Occupation rent in the wake of Ali v Khatib & Ors [2022]

When two or more people buy a property together, under the Trusts of Land and Appointment of Trustees Act 1996 (TOLATA), that property automatically becomes a land trust, with the owners becoming trustees. If, as is common, the owners intend to benefit from, and live in, the property, then they will hold the property in trust for themselves and be considered beneficiaries of the trust with an interest in possession.  

This is important as, under section 12 of TOLATA, beneficiaries entitled to an interest in possession are entitled to occupy the property. Often, the legalities of this arrangement exist only in the background and co-owners live together, in harmony, without needing to give much thought to the legislation that underpins their right to occupy. It is only when circumstances change, or relationships break down, that this particular provision comes into focus. This is especially the case where co-owners are not married or in a civil partnership. Often, clients who find themselves in this situation ask us similar questions:  

• Who is entitled to live in the property?  

• Can I be forced to leave?  

• Can I stop my co-owner from returning to the property? 

• Who should be paying the mortgage now that one of us has vacated? 

• What will happen to the property?  

The answers to these questions can be found, as far as possible, in a combination of TOLATA and case law. In this article, we examine one such legal principle highly relevant in these situations: a discretionary remedy called occupation rent.  

What is occupation rent? 

In short, when one co-owner has been excluded from the property by the other co-owner, the court may award the excluded co-owner financial compensation if they believe this to be fair in the circumstances and necessary to do justice between the parties. This financial compensation is known as occupation rent.  

When can occupation rent be claimed? 

The precise circumstances that will justify an award of occupation rent are by no means fixed in law. However, in April 2022, the Court of Appeal handed down judgement in Ali v Khatib & Ors [2022] EWCA Civ 481 and, in so doing, some key points surrounding when occupation rent may be appropriate were clarified.  

The first point to understand is that occupation rent is a remedy that exists as both an equitable doctrine as well as a statutory regime. The main difference between the two is that the statutory scheme will only apply if a beneficiary has been excluded from the property, whereas under the equitable doctrine the beneficiary might choose to leave the property and still be able to claim occupation rent. Other than this, there is a large degree of overlap between the principles that exist in equity and in statute and so, for simplicity, we will discuss occupation rent as one remedy. 

The starting point 

In Ali v Khatib & Ors, Lady Justice Asplin reiterated that the starting point of any claim for occupation rent is to “consider whether the circumstances giving rise to the award of occupation rent or statutory compensation [are] made out”.  To recap, the circumstances that we have considered so far are: 

1. there exists a trust of land 

2. there are two (or more) beneficiaries who have an interest in possession and occupation rights in respect of that trust of land 

3. there is one (or more) beneficiary in occupation and one (or more) beneficiary not in occupation. 

Whilst these circumstances will be universal in any claim for occupation rent, the circumstances that Lady Justice Asplin is referring to as “giving rise to the reward” stretch beyond this basic starting point. In fact, where the three circumstances listed above are made out, the default position will be that occupation rent is not payable; there must be something more. As explained in Davis v Jackson [2017] EWHC 698, there “should be some conduct by the occupying party, or feature relating to them which makes it fair to depart from the default position”. 

What kind of conduct will suffice? 

The court will consider the particular facts of the case and will only make an order for occupation rent if it is “required to do broad justice between co-owners” (Ali v Khatib & Ors). As is clear by this, the Court has a wide discretion when it comes to the award of occupation rent and there is not an exhaustive list of good or bad (or even relevant) conduct that will be considered. 

The Court will consider section 13(4) of TOLATA. This includes the intentions of those who created the trust, the purposes for which the land is held, and the circumstances and wishes of the beneficiaries entitled to occupy the land. 

Beyond this, any unreasonable conduct on the part of the occupier will increase the chances of an award being given, including where one party has been excluded from the property against their will. For example, if the locks have been changed, preventing their physical access to the property, or where there have been instances of domestic abuse between the parties, making it untenable for both parties to continue cohabiting.  

There may, however, be competing factors relevant to take into account that might dissuade the court from granting an occupation rent. For instance, if the occupier solely pays the mortgage and outgoings of the property.  

Calculating the amount 

Once the Court has decided to exercise its discretion and make an order for occupation rent, the next issue will be how much to award. Much like the remedy as a whole, there is no established way of calculating an award for occupation rent. The court will consider various circumstances, including, but not limited to: 

• who is paying the mortgage and outgoings on the property 

• whether the mortgage is a capital repayment or interest-only mortgage 

• the cost of renting alternative occupation 

• the notional open market rental value of the property. 

In many circumstances, expert evidence will be required to ascertain the notional open market value of the property. In some cases, the expert valuation required will be even more specific than this. In Rowland v Blades [2021] EWHC 426 (Ch), the Court considered how to calculate occupation rent in relation to a property that was purchased as a holiday home. In the first instance, the occupation rent was calculated by reference to the daily rate of a short usage holiday let. On appeal, the Court stated that this calculation did not adequately reward the excluded party, as the loss of a holiday home is greater than the loss of a weekend rental. Therefore, the Court increased the award. 

Whilst this situation is unusual, it highlights the breadth of considerations that the Court will take into account when calculating an award of occupation rent. 

To conclude 

Occupation rent is a discretionary remedy that will only be awarded by the Court if the Court believes it to be fair in the circumstances. Expert legal advice should be obtained before bringing or defending a claim for occupation rent. Birketts has considerable experience in this type of claim: for example, our specialist Home Ownership Disputes Team recently acted in a five-day trial in April 2024 in a claim involving occupation rent.   

Birketts’ dedicated team specialise in occupation rent and other issues relevant to TOLATA. If you would like any advice in relation to any of the issues touched upon in this article, please do not hesitate to contact a member of the Home Ownership Disputes Team.