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Ex-cohabitant not entitled to payment for giving vacant possession

Monday, 2 December, 2019

The England and Wales Court of Appeal (EWCA) has ordered Hilary Harrison-Morgan to repay the GBP2.2 million she received from the sale of flats in central London owned by her deceased former cohabitant Rainer Kahrmann.

Kahrmann, a German businessman who died intestate in July 2014, owned substantial assets in England. These included long leases on two flats, a large terraced house and a mews property in Belgravia properties. Some years earlier, he had cohabited with Harrison-Morgan in one of these properties, where they raised two children, although they were now separated and Kahrmann had gone back to live in Germany. He continued to support them, and Harrison-Morgan still lived in the Belgravia property. Kahrmann also had two daughters from his marriage to a Swiss national.

In 2014, just before Kahrmann's death, a development company offered to buy the Belgravia house where Harrison-Morgan lived. The buyer, who offered GBP16 million, wanted vacant possession and so a legal process was established to ensure that the property could be sold free of any rights of occupation by Harrison-Morgan and her two sons, in accordance with an agreement that Kahrmann had made with his business partner some years previously.

At this point Kahrmann died suddenly, and the negotiations continued with his daughters Louise and Alice Kahrmann, who were appointed executors of his estate. Eventually an agreement was reached, under which the GBP4.4 million profits from the sale was split between Harrison-Morgan and the Kahrmann sisters, with Harrison-Morgan agreeing to move out so that the property could be sold with vacant possession.

The disposal was duly made and Harrison-Morgan received GBP2.2 million as her share of the proceeds. But Alice Kahrmann then sued her, claiming that an express common intention constructive trust existed in favour of her father's estate from the proceeds of sale of the properties, resulting from an agreement made between Kahrmann and his business partner years before. The buyers of the property were consequently in breach of trust when they paid half the proceeds to Harrison-Morgan, Alice and Louise, rather than to the estate, so Harrison-Morgan held her share of the money on constructive trust for the estate. If established, Alice's claim would thus result in all the proceeds being returned, with interest, to Kahrmann's estate, and then divided between his four children: Alice, Louise, and Harrison-Morgan's two sons.

Last year, Alice Kahrmann lost her case in the England and Wales High Court, but she appealed and has now won in the EWCA. Henderson LJ noted that the first instance judge had not explained how the agreed machinery for obtaining vacant possession was somehow transformed into a separate agreement under which Harrison-Morgan agreed to give vacant possession in consideration of the entire sum of GBP2.2 million. Moreover, he said, it was not clear what rights of occupation, if any, she and her children might have been able to assert had she refused to give vacant possession, given that Kahrmann died domiciled in Germany and she could therefore have made no claim under the Inheritance (Provision for Family and Dependants) Act 1975.

Accordingly, and in light of the many other complications of the case, Kahrmann's estate was entitled to assert his equitable right to that portion of the net proceeds of sale in Harrison-Morgan's hands, said Henderson. Floyd LJ and King LJ agreed (Kahrmann v Harrison-Morgan, 2019 EWCA Civ 2094).

The complexity of the case makes an appeal to the UK Supreme Court inevitable, and Harrison-Morgan has already announced her intention of doing so. Meanwhile all orders in the case, including a GBP500,000 order against Mrs Harrison-Morgan, were stayed, pending her application to appeal.

Sources