Occupation rent
The England and Wales Court of Appeal (the Court) case of Ali v Khatib sheds light as to when occupation rent may be due (or, as in this case, not due).1
Background
The property was the family home of Mrs Bibi and her husband. They lived there with their four children, all of whom moved out except Mr Ramzan.
Mrs Bibi survived her husband and, following her death in 2006 (and a successful will challenge), the property passed to her children in equal shares. Mr Ramzan continued to live at the property with his wife, Mrs Ramzan, and children.
Farzand Ali (Farzand, son of Mrs Bibi) issued proceedings in January 2020 for the sale of the property and an occupation rent to reflect occupation by the late Mr Ramzan (who died in 2013) and his surviving wife, Mrs Ramzan. Those proceedings settled, save for the occupation rent issue, which was determined at first instance in 2021.
First instance decision
There are two avenues to seek occupation rent, i.e., pursuant to case law and ss.12–14 of the UK Trusts of Land and Trustees Act 1996. The judge identified their respective starting positions:
‘There ought to be some conduct by the occupying party or at least some other feature of the case relating to the occupying party to justify the court concluding that it is appropriate or fair to order the occupying party to start paying rent. In respect of statutory compensation, there must be an exclusion or restriction of the beneficiary's right to occupy.’
The judge found no such conduct and no exclusion/restriction of Farzand’s right of occupation. Farzand moved out when he became an adult, and Mr and Mrs Ramzan remained, looking after Mrs Bibi and her husband. On Mrs Bibi’s death, that situation continued. Farzand (and his siblings) had a right to occupy (more specifically, to share occupation) but, ‘in all the circumstances, that was unrealistic, given that he [Farzand] had his own family home…’
The judge did not award occupation rent.
Decision of the Court of Appeal
Farzand died in March 2020. His estate appealed the initial decision on two main grounds: when occupation rent was due and when new points could be argued on appeal. The present focus is on the former.
Ultimately, the Court upheld the initial decision. Useful clarification arose from the argument (run by Farzand’s estate) that Farzand’s position was analogous to a trustee in bankruptcy who does not enjoy a right to occupy property jointly owned by the bankrupt.
It was argued that the first instance judge should have taken the approach in French v Barcham,2 where Justice Blackburne held that the court will ‘ordinarily if not invariably’ order the payment of occupation rent to the trustee in bankruptcy. This authority was challenged in Davis v Jackson with Justice Snowden finding French not ‘entirely convincing’.3
The Court favoured the Davis authority, noting:
‘The fact that a trustee in bankruptcy cannot reside in the property nor enjoy any financial benefit from it whilst the other co-owner is in occupation and the creditors can derive no benefit until the trustee exercises his remedies is not conclusive.’
Ultimately, the four-paragraph contribution by Lady Justice Andrews provides a neat summary of the position on occupation rent:
‘The starting point in every case is that a co-owner in occupation is not obliged to pay occupation rent merely because he is living in the property and the co-owner is not. Something more has to be shown which makes it just and equitable that he should pay that other owner for his use and occupation of the property…The focus should therefore be on the behaviour of the person in occupation.’
Comments
Ali v Khatib clarifies that occupation rent does not arise automatically where one co-owner is in occupation and another is not. The focus is on the occupying party’s conduct (i.e., what they do to exclude/restrict the other co-owner’s right to occupy). There is ‘no special rule in bankruptcy’ cases and the favouring of Davis may not be welcome by trustees in bankruptcy.
Some uncertainty remains. This is inevitable, as the Court recognised the need to ‘do broad justice between co-owners and to determine what would be fair’ in circumstances that are highly fact-sensitive. The precise threshold as to when an occupying party’s conduct may make it just and equitable to award occupation rent is likely to be a moving goal post for practitioners to grapple with.
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