have previously stated or implied. For example, if someone promises to give their property to someone else in exchange for a particular service, they may be estopped from denying that promise later on.
Conclusion
In conclusion, there are many types of equitable proprietary interests in Australian law, each with their own unique characteristics and legal requirements. It is likely that this list is not exhaustive and that different factual circumstances may create new categories of equitable interests.
Foulsham and Geddes notes that this article is written for the purpose of providing generalised information and not to provide specialised legal advice. If you require qualified legal advice on anything mentioned in this article, our experienced team of solicitors at Foulsham and Geddes are here to help. Please get in touch with us on 02 9232 8033 today to make an enquiry.