Do I have a claim against a property if I contributed financially to it?

You may contribute funds, maintenance or services to a property you don’t own.  When the contributions are more than minimal, it can give rise to a claim against the property.  What are some examples of a contribution?

Types of Contributions

Loan

If you contribute $100,000 to a property and document it as a loan you are contractually entitled to be repaid on the agreed terms.  For instance, if you intend to loan $100,000 to your parents to help purchase a retirement flat, you should document the arrangement specifying that it is a loan, any conditions your parents’ have to comply with and the repayment process.  A loan will not give an interest in a property unless there is a contractual agreement securing the loan by a mortgage.

Gift

In the above scenario, advancing an owner $100,000 as a gift does not entitle you to be paid back or to have an interest in the property.  Simply saying to your parents “I will give you $100,000 for your retirement flat” and not documenting it leaves it as a bare gift, whereby when both parents have passed, you would not be able to claim against the retirement flat.

Constructive Trust

Contributing $100,000 with a clear expectation of gaining an ownership interest can give you a proportionate interest in a property, where an owner is taken to hold your interest in the property on constructive trust. 

A constructive trust may apply when:

• An undocumented contribution is made;
• There is an intention that the contribution gives an interest;
• The expectation is reasonable; and
• It is reasonable for the owner to yield an interest.

Although a contribution is often easy to show, establishing that there was a reasonable expectation of an interest is more difficult.

Non-Monetary

Non-monetary contributions to a property can give rise to a constructive trust claim.  Landscaping, ground maintainance, home improvements and housework are examples where a person has contributed to the preservation or enhancement of the value of the property giving rise to a potential claim. 

It does not matter if the partner working in the home knew it was separately owned (such as by a family trust).  Provided the partner carrying out the work had an expectation of gaining an interest which was reasonable, the Court can find the owner must yield an interest proportionate to the contribution.  It is important to note that this must be considered relative to the benefit the contributing party received (e.g. not paying rent).

Family Home

Often kiwis have the family home owned by a family trust.  A common misconception is this protects the family home from claims from third parties and non-beneficiaries of the family trust.  However, the law is that if you have been in a relationship for three years, living in a property owned by your partner or a related entity (such as your partner’s family trust), you may have a claim for a share in the property under the relationship property regime.

Act Fast

Lodging a caveat over a property on the basis of a loan, constructive trust or the relationship property regime is a quick way to stop a sale or transfer.  A caveat is inexpensive; however, the caveat document needs to carefully describe the underlying interest, there must be a valid basis for lodging the caveat, and must be against the current owner.  If the ownership changes, a caveat cannot be lodged against the new owner.

If you have questions about contributions to a property, our Dispute Resolution Team are able to assist you.

If you would like further information, please contact Daniel Shore on 07 958 7477.