Posts Tagged ‘equitable accounting’

When is an occupation rent payable?

August 14, 2021

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


Occupation rent: joint tenant’s trustee in bankruptcy

October 12, 2019

What principles govern an application for occupation rent by a joint tenant’s trustee in bankruptcy?

The facts

In Davis v Jackson ([2017] EWHC 698 (Ch)) Mr and Mrs Jackson were legal and equitable joint tenants of their family home. The couple were estranged when the property was acquired and it was never envisaged that Mr Jackson would live in it. Mrs Jackson made all the mortgage payments.

Mr Jackson was made bankrupt and the trustee in bankruptcy obtained an order for the sale of the property and an equal division of the proceeds of sale between him and Mrs Jackson.

The court ordered that there should be equitable accounting and that Mrs Jackson should be entitled to a contribution from the trustee of one half of the mortgage payments made by her up to the time of the sale of the property.

The trustee in bankruptcy contended that it should be entitled to charge Mrs Jackson an occupation rent in respect of her occupation during the period after the bankruptcy.

The relevant law

The default position is that an occupation rent is not payable; there must be some conduct or feature of the case that would justify equity in requiring the occupier to pay rent ([61]).

When deciding on whether such circumstances exist, ‘the court can have regard to the circumstances in existence before the tenant in common seeking payment of an occupation rent acquired his interest’ ([67] per Snowden J).

The court ‘has a broad equitable jurisdiction to do justice between co-owners on the facts of each case’ ([71]).

It was never envisaged that Mr Jackson would occupy the property:

‘That being so, for my part I simply cannot see how it could be in accordance with equity or justice for the Trustee, who has simply had Mr. Jackson’s interest in the Property vested in him, automatically to become entitled to claim an occupation rent from Mrs. Jackson. The Trustee has in no sense been excluded from the Property; and it is not merely that it is unreasonable for the Trustee to start occupying the Property with Mrs. Jackson and her children; the true position is that Mr. Jackson never had such a right at all. I therefore do not see how the Trustee can in effect claim to stand in a better position and charge Mrs. Jackson rent in place of seeking to occupy the property’ (75]).

Mrs Jackson could not be charged an occupation rent.

Michael Lower

Equitable accounting: is an ouster necessary before an occupation rent becomes payable?

October 9, 2019

In Murphy v Gooch ([2007] EWCA Civ 603), a co-habiting couple bought a 25% stake in a shared ownership property. The relationship between the couple broke down and Ms Murphy left the property. Ms Murphy applied for a declaration that they were tenants in common in equal shares, an order for sale and for an account to be taken as part of which Mr Gooch should be ordered to pay an occupation rent in respect of the period in which he was in sole occupation.

The English Court of Appeal (Lightman J giving the judgment) held that Mr Gooch could be ordered to pay an occupation rent if this was just and equitable even if there was no ouster ([18]).

Lightman J was prepared to hold, in any event, that there was a ‘constructive ouster’ since Ms Murphy left the property on the breakdown of the relationship ([18]).

Ms Murphy was entitled to set this occupation rent off against the sums paid by Mr Gooch in respect of mortgage interest and the rent payable in respect of the 75% share of the property still owned by the Housing Association from which the couple bought their share ([21]).

This decision was reached under the terms of the Trusts of Land and Appointment of Trustees Act 1996. Lightman J states, however, that the same decision would have been reached through an application of equitable accounting principles.

Michael Lower

Joint ownership of family home: presumption of equality and equitable accounting

December 16, 2015

In Chen lily v Yip Tsun Wah Alvan ([2015] HKEC 2611, CFI) C and Y were unmarried co-habitees of the flat acquired by them as their family home with a view to marriage. Title was in joint names and it seems that this was a legal joint tenancy. The purchase was mainly financed through a mortgage over the property.

The couple split up and Y left the home. C alone bore all of the repayments of mortgage principal and interest from 2011 onwards. Y offered to  contribute half of the mortgage payments but C refused. Y suggested that the property be let out (C had married and no longer lived at the flat at the time of Y’s suggestion) but C refused this.

The court was asked to resolve the dispute as to the parties’ respective beneficial interests. Au-Yeung J. referred to Stack v Dowden and Jones v Kernott. In ordinary domestic cases where title is in joint names, there is a presumption of equality. The parties are unlikely to have intended that a balance sheet should be drawn up of their financial contributions ([17] – [21]). There were no unusual facts in this case to warrant a departure from the presumption of equality. Nor was there any evidence of a change of intention. Although Y left the home, the facts surrounding the departure did not suggest there had been a variation of the original common intention.

Y’s departure and offer to meet half of the mortgage payments amounted to an equitable severance of the joint tenancy. There should be an equitable accounting. After separation, C made all of the mortgage payments and her share of the proceeds of sale of the flat should be increased to include half of the repayments of principal made by her after separation. She was not entitled to compensation for the interest payments she had made; this was to reflect the fact that she had refused to rent out the flat at Y’s suggestion (indicating that she had sole possession of the flat). She should also be given credit for her outstanding credit card debts at the time of separation. These debts had been incurred to fund the couple’s joint living expenses.

Michael Lower


Co-habitation and equitable accounting

August 14, 2015

In Wilcox v Tait ([2006] EWCA Civ 1867) W and T were co-habitees who acquired a property as the family home and the transfer to them contained an express declaration that they were beneficial joint tenants. When the relationship broke up, W sought a declaration as to her beneficial entitlement, an order for sale and a division of the property in equal shares. T argued that there should also be an equitable accounting. He had made nearly all of the mortgage payments and T argued that W should give credit for half of all of these from the time that the property was acquired. The effect would be to extinguish W’s share of the anticipated proceeds of sale. T failed.

There could be no hard and fast rule as to whether there should be such an accounting, it all depends on the intention of the parties as to how the expenditure should be treated (Jonathan Parker LJ at [65]):

‘That said … in the ordinary co-habitation case it is open to the court to infer from the fact of co-habitation that during the period of co-habitation it was the common intention of the parties that neither should thereafter have to account to the other in respect of expenditure incurred by the other on property during that period for their joint benefit. Whether the court draws that inference in the given case will of course depend on the facts of that case.’ (Jonathan Parker LJ at [66]).

Michael Lower

England: Where one beneficial joint tenant is excluded from possession

July 15, 2015

In Begum v Issa (County Court (Leeds) 5 November 2014) the parties were a married couple with two children. The family home was in joint names and the transfer to them contained an express declaration that they held as beneficial joint tenants. Mr Issa (the husband), acting alone, transferred the property to his brother (it seems that Ms Begum’s signature on the transfer was forged). The brother was registered as the proprietor at HM Land Registry. Ms Begum, unaware of what had happened, remained in occupation with her husband and children. As Ms. Begum was in actual occupation and had not been a party to the transfer to the brother, the effect was that the brother’s registered title was subject to Ms Begum’s equitable interest (Land Registration Act 2002, s. 29).

The judge (HH Judge Behrens) then had to consider the rights of Ms Begum and the brother against each other as equitable co-owners. Section 12 of the Trusts of Land and Appointment of Trustees Act 1996 meant that both Ms Begum and the brother, as beneficiaries, had a right to occupation. Sections 13(1) and 14 gave the court power to exclude one co-owner (here the brother) from occupation on terms which may include the making of payments. Where the court makes such an order it must take into account the matters set out in section 15. The judge had regard to the intention of Ms Begum to occupy the property and the welfare of the two children (one of whom was disabled and who would find any move especially disruptive). On the other hand, it had to have regard to the brother’s intention to achieve a return on his investment in the property. The balance was struck by making an order for sale postponed for twelve months. This delay would allow Ms Begum time to find another suitable home. The brother was entitled to have Ms Begum make a contribution to the mortgage installments paid by the brother. However, the brother had borrowed GBP 92,250 while the outstanding amount on the mortgage taken out by the couple stood at GBP 33,241 at the date of the transfer to the brother. Ms Begum was only liable to pay a proportionate part of the brother’s mortgage payments (36% ie 33,241 / 92,250).

A further question was whether there should be any accounting as between Ms Begum and her husband who alone made all mortgage payments (even those due under the brother’s mortgage until the husband left the property). Was he entitled to a contribution to the mortgage payments from his wife despite their equitable joint tenancy? HH Judge Behrens decided that he was not. He referred to his own decision in Clarke v Harlowe and the English Court of Appeal decision in Wilcox v Tait. He concluded:

‘This is a case where the parties agreed that Nargis Begum would not work and would look after the children. All financial matters were dealt with by Nadeem Issa. In those circumstances I have no hesitation in coming to the conclusion that it was the common intention of the parties that neither should thereafter have to account to the other in respect of expenditure incurred by the other on the property during the period of cohabitation.’ ([112]).

The cohabitation context allows (but does not require) the court to infer a common intention that there would be no liability to account in respect of the period of co-habitation.

On the face of it, Ms Begum was subject to the rights of the mortgagee under the mortgage to which she was a party but not the rights of her brother-in-law’s mortgagee. However, the later mortgagee was subrogated to the rights of the earlier mortgagee to the extent of the amount outstanding under the earlier mortgage at the date of its redemption ([119]).

Michael Lower

When is one co-owner who collected rent liable to account to the other?

November 24, 2011

Where one co-owner collects rents the mere fact of being co-owners does not give rise to a liability to account to the other co-owner(s). A liability to account to the other for the latter’s share arises where the former is the agent or bailiff of the latter. It can also arise in partition actions (or actions that are equivalent), administration actions, in other cases where there is a fund in court, where the court makes an order for sale as an alternative to partition or where one party claims an interest under a resulting or constructive trust and the court is asked to quantify that interest (paras. 103 – 105).

Where one co-owner collects the other’s share of rent, it is possible to imply an agency. It is also possible (depending on the context) that this agent holds the rents collected on a ‘real’ constructive trust so that there is no limitation period in respect of the claim by the agent for the rents received (see Limitation Ordinance, s. 20).

In Chen Yu Tsui v Tong Kui Kwong ([2005] HKEC 1679, CA) property was held by two brothers as tenants in common in equal shares. One brother (the defendant) collected all the rents and after a time stopped accounting to the other (the plaintiff’s deceased husband) for his share of the rents. The plaintiff brought an action to recover the rents. It was held that there was a duty to account in this case  since the defendant had impliedly acted as his brother’s agent (paras. 111 – 112). The action was not time-barred. This was a ‘real’ constructive trust to which section 20(1) of the Limitation ordinance applied (para. 123).

Michael Lower

Beneficiary seeking order for sale / account in an interlocutory application

November 9, 2011

In Lam Sik Shi v Lam Sik Ying ([2008] HKEC 1048) P was the beneficiary under a trust of his late father’s estate. D1, his half-brother, was the trustee. D2 was a company which had bought property forming part of the trust estate. P alleged that the sale was at an undervalue and he sought a declaration that the sale was void or voidable. He sought to have D2 account as constructive trustee. A lis pendens had been registered. In an interlocutory hearing, P sought an order for sale with the proceeds to be paid into court pending the final hearing or, alternatively, the appointment of a receiver. The court refused to make either order. P’s position was adequately protected by the registration of the lis pendens.

Michael Lower