Constructive trust

Levi v Levi CA 12 March; SJ 3 June

The claimant, Sherone Levi and the defendant, Isaac Levi, were sister and brother. On their mother’s death, Isaac succeeded to her secure tenancy of a council house, which he subsequently purchased under the right to buy provisions in the Housing Act 1985 with the aid of a mortgage and a loan from his sister for about £5,000 at the rate of 5% interest. The loan was on the terms that the claimant would be entitled to half the equity in the property after repayment of the loan and mortgage. A month after the purchase, the parties fell out and the claimant told the defendant she required full payment of her loan immediately, upon which she would relinquish all her interest in the property. The loan was duly repaid. When the house was sold some years later, the claimant contended she was entitled to half the net proceeds of sale on the basis of a constructive trust arising from the parties’ original common intention that they should share the beneficial interest equally. There was no doubt there was an agreement that the claimant should have a 50% interest in the property in return for the loan, but as a matter of law, could she demonstrate a sufficient detriment to support her claim to a constructive trust? The judge held that because the loan was at the un-commercially low level of interest of 5% and had been open ended in so far as the claimant would only be repaid when (and if) the property was sold, she having no control over when that would take place this could be treated as a sufficient detriment. She had therefore acquired the beneficial half share in the property under a constructive trust, but that entitlement was extinguished when she expressly agreed to relinquish her share if she was repaid the loan immediately.