Occupation rent – What is it and is it always payable?

We are often told, when dealing with estate administration, that one of the beneficiaries is living in the house and are asked the question if they can be made to pay rent to the other beneficiaries.

The Court of Appeal handed down its judgment on Friday, 8 April 2022 in Ali v Khatib & Ors [2022] EWCA Civ 481 which is a useful case concerning the above issue. The appeal raised issues in relation to when occupation rent is payable and the circumstances in which new points can be argued on appeal.

Background

This case concerned a long-running family dispute about the administration of the estate of Mrs Fateh Bibi (“Mrs Bibi”). In particular, the dispute concerned a property known as 149 Corporation Road, Newport, South Wales, (“the Property”) which was comprised within Mrs Bibi’s estate.

The Property was the family home of Mrs Bibi and her husband, Mr Mohammad Ali (“Mr Ali”). It is understood that their son Mr Mohammad Ramzan (“Mr Ramzan”), his wife Mrs Shanaz Akhtar Ramzan (“Mrs Ramzan”), and their children also resided at the Property.

The Property was initially held in Mr Ali’s name but was subsequently transferred to Mrs Bibi following his death on 22 August 2003. Mrs Bibi remained the legal owner of the Property up until her death on 11 July 2006. Following her death, the Property was finally registered in Mr Ramzan’s sole name in 2011 as per the terms of Mrs Bibi’s Last Will & Testament dated 2 October 2003 (“the 2003 Will”).

However, following the commencement of probate proceedings in relation to Mrs Bibi’s estate in 2012, Judge Milwyn Jarman QC (“the Judge”) made an order pronouncing against the validity of the 2003 Will. As a result, Mrs Bibi’s estate was to pass as per the terms of her previous Will dated 7 January 1997 (“the 1997 Will”).

Under the 1997 Will, after payment of her debts, taxes, funeral expenses and testamentary expenses, Mrs Bibi’s estate was to go to Mr Ali absolutely. However, in the event that he predeceased her (which he did), Mrs Bibi wanted all of her property to pass to her four children in equal shares. This included a quarter share to Mr Ramzan.

In 2019, an order for sale of the Property was sought by Mr Farzand Ali (“Farzand”) along with an order that Mr Ramzan should be liable for occupation rent from 2006 to date. However, in 2020, Farzand sold his quarter share in the Property for £80,000.

It is important to note that the Property had been valued at £160,000 - £165,000 for probate purposes in June 2010. It continued to increase in value and in 2019 it was valued at £250,000 in its current state.

Occupation Rent – the background law

The starting point here is that beneficial owners of a property are each entitled to occupy the property at any time under Section 12 of ToLATA (1996). However, there will be unfortunate occasions whereby one beneficial owner may feel that they have been excluded or restricted from accessing the jointly owned property.

As such, an occupation rent may become due which is a notional rent that is payable by the occupier of a property to the non-occupier. In Byford v Butler [2004] the Court ordered that occupation rent may be necessary to achieve broad justice between the parties. The rent is usually a notional rent which is based on market rental values or the cost of alternative accommodation.

The Court will often look at the circumstances in which one party’s access to the property has been restricted. For example, it may be the case that a party has been excluded from accessing or residing at a jointly owned property following the breakdown of a relationship. In Dennis v McDonald [1982] the Court held that the co-owner of a property held as tenants in common was liable for occupation rent. The reason for this was because the other party had only decided to vacate the jointly owned property as she had suffered abuse from her husband who was also her co-owner.

Section 13 of ToLATA (1996) sets out what the Court will take into consideration when deciding whether to make an order in relation to occupation rent. Under Section 13(4) the Court will consider:

1. The intentions of the person(s) who created the trust;
2. The purpose for which the land is held; and
3. The circumstances and wishes of each of the beneficiaries who is entitled to occupy the land.

It is important to stress that there are occasions whereby occupation rent is unlikely to be ordered against the party who continues to reside at the jointly owned property. The party claiming occupation rent will need to demonstrate that they have been “unreasonably excluded” from occupying the land and that any such restriction is to an “unreasonable extent”. If one party voluntarily vacates the property, without being able to demonstrate valid reasons as to why they did so, it may be difficult to establish the above principles.

First instance judgment – Occupation Rent claim

The Judge at first instance in Ali v Khatib & Ors [2022] concluded that it was “not necessary to carry out an exact comparison of how the £80,000 received by Farzand in 2020 in respect of his quarter interest in the Property compared with what might have been awarded by way of market rent”.

He went on to say that even if the question of occupation rent or statutory compensation arose, he would not be satisfied that it would be just to make an award. He concluded that to make such an award would be to over-compensate Farzand and would not do “broad justice”.

Unfortunately, the decision of the Judge at first instance was appealed on several grounds. The grounds included a claim that Farzand’s position was analogous to that of a trustee in bankruptcy, who was presumptively entitled to occupation rent.

The Court of Appeal Decision

The Court considered all of the grounds of appeal but in respect of the concerns raised about occupation rent, it preferred the approach in Davies v Jackson [2017] to that in French v Barcham [2009] in that there is no presumption in favour of occupation rent. This applies even in claims made by trustees in bankruptcy of former co-owners.

It was stressed that the Court is entitled to exercise its discretion to make an award in respect of occupation rent and that each case is highly fact sensitive. The Lordship held that the Judge at first instance concluded that it would be “unrealistic for Farzand to occupy the Property as he had his own family home”. He also went on to say that he was not satisfied that Farzand intended to live at the Property or would have done so, but for the Ramzan’s presence. As such, he had reached the conclusion that Farzand had failed to demonstrate that he had been excluded from the Property.

This is significant as Farzand needed to show something more than the mere fact that one co-owner, Mr Ramsden, was occupying the Property and he was not. For example, the position may have been different if Farzand was able to show that Mr Ramsden was renting out the Property for a gain. This, however, was not the case.

The Lordship unanimously decided to dismiss the appeal. Lady Justice Asplin concluding that the Judge had not erred and instead she was of the view that he was entitled to make the findings he did in relation to conduct. His findings showed that he had evaluated those matters put before him, and that he had chosen to exercise his discretion in the way he did in order to do broad justice.

Lady Justice Asplin went on to say the Judge’s decision had included “taking into account the increase in the capital value of Farzand’s interest in the Property and the amount he was paid for it”.

Comment

The above judgment clearly demonstrates that the default position is that a co-owner in occupation is not obliged to pay occupation rent merely because they are living in the property and their co-owner is not.

A party who intends to make a claim for occupation rent will need to demonstrate something more. They will need to show that it would be just and equitable for them to be awarded payment from their co-owner for their use and occupation of the property. Any examples of evidence to support a claim for occupation rent should focus on the behaviour, in particular the unreasonableness, of the person in occupation.

When considering such a claim, the question for the Court to decide is what would be fair when considering and weighing up all the facts of the individual case.

One such circumstance the Court may consider material is whether the occupier has paid for all of the expenses of running the house whilst in occupation of the same. For example, have they paid the gas, water, electric and council tax?

If so, it may be arguable that their occupation has saved the estate from having to meet such expenditure (albeit that the amount used would be less with an empty property). The same could be said about insurance, as an occupied property is often easier and cheaper to insure as they pose less of a risk, when compared with a vacant property.

If you require advice or need assistance in respect of concerns you have about a property you jointly own with another, please do not hesitate to contact us.