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Legal Tip 96: Legal v Beneficial Ownership

Discussion in 'Legal Issues' started by Terry_w, 26th Oct, 2015.

  1. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Legal v Beneficial Ownership

    This is a very simple concept, but very difficult for it to sink in.

    There are 2 different forms of ownership of property under Australian Law (and British derived law in general). Property here means land (i.e. houses) and other things.

    Legal ownership refers to who has title to the property. This includes names on bank accounts, car registration papers and land titles.

    Usually the legal owner is the absolute owner of the property, but not always.

    It is possible that the legal ownership differs from the beneficial ownership. In these situations a trust like relationship exists. A beneficial ownership interest is an interest other than a legal interest.

    An example that is easy to understand is a mother opening a bank account for a 2 year old child. The mother has legal title, but not the beneficial ownership of the account or its money.

    Trust relationships can be of 2 general varieties.

    Express trusts are trusts which are expressly intended to operate. They are usually evidenced by writing – a deed.

    Non express trusts are trusts which arise because of the situation. There may be no intention by the parties that a trust operates, but a trust like relationship can exist and be declared as such by a court. An example is where Spouse A buys a house in the name of Spouse B but the funds used to pay for the house come from Spouse A. Spouse B would have legal title, but Spouse B could be deemed the beneficial owner of the house. There would be no trust deed and no intention of the parties to create a trust, but the trust relationship exists because of the circumstances.

    This has important implications in asset protection.
     
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  2. Elives

    Elives Well-Known Member

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    so if you did a rent to buy the tenant buyer who has a caveat over the property, they would have beneficial ownership?

    Cheers, Elives
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    They would have an equitable interest not beneficial ownership.
     
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  4. DanW

    DanW Well-Known Member

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    Hi Terry,

    "Spouse B would have legal title, but Spouse B could be deemed the beneficial owner of the house"

    Is that supposed to say "Spouse A could be deemed the beneficial owner"?
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Sorry but your right. Thanks Dan
     
  6. DanW

    DanW Well-Known Member

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    Would be interesting to find a way for both people in a couple to have beneficial ownership, yet only have one name on the loan.
    Ideal would be both names on the title too.
    One thing I'm worried about if buy a PPOR is affecting borrowing capacity for future equity releases if borrowing as single borrower
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Easy. One provides the deposit and tje other legal ownership.

    Or

    One owns and the other assists with a reno.

    Financial and non financial contributions will do it.

    However it is unlikely you will find a lender that will only take a mortgage from one of 2 legal owners though it would be possible in theory.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    And dont forget you can own property in one name get loan in one name and later get a Loc in both names. I have written a loan tip about this.
     
  9. DanW

    DanW Well-Known Member

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    If one partner dies, and it's in the will, is the home able to pass to the other owner without reassessment on serviceability from the bank?

    Or would it have to be sold if they can't take over the loan?
     
  10. DanW

    DanW Well-Known Member

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    Maybe this way is better. As long as both working and both agree on the strategy
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Would have to apply.

    Where there are joint owners i think most banks would just apply title to be transferred without reapplying especially where the property is the main residence.
     
  12. JohnPropChat

    JohnPropChat Well-Known Member

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    What would be an iron clad way to protect equitable interest?

    Say Person A has 2 IPs(IP1 and IP2). Person B rents-to-own IP2. Person A fails to keep up with payments on IP1 so the bank goes after his assets and disposes of both IPs to recover payments. Person B ends up loosing his equitable interest. A caveat may not help here as the bank gets first dibs?
     
  13. thatbum

    thatbum Well-Known Member

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    The problem with the scenario and the caveat is that everything happened after the mortgage was already in place. So Person B always had notice of the mortgage going in (well, should have).
     
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  14. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    The only way to secure and interest in a property well is with a mortgage.

    Generally with the laws of priorities the first in time to register takes prority unless there is an agreement otherwise between mortgagors. Legal interests generally take priority over the non legal interests such as

    A caveat is not a form of security, but just notice to the world that the caveator has a non legal interest in the property. It won't help in this case as the bank has a higher interest.
     
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