Generous parents often provide financial help to their children so that they can get on the property ladder. However, such arrangements are not without legal pitfalls and it always makes sense to seek professional advice before entering into them.

Retired parents who were then well off, having sold a business for £1.5 million, paid £265,000 to purchase a home for their son, his wife and their growing family. The parents agreed that £100,000 of that was an outright gift, but argued that the balance of £165,000 was a loan, which the couple had agreed to repay following the sale of their previous home.

Due to a subsequent property market crash, the parents’ financial position had become precarious and the couple’s former home had remained unsold. The parents launched proceedings against the couple, seeking repayment of the £165,000. Their son accepted that the money was a loan, but his wife, from whom he had separated, denied that she had been party to any loan agreement.

In ruling on the matter, the High Court found on the evidence that the father and son had agreed that the £165,000 was a loan, rather than a gift. However, they had not given the slightest thought to the interests or position of the son’s wife, who had no direct involvement in the property purchase. They had also entirely failed to consider what would happen if the couple’s former home failed to sell.

The Court ruled that the parents were entitled to judgment for £165,000 against their son on the basis that there was a binding agreement between them to the effect that he was receiving a loan. The money would, however, only become repayable when a sale of the couple’s former home was achieved.

In dismissing the parents’ claim against the wife, the Court found that she had not been privy to the loan agreement and that there had been no intention to enter into legal relations on her part. For their own sake and that of the couple’s children, the Court urged all involved to seek a negotiated settlement of the acrimonious dispute.

Relying on informal understandings without seeking proper legal advice can be a costly mistake. Always talk to a solicitor before entering into agreements like this.

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