Trouble in paradise: can a former partner back-out of a property deal?

This article looks at the High Court’s recent decision in Kleinhentz v Harrison & White, which concerned a property dispute between two former partners.

Facts

In 1990, Mr Harrison (“the Defendant”) and Mr Kleinhentz (“the Claimant”) began a committed relationship. In 2002, the Defendant purchased a London property called Margravine Gardens (“the Property”) for £500,000. The Property was purchased in the Defendant’s name and from funds provided by his father, making the Defendant the sole legal owner of the Property.

In 2011, the relationship ended. When the Defendant asked the Claimant to move out of the Property, the Claimant argued that he enjoyed a share in the Property’s equity. Ultimately, the former partners agreed a settlement (“the Settlement”), the terms of which stated that the Claimant would be paid £250,000 in return for withdrawing his equity claim. However, it was agreed that the £250,000 payment was conditional on the Defendant first receiving funds (or an inheritance) from his father.

In 2015, the Defendant sold the Property for approximately £1.2m. The Defendant decided not to make a payment to the Claimant out of the proceeds of sale, arguing that he had not received funds from his father and so the conditions of the Settlement had not been met. The Claimant disagreed, claiming that the Property had been purchased out of funds provided by the Defendant’s father and that, therefore, the proceeds of sale amounted to the receipt of “funds” as defined in the Settlement. The Claimant also claimed to be the beneficiary of a common intention constructive trust.

The Judgment

Rejecting both the Claimant’s arguments, the High Court held that:

1. The natural meaning of the terms of the Settlement was that the Claimant would receive a payment of £250,000 if (and only if) the Defendant first received funds (or an inheritance) from his father. Had it been intended that the Claimant would receive a payment upon sale of the Property, the Settlement’s wording would have made this clear. Additionally, prior to agreeing the Settlement (and therefore before the Property had been sold), the former partners had discussed the fact that the Defendant was due to receive funds from his father. In the context of the Settlement, this was good evidence that both parties understood “funds” to be distinct from any proceeds of sale and that the Settlement was therefore not intended to provide the Claimant with £250,000 (merely) upon sale of the Property.
2. A common intention constructive trust could not have arisen: at most, the available evidence indicated that the Defendant intended the Claimant to receive an equitable share in the Property only after the Defendant’s father had passed away. There was therefore no common intention to grant the Claimant an immediate interest in the Property. Yet, even if there were such a common intention between the former partners, a constructive trust could not have arisen because the Claimant had not suffered the necessary detrimental reliance.

Conclusion

Once again, this case demonstrates that the Courts will interpret the terms of an agreements with reference to the natural meaning of the words used. In the High Court’s opinion, the Defendant had not backed-out of an agreement with his former partner. The Claimant may have struck a “bad bargain”, but the Defendant’s behaviour was consistent with the terms of the Settlement.

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