Occupation rent

Occupation rent is usually off-set against the interest element of mortgage repayments as the amounts are often broadly similar (Re Pavlou (A Bankrupt) [1993] 1 WLR 1046). Therefore, unless there is evidence establishing that the payments of mortgage interest paid by the occupant are not equal to a fair occupation rent, then the notional occupation rent is simply off-set against the mortgage interest which would have fallen to the non-occupying partner but have instead been met by the occupying partner (Re Gorman (A Bankrupt) [1990] 1 WLR 616).

Typically, occupation rent will be such proportion of the fair rent as the value of the non-resident’s share bears to the value of the whole of the net proceeds of sale. A fair rent is the rent which would be assessed by the Rent Officer for an unfurnished letting of the whole of the property to a protected tenant.

The notion of occupation rent allows the non-occupying partner’s share to be credited with an amount to reflect the fact that the other party has benefited from enjoyment of the sole occupation and use of the joint property. In Dennis v McDonald [1982] Fam 63 the court held that occupation rent will be charged where the party in occupation has actually or constructively excluded the other party from occupation. In Re Byford (deceased) [2003] EWHC 1267 (Ch) the court agreed that, typically, occupation rent is charged where the party in occupation has removed, or caused the removal of, the other party from the property, although ouster or forcible exclusion is not always conclusive. Changing the locks or adding an additional lock may be construed as exclusion and this is something that clients should be aware of.

The court will also consider the intentions of the people who created the trust, the purpose for which the land is held and the circumstances of each of the beneficiaries. These issues were considered in the Court of Appeal decision of Stack v Dowden [2005] EWCA Civ 857. Chadwick LJ made it clear that Miss Dowden would not be ordered to pay compensation in respect of Mr Stack’s exclusion from their family home, following an order for sale of that property where the timing of the sale was beyond Miss Dowden’s control. Of equal importance, was the fact that Miss Dowden was obliged to house the children of the relationship at that property until the date of sale. The House of Lords ruling in Stack v Dowden [2007] UKHL 17 is more widely reported than the Court of Appeal decision and is regarded as one of the recent leading authorities on the issue of establishing a beneficial interest in co-ownership property disputes (see below).

Where the court awards occupation rent during the period of postponement of a sale it will usually be 50% of the appropriate rent if the payer has a 50% beneficial interest in the property (Akhtar v Hussein).

Cohabiting couples are each entitled to possession of their co-owned property, provided that the purpose of the trust is to make the property available for occupation and that it is available and suitable for occupation: s.12 TOLATA. If this right is restricted in any way then the occupying party may become liable to pay a notional rent for his or her occupation of the other''s share of the property, hence the phrase "occupation rent."

When does the right to an occupation rent arise?
If one party is excluded from the enjoyment of the property then a right to an occupation rent arises.

In the courts of equity, this was available only once a party could establish there had been "ouster." This word should not be confused with the old ouster orders available under the Domestic Violence and Matrimonial Proceedings Act 1976, but is an equitable concept.

So the question arises, what circumstances amount to exclusion?

The modern authorities start with the case of Dennis v McDonald [1982] Fam 63, where violence was clearly regarded as behaviour which justified the payment of an occupation rent to the departing party.

In Re Pavlou [1993] 1046, a married couple had separated but the wife was "willing and anxious" to have her husband back. She later served a divorce petition which the judge thought "…may well have been no more than a reluctant recognition of a fait accompli" on the part of the wife. The husband was then declared bankrupt and questions of equitable accounting arose between the trustee in bankruptcy and the wife. Mr Justice Millet (as he then was) stated, at 1050:-

"I take the law to be of the following effect. First, a court of equity will order an inquiry and payment of occupation rent, not only in the case where the co-owner in occupation has ousted the other, but in any other case where it is necessary to do equity between the parties that an occupation rent should be paid. The fact that there has not been an ouster or forceful exclusion is therefore far from conclusive. Secondly, where it is a matrimonial home and the marriage has broken down, the party who leaves the property will, in most cases, be regarded as excluded from the family home, so that an occupation rent should be paid by the co-owner who remains. But that is not a rule of law; that is merely a statement of the prima facie conclusion to be drawn from the facts. The true position is that if a tenant in common leaves the property voluntarily, but would be welcome back and would be in a position to enjoy his or her right to occupy, it would not normally be fair or equitable for the remaining tenant in common to charge him or her with an occupation rent which he or she never expected to pay."

Whilst not called upon to decide the precise date from which an occupation rent should be paid, the judge expressed the obiter view that:-

"…the presentation of a petition for divorce by the party remaining in occupation of the matrimonial home should normally be taken to signify a refusal to take the other party back into the matrimonial home and a willingness to pay an occupation rent thereafter."

The above approach provides a useful guide for those cases dealing with married couples. However, for a departing cohabitee there is nothing as formal as the service of a divorce Petition. When can it be said that occupation rent arises?

Snell suggests that, "In most cases of break down of cohabitation it is unrealistic to say that the absent party is free to return." [4] The problem with this on a theoretical level arises where a co-habiting party has left the home, perhaps to form a new relationship, but would be welcomed back by the remaining cohabitee to try and patch things up. Re Pavlou makes it clear that simply leaving the property on a voluntary basis cannot, in the eyes of equity, make the occupying party liable to an occupation rent.

In Byford v Butler [2003] EWHC 1267 (Ch), [2004] 1 FLR 56, there had been no ouster or exclusion at all. Following the husband''s bankruptcy, the trustee in bankruptcy simply failed to bring proceedings in respect of the matrimonial home for many years. The husband lived at the home until his death. Despite the court noting that in "the typical case an occupation rent has been charged where the party in occupation has actually or constructively excluded the other party from occupation" [5] the widow still had to pay an occupation rent. The court emphasised the words of Millet J, in Re Pavlou, that the finding of ouster or forcible exclusion were "far from conclusive". The court was exercising discretion to bring justice and equity to the parties. The widow had benefited for many years from the half share vested in the trustee in bankruptcy, who was not able to occupy the property for the benefit of the creditors.

Essentially, it comes down to evidence. In all but the clearest case to the contrary, the court may well be driven to find that a party departing from a property following a relationship breakdown is not welcome back and so a liability to pay an occupation rent arises.

On what basis should the rent be calculated?
In Dennis v McDonald it was held that the rent should be assessed on the basis of the relevant proportion of a fair Rent Act rate, rather than a rack or market rate. Others have argued [6] that this is a very outdated method of calculation. It does not appear to have been followed in reported cases. It is suggested that the modern approach, notwithstanding the precedent of Dennis, should be the relevant proportion of the market rent. Subject to proportionality, expert evidence will have to be called to deal with this. This question will often not even arise due to the convention of setting occupation rent off against mortgage interest repayments (see below).

Does the court take into account the fact that the remaining party is caring for the parties'' children?
Dennis v McDonald held that the occupying party would still be liable, notwithstanding their care for the children, as the payment is in the nature of compensation by a trustee to a beneficiary. The court would be blind to the "family" aspect of the injustice this produced. This was decided in 1981 before there was any statutory equivalent to s13(4) TOLATA.

In Stack v Dowden [2005] EWCA Civ 857, [2006] 1 FLR 254 the Court of Appeal was in no doubt about its power to order a beneficiary under a trust of land who is in occupation of that land to make payments to a beneficiary whose own entitlement to occupy the land has been excluded or restricted [7]. However, this was subject to the factors set out in s.13(4) TOLATA which required the court to have regard to the intentions of the person who created the trust, the purposes for which the land is held and the circumstances of each of the beneficiaries. The trial judge had overlooked the fact that the occupying party (Miss Dowden) continued to provide a home for the four children of the couple. Consequently, there was no continuing obligation to pay occupation rent (or in the words of TOLATA "…make payments by way of compensation…" [8] ) pending sale of the property. It is clear from the judgment of Lord Justice Chadwick that the position may have been different if the court concluded that Miss Dowden was deliberately stalling the sale of the property.