March 2012

Occupational Rent

Living in the family home post-separation: What if you are the non-occupying party? What are your options?

The unfortunate reality in these modern times is that not every relationship lasts until “death do us part”. What is often overlooked when the relationship ends is the issue regarding the division of the relationship assets and liabilities (relationship property), particularly where the parties’ own the family home together. As is often the case, one party remains living in the family home after separation and the other finds alternative accommodation while settlement of the relationship property matters are negotiated or litigated.

During this negotiation/ litigation stage one party has the benefit of living in the family home (presumably with the family chattels), whilst the non-occupying partner has effectively given up their right to their “half” of the family home, while deriving no benefit for the same. To complicate matters further, in many cases there is a mortgage over the family home, which both parties are contractually bound to pay.  

So what rights do you have as the non-occupying partner or spouse?

The answer: the ability for the non-occupying party to apply to the Court for “occupational rental”. 

In a nutshell, occupational rent is payable where one party, who remains living in the family home after separation, pays “rent” to the other party for one half of the property for the time that partner has been out of occupation and the division of assets has not been finalised. The non-occupying party is compensated for the fact that they did not (and in some cases, could not) reside in their home after separation. 

The ability to seek “occupational rental” is contained in the Property (Relationships) Act 1976 (“the Act”), which codifies relationship property law. By virtue of section 4, the Act supercedes any other rules or presumptions of the common law and equity to the extent that they apply to transactions between spouses or partners, or spouses or partners and third persons in respect of property. Section 33 of the Act  allows the Court to compensate the non-occupying party for the fact that the other party remained living in the family home post-separation. This is a discretionary power - the Court will look at the total circumstances of the parties before determining whether this order will be made. 

Where the non-occupying partner continues to meet the outgoings for the family home, section 18B of the Act  empowers the Court to make adjustments in order to compensate that party. That is, the non-occupying party may make a claim for occupational rental, and/or seek an adjustment in his or her favour for contributions made after separation.

But what if the family home is owned by a Family Trust?

There are difficulties when the family home isn’t actually owned by the spouses or partners of the relationship. Family Trusts are often established to protect assets from third-party creditors. The spouses or partners are usually (but not always) trustees of the Trust. The assets, which are usually the family home and high-value chattels, are then “sold” to the Trust. 

It is clear from section 4 of the Act  that that Act applies to transactions between spouses and spouses and third parties. The Court of Appeal has in at least two judgments appeared to assume that a party’s interest in a trust, whether as settlor, trustee, appointer, or beneficiary may be relationship property: Further, by virtue of section 11B(2) of the Act, there is the possibility of orders to compensate for the lack of a house owned by the partners in their own names. The Trust owned property could still be classed as the “family home” under s 2 of the Property (Relationships) Act 1976.

However, the Family Trust is a separate legal entity and it therefore may not necessarily fall within the parameters of the Act. This widens the scope for recovering compensation as the limitations imposed by section 4 of the Act  no longer apply. There is no mandatory requirement to apply under the Act  – it is merely one available option to be considered.

The question therefore is: how can you deal with “occupational rental” when the family home is Trust Property?

A recent High Court decision has raised a new dimension to the argument of paying “occupational rental” and how matters should be approached when resolve outstanding property issues.

In that case, Ms D and Mr E purchased a house to be used as their “family home”. They bought it through two Trusts – one that she formed and one that he formed. The property was owned by the two Trusts as tenants-in-common. When their relationship ended, Mr E remained living in the home and Ms D moved elsewhere. Given that Ms D and Mr E were in a relationship, the first step for her recovering “occupational rental” would presumably be a division of relationship property under the Act. However, Ms D and Mr E did not apply for a division of relationship property. Rather, Ms D applied under the Property Law Act 2007 (“PLA”) for occupational rental.

Occupational Rental under the Property Law Act 2007

Section 343(f) PLA empowers the Court to make an order requiring the payment by any person of a fair occupational rental for all or any part of the property. The factors to be taken into account are set out in section 342 PLA.

As under the Act, the power to award occupational rental under PLA is discretionary. The Court’s discretion is wide and unfettered. Where one co-owner chooses to stay in possession and this makes it not reasonably practicable for the other co-owner to continue to cohabit, occupational rental will usually be ordered. Therefore, despite the wide powers of the Court under the Act to make orders for occupational rental, or compensation for the lack of a family home, these provisions do not exclude the operation of the application of the PLA. The fact that property may fall within the definition of family home does not mean that issues as to its ownership should always be determined under the Act, any more than if the property was tenanted by the parties and owned by a third party landlord.  In fact, it may be more appropriate to recover “occupational rental” for Trust owned property under the PLA, rather than for a division of relationship property and orders under the Act. It is only where property is owned in the parties’ personal names that they must apply for “occupational rental” under the Act.

The practical implications

Where a relationship ends and one partner or spouse remains living in the family home, the non-occupying party may apply for occupational rental. If the parties own the property in their personal names, the parties’ must make an application under the Property (Relationships) Act 1976.  However, if that property is owned by a third party, such as a Family Trust, it may be more appropriate to apply under the Property Law Act 2007. We encourage you to seek our advice on these and other options.