When is an occupation rent payable?

In Cheung Lai Mui v Cheung Wai Shing ([2021] HKEC 2263) the Court of Final Appeal was asked to consider whether the obligation to pay an occupation rent only arose when there was an ouster or where partition proceedings or some analagous process (such as sale and division of the proceeds) had been initiated.

The alternative view, rejected by the Court of Final Appeal, was that there is a new ‘modern’ approach in which an occupation rent is payable whenever this is equitable.

P, D1 and D2 were co-owners of a house. P had a two-thirds share in the tenancy in common of the house and D1/D2 were co-owners of the remaining one-third share.

P occupied one floor of the house herself. The other two floors were let out and P received the rent. There was no ouster of D1 or D2. Were they entitled to an occupation rent and an account of the rental income received and retained by P?

The Court of Final Appeal rejected this claim:

‘We conclude that the authorities considered above do not establish any new, free-standing “modern approach” such as that urged by the respondents and favoured by the Court of Appeal. Claims by one co-owner against a co-owner in occupation for payment of occupation rent or for an account of rent can only arise in accordance with the principles laid down in the established authorities. Unity of possession precludes such claims otherwise than in cases of ouster (including “constructive exclusion” as in domestic violence cases); or where an operative agreement renders the co-owner in occupation an agent or bailiff so as to come under a duty to account to the other. Where partition or analogous proceedings have been instituted, apart from cases of ouster, equity may recognise a defensive equity in favour of one of the co-owners regarding expenditure appropriately incurred and may, in the process of equitable accounting, require the other, viewed as a seeker of equity required to do equity, to be debited with an occupation rent to set off the expenditure incurred, thus reciprocally balancing the parties’ interests in the distribution of the realised proceeds of the co-owned property.’ (at [104])

There is no right to an occupation rent or to an account of rental income unless there is ouster (including constructive ouster) or agreement. Where a partition or order for sale has been sought or a sale has taken place, the court can order payment of an occupation rent or account for income as part of an equitable accounting exercise.

Michael Lower

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