Legal Advice from Solicitor Luke Patel
In 2019 Legal & General published a report which found that the “Bank of Mum and Dad” to be the eleventh largest mortgage lender in the UK providing £6.3bn of funding to help loved ones get on the property ladder.
Whilst the report found that in 59% of cases the money was given by the parents as a gift with no requirement to pay it back, 41% expected the loan to be repaid at some stage.
The recent Court of Appeal case of Farrell -v- Burden provides a cautionary tale for the Bank of Mum and Dad.
In 2005 Mrs Farrell loaned her son £170,000 to purchase a property and £90,000 of that was repaid by him shortly thereafter. Mr Farrell was subsequently diagnosed with a terminal illness for which he received £350,000 in compensation.
Upon his death in 2016, Mr Farrell left £500,000 to his wife, Mrs Burden, and £150,000 to each of his two children from a previous marriage.
Mrs Farrell was not left with anything by her son so she sued his Estate for £130,000 for the balance of the loan together with interest. Mrs Burden claimed that the monies had been given to Mr Farrell as a gift and not a loan so nothing was repayable.
At the first instance hearing the Judge found that Mrs Farrell did not have any proof that she was owed money from her son’s Estate.
Mrs Farrell had provided no documentary evidence to support her claim that it was a loan and in the absence of that the Judge ruled that the payment made by Mrs Farrell would be considered a gift in the eyes of the law.
The Judge held that the Law of Presumption of Advancement applied to the case. Under this legal principle, unless contrary evidence is produced, it is presumed that a transfer of property between the parties of certain relationships (such as between spouses or parents and children) is a gift rather than a loan. The Judge therefore dismissed Mrs Farrell’s claim.
Mrs Farrell appealed. However, the Court of Appeal upheld the original decision and dismissed her appeal. The Court found that due to the lack of any documentary evidence to suggest that the money given by Mrs Farrell to her son was a loan it was to be considered to be a gift.
This case highlights the need for documentary evidence to be drawn up if the money provided by the Bank of Mum and Dad is to be repaid as, in the absence of such evidence the law will presume that the money was given as a gift. It would be wise and in the interest of all concerned to have a formal agreement drawn up as this would avoid any disagreements and potentially litigation later down the line.
Blacks Solicitors can assist with the preparation or enforcement of all types of contractual documentation. Please contact Luke Patel on 0113 227 9316 or by email at “LPatel@LawBlacks.com”.