Housing or property? The dynamics of housing policy and property principles in the right to buy

© 2006 The Authors. Journal Compilation © 2006 The Society of Legal Scholars. Published by Blackwell Publishing,9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA

Legal Studies, Vol 26 No 1, March 2006 pp. 65–87DOI: 10.1111/j.1748-121X.2006.00002.x

Housing or property? The dynamics of housing policy and property principles in the right to buy

Nicholas Hopkins and Emma Laurie*

University of Southampton

This paper examines the interplay and tension between housing law and policy andproperty law, in the specific context of the right to buy (RTB). It focuses on fundingarrangements between the RTB tenant and another party. It first examines how courtsdetermine the parties’ respective entitlements in the home, highlighting the difficulty ofcategorising, under traditional property law principles, a contribution in the form of thestatutory discount conferred on the RTB tenant. Secondly, it considers possible exploita-tion of the RTB scheme, both at the macro level of exploitation of the policy underpinningthe legislation and, at the micro level, of exploitation of the tenant. The measures containedin the Housing Act 2004 intended to curb exploitation of the RTB are analysed todetermine what can be considered to be legitimate and illegitimate uses of the scheme. Itis argued that, despite the government’s implicit approval, certain funding arrangementsby non-resident relatives fail to give effect to the spirit of the scheme.

INTRODUCTION

The purpose of this paper is to examine the interplay and tension between housing lawand policy and property law, in the context of the right to buy (RTB). The RTB barelyneeds any introduction. Since 1980, it has provided local authority secure tenants withthe statutory right to buy their home at a substantial discount from the market value.As such, the scheme has enabled many people, who would not otherwise have beenable to do so, to own the home in which they live.

1

Such ownership also potentiallyprovides an investment in an appreciating asset and a vehicle for transmitting wealthto future generations. This paper examines the legal and policy ramifications where thepurchase of the home is funded partly by the RTB tenant’s discount, with some or all

* This paper is based on a paper presented to the Housing Stream of the Socio-Legal StudiesAssociation Annual Conference 2005 at the University of Liverpool. We are grateful for thehelpful comments received from participants. We are also grateful to Professor Nick Wikeleyfor his helpful advice and guidance in preparing this paper for publication.

1.

Precise figures on the number of houses and flats sold under the RTB in the UK since1980 are difficult to locate, as the Office of the Deputy Prime Minister (ODPM) only collatesfigures for England and figures produced by the Scottish Executive combine all sales (includingvoluntary sales). Estimates range from 1.5 million (C Jones

Exploitation of the Right to BuyScheme by Companies

(London: ODPM, 2003) para 1.3) to 2 million (R Goodlad and RAtkinson ‘Sacred cows, rational debates and the politics of the right to buy after devolution’(2004) 19 Housing Studies 447 at 447). Forrest and Murie put the figure higher at 2.3 million(R Forrest and A Murie ‘The big sell-off’ in J Goodwin (ed)

Built to Last?

(London: Shelter,1997) p 147).

66 Legal Studies, Vol 26 No 1

© 2006 The Authors. Journal Compilation © 2006 The Society of Legal Scholars

of the remaining purchase price provided by another party. The paper first asks howthe courts treat the RTB discount in the event that they are called on to determine theparties’ respective entitlements to the property (usually following a breakdown in therelationship). Secondly, and concomitantly, the paper considers whether fundingarrangements between the RTB tenant and other parties fulfil the policy objectives ofthe scheme, particularly in light of the courts’ treatment of those parties.

Even before the publication of the Law Commission’s discussion paper on sharinghomes,

2

a considerable body of literature existed on the issue of determining the rightsof home sharers.

3

That discussion paper has generated academic debate in this journaland elsewhere.

4

While the issues that have been raised in that context have someresonance with the arguments presented in this paper, nevertheless, the funding ofRTB purchases raises distinct issues that cut across the concept of home sharers. Thisis because, as will be seen, while funding may typically be provided by a personsharing a home with the RTB tenant, it may also be provided by non-resident relatives(who, thus, fall outside the concept of a home sharer) and even by commercialinvestors (both private individuals and investment companies).

The paper is divided into two main parts. The first part examines the policyunderpinning the RTB scheme and explores the justifications for the RTB discount,before considering how the discount is treated in property law, highlighting thedifficulty of its categorisation under traditional principles. The second part thenconsiders exploitation of the scheme: at the macro level exploitation of the legislation(and the policy that underpins it) and, at the micro level, exploitation of the tenant,principally through the exertion of undue influence. The measures contained in theHousing Act 2004 intended to curb exploitation of the RTB are analysed to determinewhat can be considered to be legitimate and illegitimate uses of the scheme. It isargued that, despite the government’s implicit approval, certain funding arrangementsby relatives of the RTB tenant fail to give effect to the spirit of the scheme.

1. THE RIGHT-TO-BUY SCHEME IN HOUSING POLICY AND PROPERTY LAW

The purpose of the right to buy

When the RTB was introduced in 1980, the Secretary of State for the Environmentstated that there existed, in this country, a deeply ingrained desire for home owner-ship.

5

He went on to outline the motivation for introducing the statutory right to buy:

2.

The Law Commission

Sharing Homes: A Discussion Paper

(Report No 278, 2002).

3.

The most comprehensive analysis of this area is provided by J Mee

The Property Rightsof Cohabitees

(Oxford: Hart, 1999).

4.

J Miles ‘Property law v family law: resolving the problems of family property’ (2003)23 LS 624; J Mee ‘Property rights and personal relationships: reflections on reform’ (2004)24 LS 414; A Hudson (ed)

New Perspectives on Property Law, Human Rights and the Home

(London: Cavendish, 2004) chs 1–4.

5.

976 HC Official Report (5th series) cols 1444–1445, 15 January 1980, Michael Heseltine.The Conservatives’ belief in owner occupation is a long-standing one. During the second readingdebates of the Housing (Financial Provisions) Act 1924, it was claimed that ‘there was morehappiness in the case of an owner than there ever can be in the case of a tenant’; 175 HC OfficialReport (5th series) col 134, 23 June 1924, Major Birchall. This claim is all the more remarkablewhen one considers that just 10% of the population were owner occupiers at that time; MPartington

Landlord and Tenant

(London: Weidenfeld and Nicholson, 2nd edn, 1980) p 11.

Housing or property? 67


‘The right to buy has two main objectives: first, to give people what they want,and secondly, to reverse the trend of ever-increasing dominance of the State overthe life of the individual. The Government believe that this spirit should befostered. It reflects the wishes of the people, ensures the spread of wealth throughsociety, encourages a personal desire to improve and modernise one’s home,enables parents to accrue wealth for their children and stimulates the attitudes ofindependence and self-reliance that are the bedrock of a free society.’

It appears that the 1979 Conservative administration was correct in its assertion thathome ownership was a tenure desired by the majority. Research published in 1988found that 95% of those questioned who had exercised the RTB preferred homeownership as a tenure; while 69% of those still renting from the local authority wouldalso choose home ownership as their preferred tenure.

6

As far as the reasons forpreferring to buy are concerned, it appears that here too the government was correct.Kerr’s research found that, among both buyers and renters, important reasons citedwere the sense of security that home ownership appears to engender and the desireto have something to leave to the family.

7

As Forrest and Murie have observed,‘Council house purchasers were to become members of the emerging “inheritance”economy, with housing equity to pass on to their children’.

8

Despite initial hostilityto the RTB, by 1986 the Labour Party had come to accept it.

9

Indeed, the HousingMinister has recently claimed that the government ‘enthusiastically embrace theprinciple of Right to Buy’.

10

Thus, there now appears to be political consensus thatthe RTB achieves a desirable policy objective of allowing people on modest incomesto realise their aspiration to become home owners and to gain an interest in anappreciating asset. The ability, through this, to provide an inheritance for children hasbeen acknowledged from the outset as a legitimate use of the RTB. Stated broadly,the initial purpose was to facilitate a shift by individuals from the public to the privatehousing sector and, consequently, to allow tenants to enjoy all the incidents ofproperty ownership.

Beyond this broad principle, the policy objectives of the RTB and the rationaleunderpinning the discount have not been convincingly articulated. This has led todifficulty for the courts when faced with the task of determining the parties’ respectiveinterests in the property. As will be seen, this is clearly demonstrated by the differentapproaches adopted by the courts to the RTB tenant’s discount. More recently, theLabour Government has linked the RTB with the development of stable, mixed-tenurecommunities. This focus on the desirability of promoting a long-term commitmentto a community, through the RTB, provides an indication of the motivations behindthe changes made to the scheme by the Labour Government since gaining power in1997, which will be discussed later in the context of measures to curb exploitation.Nevertheless, it is argued that these measures fail to address the inherent tensionbetween housing law and policy and property law principles, which is exposed onthe breakdown of the relationship between the RTB tenant and those who havepartially funded the purchase.

6.

M Kerr

The Right to Buy: A National Survey of Tenants and Buyers of Council Homes

(London: HMSO, 1988) para 90.

7.

Ibid, para 102.

8.

Forrest and Murie, above n 1, p 153.

9.

R Forrest and A Murie

Selling the Welfare State

(London: Routledge, 1988) pp 63–64.

10.

Standing Committee E, col 574, 12 February 2004, Keith Hill.



The rationale for the discount

When the RTB was introduced, it provided for an initial discount for houses of 33%,following 3 years’ qualifying residence,

11

with a further 1% for each complete yearof tenancy, to a maximum of 50%.

12

(The discount scheme for flats was moregenerous, with an initial discount of 44%, potentially rising through qualifying resi-dence at 2% per annum to 70%.)

13

The qualifying period and discount were reducedin 1984: 2 years’ residence attracted an initial 32% discount, with the same furtherpercentage increments to a new maximum of 60%.

14

Since the scheme’s inception,the discount, or a proportion of it, has been subject to repayment if the property isdisposed of (a ‘relevant disposal’

15

) within a certain period. The initial repaymentperiod of 5 years

16

was reduced to 3 years in 1993.

17

The discount awarded to RTB purchasers was claimed by the Conservative Gov-ernment of the day to comprise two distinct elements. The initial minimum 33%discount was said to be a reflection of the fact that a council house will have a sittingtenant:

‘Clearly, the sitting tenant valuation is always significantly less. Indeed, in theprivate sector a discount could be materially greater than 33 per cent if a sittingtenant were in occupation.’

18

The government claimed that the main cause for the discount was the fact ofresidence

19

and, in this initial 33%, no account was taken of any rent paid by thetenant.

20

The years of rent paid by the RTB tenant were taken into account in theprinciple of the additional 1% that was awarded over the initial qualifying period.

21

The government was keen to distinguish between the element of the discount thatreflected the existence of a sitting tenant and the increase attributable to the fact thata tenant had been in occupation and paying rent.

22

The rationale for the discount was challenged by Jack Straw

23

when he proposedan amendment that would have restricted the tenant to buying the specific house

11.

Housing Act 1980, s 1(3).

12.

Ibid, s 7(1). Where the purchase is by joint tenants, then the tenants’ discount is not addedtogether but the period(s) attributable to the joint tenant that produces the greatest discount isapplied; Housing Act 1985, s 129(3).

13.

Housing and Planning Act 1986, s 2(2)(b). To simplify the text, percentages quoted inthis paper refer to those for houses.

14.

Housing and Building Control Act 1984, s 3(1) and (2), consolidated in Housing Act1985, ss 119 and 129.

15.

The terminology of ‘relevant disposal’ was introduced by Housing and Building ControlAct 1984, s 5(2), which amended Housing Act 1980, s 8(3).

16.

Housing Act 1980, s 8.

17.

Leasehold Reform, Housing and Urban Development Act 1993, s 120 amends HousingAct 1985, s 155. The Housing Act 2004 reinstates the 5-year period, and this is discussed belown 83 and associated text.

18.

Standing Committee F, col 7, 29 January 1980, John Stanley, Minister of State forHousing and Construction.

19.

Standing Committee F, col 9, 29 January 1980, Tristan Garel-Jones.

20.

Standing Committee F, col 7, 29 January 1980, John Stanley.

21.

Ibid.

22.

Ibid.

23.

Straw was then opposition spokesperson on Treasury matters but took over the localgovernment brief in 1983.



which they had been renting for 3 years. As Straw pointed out, the security of tenureenjoyed by a local authority tenant ‘. . . is a fact for the tenant of a particular house,but it is not a fact if he has been a tenant of a house in the past. His security comesto an end when his tenancy comes to an end’.

24

Jack Straw’s challenge highlights theinherent contradiction in the government’s argument that the initial, minimum 33%discount was because of the fact of residence, since such residence can be built upin different housing and with different landlords. It does not even need to be acontinuous period

25

and it need not immediately precede the tenant’s exercise of theRTB.

26

Forrest and Murie agree that the initial justification for discounting prices forcouncil house sales (prior to the RTB) derived from the lower value of properties inthe private-rented sector with sitting tenants, as opposed to vacant possession. Thelink to length of tenancy came later, and the discount rate became no more than abalancing act between providing sufficient incentive to maintain sales and generatinga certain level of capital receipts.

27

The Housing and Building Control Act 1984shortened the residence qualification for exercise of the RTB from 3 years to 2, withthe minimum discount reduced by 1% to reflect this reduction.

28

This decrease in thediscount makes sense if one views it in the context of the additional 1% increment(beyond the minimum 33%) for every year’s residency. On the other hand, thereduction is inconsistent with the government’s argument that the initial discount wasa reflection of the fact that there was a sitting, secure tenant.

Since 1997, the Labour Government has made a number of changes to the RTB,with respect to maximum discount levels and the designation of certain rural areas.

29

In February 1999, the government replaced the nationwide limit of £50,000 with nineregional limits.

30

The government’s view was that the current limit could not bejustified in public policy terms.

31

In March 2003, the maximum discount in 41 areaswas further reduced to £16,000.

32

The government explained the motivation behindthese changes as ensuring that the scheme provided better value for money fortaxpayers, as well as continuing to offer generous discounts to purchasers.

33

However,it has been argued that the 2003 changes followed the commissioning of research intoabuse of the scheme,

34

suggesting that the real reason was to make such exploitationa less attractive proposition.

24.

Standing Committee F, col 33, 29 January 1980, Jack Straw.

25.

Housing Act 1985, Sch 4, para 1.

26.

Ibid, Sch 4, para 2.

27.

Forrest and Murie, above n 9, p 148.

28.

Housing and Building Control Act 1984, s 3. A 5-year qualifying period was introducedby Housing Act 2004, s 180; see below n 82 and associated text.

29.

Housing (Right to Buy) (Designated Rural Areas and Designated Region) (England)Order 2003, SI 2003/1105; Housing (Right to Buy) (Designated Rural Areas and DesignatedRegions) (England) Order 2004, SI 2004/418; and Housing (Right to Buy) (Designated RuralAreas and Designated Regions) (England) (No 2) Order 2004, SI 2004/2681.

30.

Housing (Right to Buy) (Limits on Discount) Order 1998, SI 1998/2997.

31.

Department of the Environment, Transport and the Regions

Secure Tenants’ Right to Buy:A Consultation Paper

(London: DETR, July 1998) para 18.

32.

Housing (Right to Buy) (Limits on Discount) (Amendment) Order 2003, SI 2003/498.These areas come within the London, south-east and eastern regions.

33.

Office of the Deputy Prime Minister

Introduction and Background to the Right to Buy

,available at http://www.odpm.gov.uk.

34.

Goodlad and Atkinson, above n 1, at 449.

http://www.odpm.gov.uk



The original justification for the discount (based on the combination of the pres-ence of a sitting tenant and the number of years for which rent had been paid) wasarguably dubious from its inception. It appears that it was no more than a façade toachieve the government’s policy objective of reducing the number of people housedin the public sector. The more recent changes to the maximum discount levels havefurther eroded its basis and, more explicitly, recognise that the level of discount is abalance between encouraging home ownership and protecting the interests of tax-payers. Against this background, it is perhaps not surprising that the courts haveexperienced difficulties in determining how to treat the discount in disputes as toentitlement.

The treatment of the discount in property law principles

The RTB legislation anticipates purchase by the tenant alone or jointly with otherresident members of the family.

35

However, in cases of joint purchase, the legislationdoes not seek to determine the respective rights of purchasers inter se: there is noguarantee (and arguably no necessary intention) that the RTB discount is attributedto the tenant as a share of ownership in cases of joint purchase. The legislation createsthe RTB and regulates its exercise

36

but, once exercised, the respective rights ofpurchasers are left to be determined by ordinary principles of property law (and,where applicable, statutory regulation of matrimonial property). A number of caseshave arisen where it has become necessary for the court to determine the respectiverights of the tenant and other persons who assisted in the purchase. Typically, theRTB tenant is living with the person who assisted in the purchase, the parties beingfamily members or in a cohabiting relationship, but not married, and the issue of theirrespective entitlement arises at the breakdown of the relationship or the cessation ofshared occupation. Their situation is not, therefore, governed by matrimonial legis-lation and their rights fall to be determined by general principles of property law.

The property law principles that determine parties’ rights in this situation are thewell-known doctrines of resulting and constructive trusts and proprietary estoppel.These are notorious for their complex inter-relationship and, in some respects, theartificiality underlying the basis of their application. The challenge for the courts hasbeen to determine how to deal with the concept of a ‘discount’ within the scheme ofthese principles. An outline of the elements of the doctrines exposes the underlyingdifficulty this has presented.

37

35.

Housing Act 1985, s 123.

36.

There are a number of powers of enforcement available to the tenant; Housing Act 1985,ss 138(3), 150(3), 153A and 153B. The Secretary of State also has enforcement powers;Housing Act 1985, ss 164–166 and 170.

37.

This outline is provided as a framework for the discussion that follows. For a fullexposition of these doctrines the reader is referred to N Hopkins

The Informal Acquisition ofRights in Land

(London: Sweet & Maxwell, 2000) chs 6 and 7; K Gray and SF Gray

Elementsof Land Law

(London: Butterworths, 3rd edn, 2001) ch 7; P Sparkes

A New Land Law

(Oxford:Hart, 2nd edn, 2003) chs 17 and 23. A useful analysis of the problems in ascertaining sharesunder property law principles following the exercise of the RTB is provided by C Davis andC Hunter ‘Purchase of a family home under the right to buy provisions – problems of a jointpurchase’ (1996) 8 CFLQ 313 at 314–319. While the authors note the difficulties in subsumingthe discount into existing principles, they do not consider why these difficulties have arisen.



A presumption of resulting trust arises where a direct cash contribution is madeto the acquisition of land. While the basis of the trust is not entirely settled, itappears to be founded on the prevention of an unjust enrichment. The resulting trustensures that land is held for joint owners in the proportions in which they contrib-uted to the purchase.

38

The presumption of resulting trust does not apply in limitedfamily relationships where there is, instead, a presumption of advancement (or gift)

39

or, more importantly, where (as is explained below) the contribution is used toestablish a constructive trust. The category of constructive trust of most relevance indetermining entitlement to land is the common intention constructive trust. This trustarises from the twin elements of a common intention to share beneficial ownershipand detrimental reliance on that intention by the claimant. In

Lloyds Bank plc vRosset

,

40

Lord Bridge of Harwich distinguished between two forms of this trust:those based on an express agreement and those in which the agreement is inferredfrom the parties’ conduct. Importantly, the orthodox understanding is that an agree-ment may be inferred only where a direct cash contribution is made.

41

That contribu-tion then serves the dual purpose of providing evidence of the agreement and ofdetrimental reliance on the agreement. The trust is, therefore, based on the same typeof contribution as the resulting trust. The constructive trust differs from the resultingtrust in that the contribution is analysed as evidence of an agreement between theparties. The application of a resulting trust is thus confined to situations in which therequisite contribution has been made, but the inference of an agreement is notdrawn.

42

38.

The basis of the trust is discussed by Hopkins, ibid, pp 92–95. The limitation to cashcontributions is reflected in Eyre CB’s explanation of the trust in

Dyer v Dyer

(1788) 2 Cox92 at 93: ‘the clear result of all the cases, without a single exception, is that the trust of a legalestate . . . results to the man who advances the purchase money’. For a modern illustration ofthis restriction, see

Mollo v Mollo

(unreported) 8 October 1999 at para 22 per His HonourJudge Hunter: ‘where legal title is held by one party but another . . . has made

a directcontribution to the purchase price, the party with legal title holds the property on resultingtrust’ (emphasis added).39. In Pettitt v Pettitt [1970] AC 777, the House of Lords cast doubt on the relevance of thepresumption of advancement in a modern context and suggested that it would be readilydisplaced. However, these comments were directed at the operation of the presumption betweenhusband and wife, and in other relationships to which the presumption applies it retains greatersignificance. See, eg, J Mowbray et al Lewin on Trusts (London: Sweet & Maxwell, 17th edn,2000) para 9.06. In any event, in general terms, the presumption of advancement is more likelyto apply to gifts from the older generation (eg father) to the younger (son). The presumptionis therefore unlikely to be relevant in RTB cases, where the funding (the presumed gift) isprovided by the younger generation to the older. The relationships to which the presumptionapplies are discussed in Mowbray et al, ibid, paras 9.22–9.33.40. [1991] 1 AC 107.41. In Lloyds Bank v Rosset, ibid, at 133 Lord Bridge of Harwich explained, ‘direct contri-butions to the purchase price . . . will readily justify the inference necessary to the creation ofa constructive trust. But, as I read the authorities, it is at least extremely doubtful whetheranything less will do’.42. This is acknowledged in Oxley v Hiscock [2004] 3 WLR 715 at 721–722 and is illustratedby Day v Day [2005] EWHC 1455 (Ch) (unreported) 23 June 2005. There, the RTB tenantwas entitled to a 60% discount and the remaining 40% of the purchase price was funded byher son. In the absence of an agreement to share on other terms the court imposed a resultingtrust.



The express agreement constructive trust requires evidence of ‘express discussionsbetween the partners’.43 Once found, the requirement of detrimental reliance can besatisfied on the basis of a wide range of evidence and, in particular, this form ofconstructive trust is not restricted to claimants who have made cash contributions tothe purchase. This category of constructive trust is closely related, as regards theelements of a claim, to proprietary estoppel. Proprietary estoppel (which acts as asword as well as a shield) requires an assurance of rights on which the claimant hasacted to his or her detriment in circumstances in which it is considered unconscion-able for the representor to renege on the assurance.44

Cutting across the elements of these doctrines is a distinction between two differenttypes of contribution: cash contributions to the purchase of land, which give rise toan interest without more, through a resulting trust or an inferred agreement construc-tive trust; and other forms of contribution, which provide the basis of a claim to aninterest, only where the contribution constitutes detrimental reliance on a pre-existingexpress agreement or assurance of rights (for an express agreement constructive trustor proprietary estoppel).

Once the significance of the different types of contribution for the application ofthese property law principles is understood, the challenge that the concept of adiscount presents to the court becomes apparent: the RTB discount does not fit intoeither category. As has been seen, the initial dual justification for the discount45

rationalises its availability as representing in part cash and in part simply an acknowl-edgement of the presence of a sitting tenant. The discount has a cash nexus insofaras it is derived, in part, from rent paid and is visible as a cash deduction from themarket value in determining the purchase price. However, it is wholly personal to thetenant,46 is subject to the tenant’s continuing qualifying status and is realisable onlythrough the purchase by that tenant of the particular property in which they arecurrently living.

Initial cases demonstrated a willingness on the part of the courts to treat thediscount as a contribution by the RTB tenant, but uncertainty as to how to achievethis within the confines of the property doctrines. In its discussion paper on sharinghomes, the Law Commission expressed its view that a discount obtained through theRTB should be reflected in the property interests of those who share homes.47 How-ever, the manner in which this should be achieved within existing principles has notbeen satisfactorily resolved. The cases demonstrate a level of inconsistency anddoctrinal uncertainty. Two alternative analyses developed: first, that the discountshould be seen as part of the purchase price provided by the tenant (an analysisappropriate for the imposition of a resulting trust); secondly, that it provided evidence

43. Lloyds Bank v Rosset [1991] 1 AC 107 at 132 per Lord Bridge of Harwich.44. This formula is based on Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982]1 QB 133 and Gillett v Holt [2001] 3 Ch 210. The nature of the relationship between the expressagreement constructive trust and proprietary estoppel continues to attract considerable aca-demic and judicial comment. See, eg, S Nield ‘Constructive trusts and estoppel’ (2003) 23 LS311. Opposing views are forwarded by D Hayton in ‘Equitable rights of co-habitees’ [1990]Conv 370 and in ‘Constructive trusts of homes – a bold approach’ (1993) 109 LQR 485 onthe one hand, and P Ferguson ‘Constructive trusts – a note of caution’ (1993) 109 LQR 114on the other.45. Above n 18 and associated text.46. Where a joint tenancy exists, the RTB belongs jointly to all joint tenants or to one ormore, as agreed between the parties; Housing Act 1985, s 118(2).47. The Law Commission, above n 2, para 3.29(3).



from which the court could infer the parties’ intentions as regards their beneficialownership (appropriate for an inferred agreement constructive trust).

A resulting trust analysis was adopted in Springette v Defoe.48 There, Steyn LJsuggested ‘it seems . . . right in principle that the discount of 41 per cent should beregarded as a direct contribution by [the RTB tenant] to the purchase’.49 He drewsupport for this approach from Marsh v Von Sternberg.50 However, as was noted inEvans v Hayward,51 in fact the interpretation adopted by Bush J in Marsh wasdifferent. While acknowledging that the discount constituted a ‘financial benefit’52

(albeit it was one that ‘only had a financial value in a given set of circumstances anddid not have a market price in the world at large’),53 Bush J used that benefit to inferan agreement between the parties. In Evans v Hayward, expressing a preference forBush J’s approach, Staughton LJ sought to divorce the RTB discount from a cashcontribution. He commented, ‘I find it difficult to say that a discount is, strictlyspeaking, purchase money provided by either party. It is money which is not providedby anybody’.54 Accordingly, Staughton LJ expressed a preference for the approachbased on an inferred agreement constructive trust.

From the perspective of property law, the attempt to distinguish the applicabledoctrine on the basis of whether the discount should be treated as money providedby the RTB tenant or in some other way is ill-founded. Both the resulting trust andinferred agreement constructive trust are based on the same type of contribution: adirect (cash) contribution. The difference between the doctrines lies in the interpre-tation of that contribution, not its nature.55 Hence, Staughton LJ’s reluctance toclassify the discount as cash equally affects the suitability of a resulting trust or (hispreferred solution) an inferred agreement constructive trust. Staughton LJ’s prefer-ence for an inferred agreement analysis is, however, telling insofar as it reflects areluctance to place the discount on the same footing as cash. Given the choice, thepreference is to extend circumstances in which an agreement may be inferred beyondthe orthodox view of direct cash contributions. The choice of doctrines is not sterile,but impacts on the basis on which the respective beneficial entitlement of the partiesis determined. The cash basis of the resulting trust (and its probable foundation inunjust enrichment) is carried through to the award of beneficial shares in arithmeticalproportion to the extent of each party’s contribution. A more flexible approachoperates in constructive trusts (and provided a further basis for Staughton LJ’s pref-erence for this analysis), enabling the extent of an individual’s beneficial share todiffer from their arithmetical contribution. Most recently, in Oxley v Hiscock56 (whichconcerned beneficial entitlement to a house purchased using the proceeds of sale ofa house that itself had been acquired through exercise of the RTB), the Court ofAppeal held that, in the absence of evidence of discussions between the parties asregards the issue of quantification, each party is entitled to a share the court considers‘fair’ having regard to their whole course of dealing.57

48. [1992] 2 FLR 388.49. Ibid, at 395.50. [1986] 1 FLR 526.51. [1995] 2 FLR 511.52. [1986] 1 FLR 526 at 531.53. Ibid, at 531.54. [1995] 2 FLR 511 at 516.55. See the discussion of these doctrines, above n 41 and associated text.56. [2004] 3 WLR 715.57. Ibid at 750.



A preference for treating the discount as evidence from which to infer an agree-ment does not preclude application of a resulting trust in exceptional cases where nosuch inference can be drawn.58 The resulting trust remains in the background as, ineffect, the ‘default’ position to be applied where no other analysis is available. Awayfrom the specific context of determining entitlement to a house purchased by theexercise of the RTB, the flexibility in quantifying shares under a constructive trustmay make that doctrine more desirable for claimants than the resulting trust. This isthe case where the share claimed exceeds the actual contribution made.59 In RTBcases, however, the level of discount available in the past may have made a resultingtrust more desirable as the discount often constituted the greater proportion of thepurchase price. Following the introduction of the national and regional limits on thevalue of the discount from February 1999 (and further changes in 2003), the con-structive trust may now be more desirable to RTB tenants as the value of the discountas a proportion of the purchase price is significantly reduced.60

Where a resulting trust or inferred agreement constructive trust is applied, theseinitial cases demonstrate that, despite difficulties in the classification of the discount,the RTB tenants have, in fact, benefited from the discount. In Evans v Hayward,Springette v Defoe and Marsh v Von Sternberg, the RTB tenants obtained sharesgreater than the level of discount, whether the decision was based on a resulting trustor an inferred agreement constructive trust.61 Shares were determined by the parties’respective contributions, with the discount treated, for this purpose, as a contributionby the tenant. However, as will be seen, the prevailing perception of the discount assomething ‘less’ than a cash contribution may leave tenants vulnerable. Further,tenants seem at most risk of losing the benefit of the discount where the courtsintervene on the basis of an express agreement constructive trust.

The remaining vulnerability of RTB tenants is highlighted by the decision in Ashev Mumford.62 There, the RTB tenant obtained a 50% discount with the remainingfinance for the purchase purportedly provided by her daughter-in-law. Following thepurchase, the tenant executed an express declaration of trust for herself for life, withthe remainder going to her grandson (the son of the finance provider). The declarationof trust was held to be a sham and the actual finance provider was the tenant’s son,who was now bankrupt. The declaration of trust was therefore set aside in an

58. As is noted above n 42 and associated text, the resulting trust is correctly applied wherea direct cash contribution has been made, but no inference of an agreement is drawn.59. See, eg, Midland Bank plc v Cooke [1995] 4 All ER 562. There, an agreement was inferredthrough a contribution to the purchase of approximately 6%. That contribution arose as thedeposit for the purchase of the house was provided as a wedding gift and the claimant wasattributed with half the value of that gift. The existence of the constructive trust having beenestablished on this basis, the claimant’s share was quantified at 50%, as the parties’ course ofdealing demonstrated an intention to share everything equally.60. Above n 30 and associated text. In 1997/98, both in London and the north-east, thediscount represented 48% of the value of the purchase price, whereas in 2003/04 the figure forLondon had fallen to 24.5% but had remained relatively stable for the north-east at 41.9%. The2003/04 figures do not take into account the reductions implemented in 2003, which furtherreduce the value of the discount in the London, south-east and eastern regions: HC OfficialReport (6th series) col 267W, 2 December 2004.61. See further Humphreys v Humphreys [2004] EWHC 2201 (Ch), [2005] 1 FCR 712. Inquantifying shares under an inferred agreement constructive trust the discount was treated asa contribution by the RTB tenant and the parties’ shares matched their respective contributions.62. (Unreported) 18 October 2000.



application by the son’s trustee in bankruptcy. The Court of Appeal considered thatthis ‘wholly and emphatically’ displaced any presumption of resulting trust leavingthe son (and now his trustee in bankruptcy) solely entitled to the house. It is submittedthat this is incorrect. The decision conferred a ‘windfall’ on the finance provider (andnow his creditors), as provision of 50% of the market value conferred 100% of thebeneficial interest. The agreement between the parties (the declaration of trust) havingbeen set aside, the entitlement of the parties in the absence of that agreement shouldthen have been considered. In Humphreys v Humphreys,63 where an express trust wasset aside for undue influence, the court inferred an agreement between the parties onthe basis of a RTB tenant’s entitlement to the discount. Hence, the setting aside ofan express agreement did not preclude the finding of an inferred agreement. At theleast in Ashe v Mumford a presumption of resulting trust could have been drawn onthe basis of the discount. This should not be precluded by any matter preventing thecourt acting on the basis of an agreement, as the resulting trust is not based on theexistence of any agreement between the parties. In the bankruptcy context, Ashe vMumford compares unfavourably with Re Densham.64 There, an agreement for jointownership having been set aside (in a case not involving a RTB discount), the courtthen considered what share the wife was entitled to apart from that agreement. Onthe basis of cash contributions she had made, she was held entitled to a one-ninthbeneficial share.

RTB tenants appear to be most at risk of their discount not being reflected in theirbeneficial share where the court holds there to be an express agreement constructivetrust. In such cases, as in inferred agreement constructive trusts, the court generallyhas discretion as regards the quantification of beneficial interests. However, thisdiscretion does not arise where the parties’ express agreement deals with the issue ofquantification. In such a case, the parties’ agreement as to their respective shares isenforced: the courts’ discretion is considered to be confined to cases where theagreement establishes the existence of a share but not the extent of that share.65 Thedanger for the RTB tenant is that he or she will enter an agreement that deprives themof the value of their discount without necessarily understanding its significance. Insuch a case, the RTB tenant is in the same position as where there is an expressdeclaration of trust: that is, the trust (or agreement as to quantification) will beenforced unless vitiated by, for example, actual or presumed undue influence.66 InDriver v Yorke,67 the judge commented that RTB tenants ‘are acutely aware that thetotal of what they have paid in rent is more than the property is worth, and [the RTBtenant] knew that but for his long occupation there would have been no discount’.68

However, the key to the tenants’ vulnerability lies in the fact that, when applyingconstructive trusts, the courts act on the basis of informal agreements. Unlike cases

63. [2004] EWHC 2201 (Ch), [2005] 1 FCR 712.64. Re Densham [1975] 1 WLR 1519.65. Oxley v Hiscock [2004] 3 WLR 715. There, as noted by MP Thompson ‘Constructivetrusts, estoppel and the family home’ [2004] Conv 496 at 502, the court’s quantification of theparties’ shares where this matter was not dealt with by the parties’ agreement in fact matchedtheir contributions. This included treating the discount as a contribution by the RTB tenant.66. While presumed undue influence is more readily associated with challenges to anexpressly declared trust, there seems no reason, in principle, why the claim should not be raisedif the court enforces an express agreement through the imposition of a constructive trust.67. [2003] EWHC 746 (Ch) (unreported) 7 April 200368. Ibid, at para 35.



involving an express trust, the informality of the arrangement means that it is likelyto arise in the absence of legal advice having been obtained. In Bradwell v Bradwell,69

for example, the court found there to be an agreement for a house purchased with a60% discount to be transferred to the RTB tenant’s daughter (who was resident at thetime of the purchase and financed the remaining 40%) at the first convenient time,70

although subject to the RTB tenant’s lifetime occupation. This agreement was con-sidered to leave no room for the RTB tenant to claim a 60% beneficial interestfollowing a family dispute. In Savill v Goodall,71 a home was purchased jointly bythe RTB tenant (with a 42% discount) and her cohabitee, Mr Savill. Following abreakdown in the relationship less than a year after purchase, the court found anagreement to own the property ‘jointly’ and therefore in equal shares. Yet Mr Savill’scontribution to the purchase was limited to half of the expenses involved in thepurchase and 11 months of mortgage instalments.72

Thus, we have seen the courts’ difficulty in categorising the RTB discount whendetermining parties’ respective shares in the home and the potential vulnerability ofthe RTB tenant, depending on the principle adopted. The difficulty in classifying thediscount is, as has been noted, perhaps unsurprising given its dual justification andultimately dubious basis. The absence of a clear and coherent policy has createdtension in the application of the property principles. The resultant attempt by thecourts to distinguish the discount from cash, yet apply the inferred agreement con-structive trust, is doctrinally unsatisfactory, while the willingness of the courts to acton an (informal) express agreement leaves tenants vulnerable to ‘giving up’ theirshare too readily in the absence of legal advice. In the cases considered so far, thereis no suggestion of exploitation of the scheme by the relatives involved in fundingthe purchase. By contrast, the next section examines more problematic situationsinvolving funding by relatives and others where, arguably, the policy underpinningthe RTB is not being given effect to and, as such, there is a danger of its exploitation.This section also considers the legislative responses to such exploitation and questionswhat can be inferred from these provisions to constitute legitimate uses of the scheme.

2. EXPLOITATION OF THE RIGHT-TO-BUY SCHEME

This paper draws a distinction between two different forms of exploitation: exploita-tion of the legislation and exploitation of the tenant (principally through undueinfluence, which is considered in the final section of this part). The heading ofexploitation of the legislation does not refer specifically to unlawful acts but ratherincludes any actions that do not meet the general purposes of the RTB scheme. In thefirst part of this paper, it was explained that the policy underpinning the RTB was toallow tenants to enjoy all the incidents of property ownership, including the abilityto provide an inheritance for children. Beyond these broad principles, the purpose ofthe scheme has never been clearly articulated and, consequently, it is difficult to

69. [2001] EWCA Civ 1710 (unreported) 23 October 2001.70. Ie, after expiration of the discount repayment period.71. [1993] 1 FLR 755.72. Mr Savill had, however, contributed to the rent and other outgoings for several years priorto the purchase. While the discount is personal to the RTB tenant, arguably in applyingequitable principles insofar as the discount reflects rent paid, the court would be justified inconsidering contributions to the rent.



identify circumstances in which its use would be considered an exploitation of thelegislation. Subsequent debates leading to the Housing Act 2004 have arguably helpedclarify the purpose of the scheme as that legislation is intended to prevent specificforms of exploitation.

Changes made by the Housing Act 2004

As already mentioned, it appears that the primary motivation behind the changesmade by the Housing Act 2004 was to curb exploitation of the RTB. In 2003 theOffice of the Deputy Prime Minister (ODPM) commissioned research in response toconcerns expressed by MPs and local authorities about abuses of the RTB.73 Theemphasis of the research was on exploitation of the scheme by companies. However,a wide view of the brief was taken, including reference to issues linked to relatives.The definition of exploitation adopted includes schemes or practices that are contraryto the spirit of the RTB or which potentially exploit tenants, under the guise ofhelping them.74 The exploitation of the RTB scheme by companies falls into twobroad categories: first, companies that offer services to tenants who wish to exercisethe RTB; secondly, companies that provide financial incentives for tenants to buytheir home and leave, via a sale and lease arrangement.75 A further mode of exploi-tation is the orchestration of mass take up of RTB by specialist companies during theconsultation phase of urban regeneration schemes (particularly in London) thatinclude (selective) demolition. After exercising the RTB, the purchaser becomeseligible for compulsory purchase payment. As far as exploitation of the scheme byrelatives is concerned, it will be seen that, while the situation remains complex, thereare circumstances in which funding provided by relatives could be consideredexploitative.

There seemed to be all-party agreement during the Housing Bill’s parliamentarypassage that changes in the law were needed to deal with abuse.76 The revisions tothe RTB provisions fall into two categories: those aimed at direct exploitation of thescheme (primarily thought to be instigated by companies) and those intended moregenerally to make the RTB a less attractive proposition as a purely financial invest-ment. The justification given for the latter category was the desire ‘to encouragebuyers to commit themselves to their local communities in the longer term’.77 Withregard to the first category, the Act introduces a new exception to the RTB wherehouses are due to be demolished.78 A further important change is a new provision thateffectively extends the definition of a ‘relevant disposal’ for the purposes of repayingthe RTB discount. As explained earlier, the requirement to repay a proportion of thediscount if the property is disposed of within a certain period has been a feature ofthe scheme since its inception. The definition now extends to an agreement to transfer

73. Jones, above n 1, p 4.74. Ibid, p 5.75. Office of the Deputy Prime Minister Exploitation of the Right to Buy Scheme by Compa-nies Research Summary 177 (London: ODPM, 2003).76. Standing Committee E, cols 571–572, 12 February 2004, John Hayes, Shadow Ministerfor Local and Devolved Government; HL Official Report (5th series) col 1326, 16 September2004, Lord Hanningfield, Opposition Spokesperson for the Office of the Deputy PrimeMinister.77. Standing Committee E, cols 573–574, 12 February 2004, Keith Hill.78. Housing Act 2004, s 182 amends Housing Act 1985, Sch 5.



ownership of the property (other than an exempted disposal)79 that is made in con-templation of the tenant exercising the RTB and which is made before the end of thediscount repayment period. This section applies even where it is agreed that the actualtransfer of ownership will not take place until after the end of the discount repaymentperiod. In other words, the trigger for the repayment of the discount is the date of theagreement and not the date of the transfer itself.80 Changes that fall within the secondcategory, of reducing the opportunity ‘to play the market and make a quick buck’,81

include an extension of the qualifying period before the RTB can be exercised from2 to 5 years82 and an extension of the period in which the discount, or a proportionof it, must be repaid if the property is disposed of from 3 to 5 years.83 This sectionalso makes changes to the way in which the discount to be repaid is calculated:principally from a flat rate to a percentage of the resale value of the property.

The Housing Act 2004 does not target specifically the exploitation of the RTBscheme by company investors: the provisions on exercise of the RTB prior to demo-lition and deferred resale agreements are not expressly limited to the involvement ofcommercial organisations. Nevertheless, as discussed below, it appears that the moti-vation behind these provisions is to prevent such commercial involvement, as thegovernment has expressly stated its intention to put measures in place to exemptfunding by relatives from the anti-exploitation provisions. Consequently, we canconclude that, in principle, funding by relatives is seen by the government as entirelyconsistent with the purposes of the RTB scheme. However, the Act does take measuresto reinforce the basic idea that the RTB is concerned with home ownership, forexample by extending the qualifying period. This paper suggests that despite thegovernment’s acceptance of RTB funding by relatives, such arrangements are poten-tially (and actually) in conflict with the purposes of the RTB scheme. This can besaid of any exercise of the RTB in which the house is treated as a form of investmentproperty, rather than as a home. Further, in this respect, it may be possible to identifycases of exploitation depending on whether the provider of finance is resident ornon-resident.

Funding by relatives

Research published in 1988 found that there was little evidence of children or otheryounger relatives buying on behalf of an elderly parent. Just over 1% of buyersreported that gifts of money from children or other relatives had been a source offinance for purchase.84 By contrast, more recent research has found that childrenoffering finance was a key trigger in the decision to buy and plays an important rolein the take-up of the RTB. At least 13% of RTB sales are funded by relatives,

79. Housing Act 1985, s 39 as amended by Housing Act 1996, Sch 18, para 8. Exempteddisposals are those made to a qualifying person under a will or through intestacy and thosemade in pursuance of orders made under Matrimonial Causes Act 1973, ss 24 or 24A;Inheritance (Provision for Family and Dependants) Act 1975, s 2; Matrimonial and FamilyProceedings Act 1984, s 17; and Children Act 1989, Sch 1, para 1.80. Explanatory notes to Housing Act 2004, s 187.81. Standing Committee E, cols 559–560, 12 February 2004, Keith Hill.82. Housing Act 2004, s 180.83. Ibid, s 185. Five years was the original repayment period; see above n 17 and associatedtext.84. Kerr, above n 6, para 119.



including 40% or more of purchases by retired households.85 Three-quarters of appli-cant households receiving help from relatives do not have those relatives livingwith them, making the issue of non-resident funders of considerable potentialimportance.86

The report produced by Jones into exploitation of the scheme identifies the typicalsituation of abuse, where one or more non-resident family members provide fundsfor the purchase of the property and, after the current 3-year discount repaymentperiod has expired, claim the property.87 In some cases, this results in the originaltenant being ‘evicted’ by the family member and applying to the local housingauthority for rehousing. The incidence of such cases is unclear and it is not suggestedthat there is a universal desire to claim possession of the property while the RTBtenant is still living. Indeed, 17% of relatives expected to live in the accommodationat some time in the future, while 28% expected to inherit the property. Nevertheless,19% have an agreement to become owners in the future, before the death of the RTBtenant, while 4% have an agreement to receive a share of the proceeds of sale, beforethe RTB tenant’s death. Overall one in five relatives funding a purchase expect aformal financial return, not simply to inherit the property.88

The report’s conclusion on this issue was that the domestic and financial arrange-ments involved, and the numbers involved, provide considerable scope for exploita-tion, especially of the elderly.89 Where such incidents do occur it can be particularlydistressing for elderly people.90 Indeed, in its evidence to the ODPM Committee onthe draft Housing Bill, the Local Government Association (LGA) cited instanceswhere local authorities had been obliged to rehouse such people as homeless, becausethe circumstances had been so distressing that the person’s health was thought to bein jeopardy.91 The Chartered Institute of Housing (CIH) supported the LGA’s requestfor this ‘loophole’ to be closed.92 The Committee’s recommendation was the intro-duction of a statutory restriction on who can be named on the deeds or mortgageunder the RTB.93

The government has acknowledged that responses to the Bill raised additionalproblems of exploitation, including buying to let at market rents and abuse of thescheme by relatives.94 Indeed, the desire to prevent the immediate letting of theproperty (at market rents) was expressed by many respondents to the consultation

85. Jones, above n 1, para 6.75.86. This issue also has important ramifications for social security law, in the context of thetreatment of jointly owned capital for the purpose of assessing an individual’s eligibility formeans-tested benefits; N Wikeley ‘Co-ownership of property, valuation, vires and entitlementto benefits’ in F Meisel and P Cook (eds) Property & Protection (Oxford: Hart, 2000).87. Jones, above n 1, p 15.88. Ibid, para 6.76.89. Ibid, p 5.90. Ibid, para 2.27.91. Office of the Deputy Prime Minister: Housing, Planning, Local Government and theRegions Committee The Draft Housing Bill Tenth Report of Session 2002–03, HC 751-I, vol1, paras 181–182.92. Ibid, para 182.93. Ibid, para 182.94. Office of the Deputy Prime Minister The Right to Buy and Right to Acquire Schemes &Voluntary Sales to Social Tenants: A Consultation Paper (London: ODPM, March 2003) AnnexC, paras 25–26.



paper, including the LGA,95 the CIH96 and even the government’s own Low CostHome Ownership Task Force.97 As far as abuse of the scheme by relatives is con-cerned, the provision in the Act dealing with deferred resale agreements wouldpotentially apply not only to agreements made with specialist companies but also toagreements made with relatives. However, the minister made it clear, in his responseto a question posed in Standing Committee, that the deferred resale agreementprovision was not intended to catch funding by relatives, and implicitly suggestedthat such funding was not viewed as an abuse of the RTB system.98 Indeed, theminister suggested that the Secretary of State would issue secondary legislation toexempt circumstances that would otherwise fall within this section.99 He explained:

‘The aim is to discourage tenants from buying solely for resale to companiesor others, and to encourage longer-term commitment to their communities. Whenkids help their parents to acquire a property it is part of a longer-term commitmentto the community. We are fully sympathetic to that objective.’100

It follows that the provision of finance by a resident relative is clearly within thepurposes of the RTB. As already explained, such funding has been anticipated fromthe introduction of the RTB and is most likely to represent a long-term commitmentto the community. In essence, this provision enables relatives resident with the RTBtenant to share in the purchase of the parties’ joint home. However, purchases fundedby non-resident relatives appear less likely to be consistent with these purposes. Whilethe purpose of the transaction may include the provision of a home for the RTB tenantfor their life, the purchase may primarily be seen as an investment for the providerof finance. As we have seen, the Housing Act 2004 aims to discourage agreementsmade to dispose of the interest in the home by making such agreements subject tothe repayment of the discount. Further, the legislation draws no distinction betweenagreements made between the RTB tenant and a commercial organisation and thosemade between relatives. It is possible that the government may take the opportunity,when exempting relative funding from the deferred resale agreement provision, totackle potential abuse of the purposes of the RTB scheme by relative funders. Whileit would undoubtedly be difficult precisely to define circumstances in which suchfunding constitutes exploitation or to impose statutory limits on the sources of fund-ing, nevertheless it is argued that it would be feasible. In the absence of such directintervention, the steps taken in the Housing Act 2004 to reduce the commercialattractiveness of the exercise of the RTB (including the longer qualifying period anddiscount repayment period) will remain the only (and inadequate) protection againstthe exploitation of the legislation by relatives.

The provisions in the Housing Act 2004 aimed at discouraging the exploitation ofthe scheme by commercial investors are to be welcomed, particularly in light of thecase-law, discussed below, which demonstrates the lack of protection for such tenants

95. ODPM, above n 91, para 171.96. Ibid, para 170.97. Home Ownership Task Force A Home of My Own (London: The Housing Corporation,November 2003) para 6.39.98. Standing Committee E, col 582, 12 February 2004, Keith Hill.99. Housing Act 2004, s 198 amends Housing Act 1985, s 163A(5) to give powers to theSecretary of State to make such orders.100. Standing Committee E, col 582, 12 February 2004, Keith Hill.



under the doctrine of undue influence.101 Where disputes arise between RTB tenantsand relative funders, the property law principles used to determine entitlement areinherently unable to guard against exploitation of the legislation. These principles, ashas been seen, determine entitlement on the basis of (informal) agreements and typesof contribution made. They do not provide any mechanism to draw a distinctionbetween contributions made by residents and those made by non-residents. Theexistence of the discount, as explained, is taken into account in the application ofthe property principles. However, a consideration of two cases involving finance bynon-resident relatives illustrates the limitation on the protection afforded by theseprinciples.

In Driver v Yorke,102 the court’s perception of a RTB tenant’s moral entitlement tothe discount influenced the failure of a claim to constructive trust or estoppel. Thatcase concerned an attempt by the sons of the deceased tenant to establish a promiseof inheritance in their favour to the exclusion of their sister. One of the claimants hadfacilitated the purchase by acting as guarantor for the mortgage, though in fact theRTB tenant had funded the purchase himself.103 In considering whether the evidenceestablished an agreement on the terms argued by the claimants, Judge Bowsher tookinto account that (apart from arguments concerning the remaining funding of thepurchase) the tenant had a ‘moral claim’ to a 66% share reflecting the extent of thediscount.104 Referring to the underlying basis of claims to constructive trust andproprietary estoppel, Judge Bowsher noted that this moral entitlement made it difficultto establish that to leave less than 66% to his daughter would be unconscionable.105

It is notable, however, that the agreement contended for by the claimants was con-sidered wholly exceptional. Judge Bowsher commented, ‘any understanding or rep-resentation that [the daughter] should be excluded from the inheritance would havebeen so startling that, if intended, it would have been expressed in clear terms’.106

Further, even if the agreement had been established, it is apparent that the claim wouldhave failed through the absence of detrimental reliance.

It appears, however, that the stronger the evidence of the existence of the elementsof a claim to a trust or proprietary estoppel, the less persuasive the existence of thediscount is likely to be. The outcome of Driver v Yorke can be contrasted with thatin Jiggins v Brisley.107 There, the RTB tenants obtained a 70% discount on thepurchase of a flat, with remaining finance provided by their non-resident son anddaughter-in-law. An informal agreement provided for the transfer of the flat to thefunders initially to occur during the tenants’ lifetime, but subsequently refined to apromise of testamentary gift. Despite initially executing wills consistent with thisagreement, the last surviving tenant executed a new will providing a cash gift fromthe proceeds of sale to her daughter-in-law (the tenants’ son having pre-deceasedthem) with her remaining estate to be distributed between her grandchildren. Thecourt upheld the daughter-in-law’s claim to proprietary estoppel and considered the

101. See the discussion of Singla v Bashir [2002] EWHC 883 (Ch) (unreported) 13 May 2002,below n 119 and associated text.102. [2003] EWHC 746 (Ch) (unreported) 7 April 2003.103. An argument by the claimants that they had, in fact, provided finance was rejected on thefacts.104. [2003] EWHC 746 (Ch) (unreported) 7 April 2003 at para 35.105. Ibid, at para 35.106. Ibid, at para 39.107. [2003] EWHC 841 (Ch) (unreported) 16 April 2003.



appropriate remedy to be sole entitlement to the flat. The parties’ agreement coupledwith the funders’ detrimental reliance made it unconscionable for the flat not to beleft to her. The court acknowledged that, absent this claim, the RTB tenants wouldbe entitled to a 70% share through a resulting trust.108 It is notable that the courtawarded the daughter-in-law her expectation in satisfaction of her estoppel. Whilesuch an award has been considered usual,109 courts have recently reasserted thediscretionary nature of the remedy.110 In Ottey v Grundy,111 Arden LJ explained:

‘the purpose of proprietary estoppel is not to enforce an obligation which doesnot amount to a contract nor yet to reverse the detriment which the claimant hassuffered but to grant an appropriate remedy in respect of the unconscionableconduct’.112

In the exercise of this discretion, the RTB tenant’s ‘moral claim’ to the discount maypotentially be influential and even produce an outcome that mirrors the parties’ shareson a resulting trust analysis. However, in Jiggins v Brisley the court did not considerany factors in the case to detract from the award of the flat. It is difficult to argue thatthe funders were not the principal beneficiaries of the RTB in this instance. Contraryto the purposes of the RTB identified earlier, it cannot be said that the RTB tenantsenjoyed any of the incidents of private ownership. Such benefits (including freedomof disposal and testamentary power) were given up as part and parcel of the agreementthat enabled the acquisition of the home.

Having considered exploitation that arises at the macro level, where the argumenthas been that funding arrangements between the RTB tenant and other parties subvertsthe policy purpose of the RTB, this paper now addresses a different, although some-times concurrent, form of exploitation. This arises at the micro level where theagreement concerning funding is tainted by exploitation of the tenant.

Exploitation of the tenant

The exploitation covered in this final category involves exploitation of the RTB tenantby the provider of finance relating to the exercise of the RTB. Typically, the RTBtenant enters an agreement with the provider of finance as regards the parties’ respec-tive entitlements to the home following purchase. That agreement is implementedthrough an express declaration of trust. The RTB tenant then argues that the agreementis tainted by a vitiating factor and seeks to have the agreement set aside. The focus

108. Ibid, at para 102. The funders would be entitled to the remaining 30% in line with theparties’ contributions.109. Opposing views on the basis of the estoppel remedy are provided by E Cooke ‘Estoppeland the protection of expectations’ (1997) 17 LS 258 and A Robertson ‘Reliance and expec-tation in estoppel remedies’ (1998) 18 LS 360. However, Robertson acknowledged that evenan approach based on reliance, in theory, may still lead to the award of expectations in fact; ARobertson ‘The statute of frauds, equitable estoppel and the need for something more’ (2003)19 JCL 173 at 187.110. In Jennings v Rice (2003) 85 P&CR 100 at 114 Robert Walker LJ noted that outside alimited category of case where the parties have reached a mutual understanding, the courtsexercise ‘wide judgmental discretion’. The court rejected counsel’s argument (at 104) that theaward of expectations is the ‘basic rule’.111. [2003] EWCA Civ 1176 (unreported) 31 July 2003.112. Ibid, at para 61.



of the case-law is on claims to presumed undue influence (consistent with the height-ened awareness of the significance of this issue in property disputes), although otherpossible claims lie in actual undue influence, mistake, misrepresentation and a claimthat the agreement constitutes an unconscionable bargain.113 A point of general impor-tance is that in the cases that have arisen, the tenants have sought to set aside onlythe agreement concerning entitlement to the home following the exercise of the RTB,not the actual exercise of the RTB itself.114 Given the likelihood that the exercise ofthe RTB is dependent on the provision of finance by the other party, a successfulclaim does not merely put the tenant back in the same position he or she occupiedbeforehand but leaves them in a better position as owning the home.115 Having setaside the parties’ agreement as to entitlement, the court is left with the task ofdetermining their rights by the application of the property principles discussed above.

Before examining the case-law on presumed undue influence, two further pointsmay be noted. First, while the cases concern challenges to expressly declared trusts,as has been noted above,116 a claim within this category is also the only form of redressavailable to a RTB tenant if the court enforces an express agreement constructivetrust. Secondly, this type of exploitation is independent from that discussed above(exploitation of the RTB legislation) and both forms of exploitation may be in issueon the same facts. Arguably, all three claims to presumed undue influence discussedin this section also involve exploitation of the legislation.117

The requirements of a claim to presumed undue influence are now drawn fromRoyal Bank of Scotland v Etridge (No 2).118 Two factors must be established for thepresumption to be drawn. First, that the relationship between the claimant (the RTBtenant) and the defendant (finance provider) is one of trust and confidence. Secondly,that the agreement ‘calls for an explanation’; a factor established by demonstratingthat the agreement constitutes a sufficiently serious disadvantage to the claimant.Once these factors are established, the burden shifts to the defendant to counter theinference of undue influence.

113. Unconscionable bargain was raised unsuccessfully in Humphreys v Humphreys [2004]EWHC 2201 (Ch), [2005] 1 FCR 712 (where a claim to presumed undue influence succeeded)and in Singla v Bashir [2002] EWHC 883 (Ch) (unreported) 13 May 2002. Mistake andmisrepresentation are briefly considered in Humphreys v Humphreys, although failed on thefacts.114. Davis and Hunter, above n 37, pp 322–324 consider the possibility of a claim to undueinfluence to set aside the sale itself, rather than the parties’ agreement determining theirrespective entitlement to the property. Hence, they consider when circumstances may arise inwhich the actual sale would be ‘disadvantageous’ to the tenant. Their discussion is speculative(as the authors acknowledge, p 324) and the case-law that has subsequently arisen has involvedchallenges to the agreement concerning the parties’ entitlement, rather than challenges to thesale. Hence, it is that agreement that has been subject to an assessment of ‘disadvantage’.115. As noted in Singla v Bashir [2002] EWHC 883 (Ch) (unreported) 13 May 2002 at para 27.116. Above n 66 and associated text.117. This is clearly so in Singla v Bashir [2002] EWHC 883 (Ch) (unreported) 13 May 2002,which involved an individual commercial investor. In Humphreys v Humphreys [2004] EWHC2201 (Ch), [2005] 1 FCR 712 finance was provided by a non-resident relative. Popowski vPopowski [2004] EWHC 668 (Ch) (unreported) 26 March 2004 is more ambiguous in thisregard. Finance was provided by the son of the RTB tenant who was working abroad at thetime (and therefore strictly non-resident), although the house appeared to be his home duringvisits to England.118. [2002] 2 AC 773.



In the first case in which presumed undue influence was claimed in this context,the RTB tenant failed at the first hurdle. Singla v Bashir119 involved an agreementbetween Mr Bashir (the RTB tenant with a 68% discount) and Dr Singla, a privateinvestor.120 Under the terms of the agreement, Dr Singla provided the remainingfinance for the purchase of the flat that would be transferred to him at the end of thediscount repayment period. Dr Singla also undertook to carry out renovations andprovide Mr Bashir with an additional payment at the time of the transfer (of around£6000) to enable him to return to live in India. The respective status of the parties(both of whom were of Indian origin) is readily apparent from the judgment. Dr Singlais described as a ‘cultivated and articulate professional man, totally at home in Britishsociety’.121 Mr Bashir, in contrast, had little education, was unable to read or writeand (despite living in England for over 30 years) had little command of English.122

The claim to undue influence failed on the basis that there was no pre-existingrelationship between the parties and therefore, a fortiori, no relationship of trust andconfidence. Mr Bashir had been introduced to Dr Singla by his (Mr Bashir’s) lodger.The court noted it was unlikely that Mr Bashir would have known about the RTB or,if he did, would have initiated its exercise.123

The case has general significance as it highlights that a claim to presumed undueinfluence will never assist against a commercial investor, simply on the ground thatthe absence of a pre-existing relationship precludes the finding of a relationship oftrust and confidence. In such claims (absent evidence of actual undue influence,mistake or misrepresentation) the RTB tenant can obtain redress only by establishingthat the agreement constitutes an unconscionable bargain. The burden of proof thatmust be discharged by the tenant under this claim is higher than that required forundue influence.124 As noted in Singla v Bashir:

‘the bargain has to be more than hard, unreasonable or foolish: it must be provedto be unconscionable in the sense that one of the parties has imposed the bargainin a morally reprehensible manner. His behaviour must be characterised by somemoral culpability or impropriety.’125

Rejecting the claim on the facts, the court noted that the arrangement provided MrBashir with funds to return to India, which he desired to do, and while not generoustowards him, there was no evidence that he could have obtained a better dealelsewhere.126

119. [2002] EWHC 883 (Ch) (unreported) 13 May 2002.120. While it is correct to describe Dr Singla as a private investor on the facts of the case, thecourt did note, at para 5, that this was a unique transaction for him.121. [2002] EWHC 883 (Ch) (unreported) 13 May 2002 at para 7.122. Ibid, at para 7.123. Ibid, at para 15.124. See, eg, Humphreys v Humphreys [2004] EWHC 2201 (Ch), [2005] 1 FCR 712 at para106. There, Rimer J noted that while he had held that the transaction was disadvantageous tothe RTB tenant in the context of a (successful) claim to presumed undue influence, he consid-ered it ‘questionable whether it was sufficiently disadvantageous’ to constitute an unconscio-nable bargain.125. [2002] EWHC 883 (Ch) (unreported) 13 May 2002 at para 28.126. A relationship of trust and confidence was also absent on the facts in Papouis v Gibson-West [2004] EWHC 396 (Ch) (unreported) 4 March 2004, where half the remaining financefor a purchase (following the deduction of the discount) had been provided by a non-residentrelative of the RTB tenant. However, there, the agreement as to entitlement (an express trust)was not challenged by the RTB tenant herself, but by her nephew following her death.



Claims to presumed undue influence are therefore confined to situations wherefinance is provided by relatives or other persons in a pre-existing relationship withthe RTB tenant. In two subsequent claims to presumed undue influence the initialthreshold of demonstrating the requisite relationship of trust and confidence wassuccessfully crossed and debate centred on establishing whether the transaction wassufficiently disadvantageous to the RTB tenant to call for an explanation. In the firstcase, Popowski v Popowski,127 the claim to undue influence failed on this basis; whilein the second, Humphreys v Humphreys,128 the claim succeeded. In both cases, theRTB tenant was entitled to a 60% discount and the remaining finance was providedby the son of the respective tenants. In Popowski, a trust was declared under whichthe son was solely entitled to the beneficial interest, although there was an agreementthat the RTB tenants would be able to occupy rent free for life. In Humphreys, thedeclaration of trust required the consent of both the RTB tenant and her son for anysale of the home, although the son was solely entitled to the proceeds of sale.Together, the cases demonstrate the factors relevant in considering the existence of asufficient disadvantage and highlight that the assessment may be finely balanced. Thecrux of the issue arguably lies in the fact that the purchase of the home is equallydependent on the tenant’s entitlement to the discount and the willingness of theprovider of finance to fund the remaining cost of the purchase. This point is eloquentlyacknowledged by Rimer J in Humphreys in describing the provision of finance as the‘golden key’ that enabled the tenant to ‘unlock’ the available discount.129

A difference in the approach of the judges towards the discount in the two casesmay partly explain the difference in the outcome. In Humphreys, Rimer J noted that‘once unlocked, it [the discount] was in reality something that she [the RTB tenant]had earned’.130 That the assistance of her son as finance provider was necessary forthe purchase did not demand that he should then enjoy the whole of the benefit.131 InPopowski, His Honour Judge Sheldon acknowledged the purchase as being dependenton both the discount attributable to the RTB tenants and the finance provided by theirson, but appeared to emphasise the significance of the latter.132 He noted that thediscount was valuable ‘as a result of’ the son’s willingness to finance the purchasebut was not a right the RTB tenants could benefit from without his assistance. Thedifference between the judges is one of emphasis: it is subtle but crucial. Rimer Jacknowledged the significance of the provision of finance but chose to emphasise thatthe discount was something ‘earned’ by the RTB tenants. His Honour Judge Sheldonacknowledged that the discount had arisen through the RTB tenant’s occupation ofthe home and payment of rent but chose to emphasise that it had no value in theabsence of available finance.133 The question of disadvantage is one of fact. Whilefactual differences in these two cases (which are explained below) may readilydistinguish them, and justify their differing outcomes, the attitude of the judgestowards the discount is significant as the RTB tenant’s ability to access the discount,

127. [2004] EWHC 668 (Ch) (unreported) 26 March 2004.128. [2004] EWHC 2201 (Ch), [2005] 1 FCR 712.129. Ibid, at para 95.130. Ibid, at para 95.131. Ibid, at para 95.132. [2004] EWHC 668 (Ch) (unreported) 26 March 2004 at paras 31 and 32.133. This may be seen as a further illustration of the courts’ uncertainty in weighing the valueof the discount; cf the discussion of the treatment of the discount in property law principles inpart 1, third section, above.



balanced against any benefits received, is likely to be the key factor in assessingclaims to a sufficient disadvantage.

In Popowski, the principal factor against a finding of sufficient disadvantage wasthe benefit of rent-free accommodation the RTB tenants enjoyed under the agreementwith their son. In this respect, it was significant that the mother (the claimant to undueinfluence, the father having died) was in her 50s at the time of the purchase and,therefore, rent-free accommodation remained a valuable asset (and had already beenenjoyed for 20 years at the time of the action). The judge considered this benefit tobalance out the loss of the discount.134 In contrast, in Humphreys, the provision ofrent-free accommodation had limited significance to the tenant as her rent had largelybeen met through housing benefit.135 Rimer J also highlighted the disadvantages thatflowed from the tenant having given up her secure tenancy. She had become whollydependent on her son’s ability to pay the mortgage and had lost the obligation of thelocal authority as landlord to maintain and repair the property.136 Additionally, thedeed of trust, under which it will be recalled the son was solely entitled to the proceedsof sale, made no provision for the purchase of a substitute property. The presumptionof undue influence having been drawn, the court held that the son had not dischargedthe burden of proving the absence of undue influence.137 Having set aside the expresstrust, Rimer J held there to be an inferred agreement constructive trust (the agreementinferred through the RTB tenant’s discount). Following Oxley v Hiscock, he consid-ered each party entitled to a share the court considered ‘fair’ having regard to theircourse of dealings. On the facts, a fair share was considered to be one in proportionto their contributions. The RTB tenant, therefore, held the home on constructive trustfor herself (with 60% of the beneficial interest) and her son (40%).

CONCLUSION

Following the exercise of the RTB, problems can arise where the balance of thepurchase price is provided by another party and the relationship between the RTBtenant and the finance provider breaks down. In order to determine the parties’respective shares, the courts have applied traditional property law principles of trustand estoppel, which, it has been argued, do not always give adequate weight to theRTB discount and, thus, protection to the RTB tenant. This is particularly acute wherethe RTB tenant is still alive and the effect of the court’s decision is that they lose theirhome. As such, there is a tension between housing law and policy and property law.However, it is difficult to criticise the courts for failing to give effect to the policyunderpinning the RTB, given the unwieldy tools with which they have to work,combined with the very broad terms in which the purposes of the RTB have beencouched and the lack of articulation of those purposes in the legislation.

To explore further the dynamic between housing law and property law, this paperhas sought to draw a distinction between arrangements for partial funding of the RTB

134. [2004] EWHC 668 (Ch) (unreported) 26 March 2004 at para 34.135. [2004] EWHC 2201 (Ch), [2005] 1 FCR 712 at para 92.136. Ibid, at paras 94 and 96. Rimer J noted that while the tenant’s son had, in fact, maintainedthe property there was no obligation for him to do so under the terms of the parties’ agreement.137. Ibid, at para 98. Rimer J considered that, in light of the circumstances, this could onlyhave been achieved by demonstrating that the tenant had been given ‘comprehensive andindependent’ legal advice.



purchase that are and are not within the purposes of the scheme. Since the passageof the Housing Act 2004, we can conclude that involvement by commercial organi-sations is contrary to the purpose of the RTB scheme and is viewed as exploitation.This type of exploitation will, in future, be caught directly by the provision in theHousing Act 2004 on deferred resale agreements. Equally, we can state with certaintythat partial funding of the purchase by non-resident relatives is considered to beacceptable (if not positively desirable), despite the fact that such arrangements poten-tially fall within the anti-exploitation deferred resale agreement provision. While theability to accrue wealth for one’s family has always been a stated aim of the RTBscheme, the implication is that the RTB tenant’s relatives would benefit followingtheir death. It is suggested that it should not be considered to be within the objectivesof the scheme for the RTB tenant either to lose their home,138 or, as has been the focusof the discussion in this paper, to lose the value of their discount, following abreakdown in the relationship with a non-resident funder. However, this issue wasnot addressed during the Bill’s parliamentary passage. Since it is likely that fundingby non-resident relatives will continue, it will be left to the courts, applying propertylaw principles, to continue to resolve such disputes with the undesirable results thathave been identified.

138. Jones, above n 1.

Documents

Housing or property? The dynamics of housing policy and property principles in the right to buy