Lynda Kearns: When can occupational rental be claimed?

Occupational rental can be claimed in a number of different circumstances where the relationship between co-owners breakdowns.  This includes:

1. Claims under the Property (Relationships) Act 1976 (“PRA”).
2. Claims in relation to property owned by trusts.
3. Claims under s 338 of the Property Law Act 2007.

Underpinning those claims are equitable accounting principles which have been developed as courts have considered the rights and liabilities of parties when shared property is sold or partitioned.  In those circumstances the court is required to determine how the proceeds of sale of jointly owned property should be divided to meet the legal and personal obligations that have arisen between co-owners during the course of their co-ownership relationship.  This is often described as equitable accounting.

Under the PRA the courts have determined that occupational rental constitutes a contribution in respect of which compensation can be ordered pursuant to s 18B of the Act.  

It is often assumed that there should be a period of grace available to a spouse who maintains occupation of a family home after separation whereby he or she is not responsible for the payment of occupation rental.  In some cases the courts have agreed where parties begin to adjust to separation there should be a period of time where the financial and practical arrangements for themselves and the children should continue as occurred prior to the separation.  Conversely other cases have questioned whether that is appropriate where the non-occupying spouse incurs his or her own rental costs.

The facts that the court takes into account in assessing whether occupational rental is payable include the following:

1. Whether the occupying spouse is continuing to care for the children of the relationship and is financially disadvantaged by the separation.
2. Whether the occupying spouse is continuing to meet the outgoings including mortgage, insurance and other payments.
3. The issue of delay both in respect of claiming occupational rental and paying it.  
4. Whether there has been a capital gain in the property during the period of occupation.  
5. Whether the spouse who has been excluded from the family home is having to pay rental costs and being excluded from his or her enjoyment of their half share of the capital.

Practitioners may also wish to give consideration to the more indirect costs of being removed from the former family home including having to travel greater distances to work or school, in the case of a home-based business the costs of establishing the business elsewhere, costs and time involved in establishing different health community and sporting services and the costs involved in establishing new accommodation including bonds and service establishment fees.  

The court has a wide discretion in determining whether occupational rental is payable.  Care is needed to provide sufficient evidence to either mount such a claim or refute a claim being made.  

In determining how occupational rental is to be calculated there are generally two methods advanced.  The first is an award of interest on the non-occupying party’s capital. Secondly notional lost rental as assessed by a registered valuer.  The second has been given judicial approval as being the better approach. In considering the question of quantum, a number of cases have considered whether rental is actually payable due to the state of disrepair of the home or issues with code of compliance costs.  Occupational rental would not normally be payable unless there is valuation evidence of market rental including an allowance for a nominal property management fee. A proper evidential basis would be needed to refute claims or at least limit the extent of any compensation ordered.  It is noted that in a number of cases the court had lamented the lack of an evidential foundation.

Where occupational rental is sought in relation to trust owned property occupational rental would not normally be available unless the trustees had made a resolution to that effect.  The payment of occupational rental is based on an understanding that the co-owners of property are trustees to each other’s beneficial interest in the property. Through this equitable principle the trustee is compensating a beneficiary for the trustee’s exclusive enjoyment of the trust property attributable to the trustee’s active exclusion and the exclusion is inconsistent with the discharge of due order of the trust.  A trust cannot claim occupational rent from a discretionary beneficiary where it has allowed the discretionary beneficiary to have free use of the property and has not revoked that permission. Similarly beneficiaries of a trust may only bring a derivative action in special circumstances such as where the trustee has unreasonably refused to sue on behalf of the trust or has committed some other breach of his or her duties to the beneficiaries.  A beneficiary does not have a right to any defined part of the income or capital of the trust fund. His or her only right is to be considered in respect of the exercise of the trustee’s duties.

Recent cases have highlighted the difficulties which can arise when occupational rental is sought in respect of trust owned property.

Pursuant to s 339 of the Property Law Act 2007 the court may order division of property amongst co-owners.  

Section 342 sets out the relevant considerations to be considered by the court as to whether an order is made.  

Section 343 provides for further powers of the court including s 343(f) which requires a payment by any person of a fair occupational rent for all or any part of the property.

It should be noted however that rights under the Property Law Act to claim occupational rental do not arise unless the court orders the sale.  As such a claim for occupational rental is an ancillary right only and the provision cannot be invoked if the sale is not sought, nor ordered.