Flying the Nest with Part of the Nest Egg: Son Obtains Interest in Father’s Home by Paying Mortgage

Home All-News Flying the Nest with Part of the Nest Egg: Son Obtains Interest in Father’s Home by Paying Mortgage

With property prices in Australian capital cities continuing to rise and first home buyers now taking an average of nine years to save up for a deposit, it is becoming more difficult for children to move out of their parents’ homes. These living arrangements can create new complications and challenges to the parent-child relationship, including how liabilities for the family home should be shared. A recent decision of the New South Wales Court of Appeal (‘Court of Appeal’) has affirmed that parents should be careful what household expenses they let their adult children pay.

The primary decision

Behman v Behman [2016] NSWSCA 295 concerned a dispute between a father (Terry) and his son (Daniel) regarding the father’s home. After Daniel left school and commenced working, he continued to live with his father in the family home for a period of five years until he was 24 years old. During this period, Daniel paid all of his income ($204,000) into a bank account controlled by Terry and used predominantly to pay Terry’s mortgage. Daniel said he did so on the basis that his father had represented to him that he had an interest in the home.

These representations to Daniel, which Terry admitted to have started from when Daniel was only 11 years old, included the following statements:

  • “This isn’t only my home, it’s yours and your brother’s so everyone needs to help”;
  • “I’m not keeping it [the home] for me”; and
  • “It is not just my money and your money. We all own the house so we all pay for it as a family”.

The Supreme Court of New South Wales (‘Court’) held that when the boys were young, given their age, it would have been unlikely that they understood their father to have meant by these representations that they were given an equal share in the home. However, this changed once Daniel became an adult and commenced employment at an accounting firm. From that time, the Court likened Daniel’s contribution to the various liabilities of the home to that of a de facto.

The Court ultimately ordered that the home should be charged with repayment to Daniel of an amount representing 1/5th of the net value (i.e. $120,000) and this was a reasonable reflection of what Daniel had contributed towards meeting the burden of the mortgage repayments “beyond what could be expected of a son living at home.” The Court granted this relief to the son on the basis that it would be unconscionable for Terry to retain Daniel’s wages without giving him an interest in the home.

Although the Court charged the home in support of Daniel’s equitable interest in the property, the Court also recognised that Daniel could have succeeded in his alternative equitable proprietary estoppel claim (i.e. preventing Terry from denying his interest in the home):

Having regard to the undisputed fact that Terry told him at the time after Daniel had become an adult that “this is everyone’s house”, “I’m not keeping it for me”, “we all own everything” and “it’s yours and your brothers”, I accept that Daniel understood that he would, by continuing to make his extensive contributions, have an interest in the property which reflected those contributions although the extent of that interest was somewhat vague. In a context where significant contributions had commenced to be made it is not surprising that Daniel should have so understood the words used by Terry and Terry’s response when Daniel asked for return of his money was “the house is the family’s and since you’re no longer part of the family you don’t own it anymore” effectively recognising the existence of the interest that Terry denies Daniel ever had.

Equitable interest upheld on appeal

Terry appealed the Court’s decision on the ground that the primary judge erred in finding a common intention that Daniel expected to receive a joint interest in the property. Terry argued that the representations were informal conversations between family members that started when Daniel was a child and continued into his adulthood. As such, these conversation should be interpreted in light of their informal nature and not given a new meaning simply because Daniel became an adult.

The Court of Appeal rejected Terry’s arguments and dismissed his appeal, explaining its reasoning as follows:

At that time [March 2007] he [Daniel] commenced university and a new job and made clear that he wanted to be independent, to move out of the home and to manage his own affairs. The appellant [Terry] persuaded him not to do so because the contribution of his wages was necessary to enable the repayment of the mortgage and retention of the family home in which he had a joint interest. Exchanges to that effect continued over the subsequent period and, as the primary judge found, were a “factor in [the respondent] continuing to provide most of his wages and permitting those wages to pay for the mortgage and related property expenses such as council rates.””

Implications for parents

The Court did not recognise Daniel’s interest in his father’s home merely because his father told him that the home was his. It would not be unusual for a parent to make such representations to their children with the common understanding that the home would be theirs after the parent’s death. However, in this case, the child acted on this representation to his detriment by contributing all of his income to the mortgage payments. By such conduct, the Court was more willing to interpret such representations as conveying an immediate interest in the home rather than an interest delayed until the parent’s death.

By paying all his income into his father’s bank account, these payments were properly categorised not as rent, but as the pooling of resources for a common enterprise of maintaining the family home. Where children living at home are expected to contribute more than what would be reasonable in the circumstances, absent a written agreement to the contrary, there is a risk that they may be granted an equitable interest in their parents’ home in light of any statements made by the parent to the child. The Court found the father’s use of the word “own” was also significant so, unless intended, parents should avoid using words that connote ownership when talking with their children.

If you require legal advice about your living arrangements, please contact HPL Lawyers on (02) 9905 9500.

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