Equitable accounting: how does it Stack up?

Added in Civil Partnership & Cohabitation Dispute by Holly Coates

An equitable account is often tagged on at the end of a cohabitation claim as something of an after-thought. It is usually pleaded as a way to recover occupation rent, but it can be used more widely.  Ahead of the Becket Chambers Cohabitation seminars in March 2017, here is a summary of the principles in this area.

 Key principles

  1. Equitable accounting should only take place after beneficial interests have been established.
  2. The way in which the property is legally held – whether as joint tenants or tenants in common – is irrelevant to the account: Re Pavlou (A Bankrupt) [1993] 2 FLR 751.
  3. Generally it only applies to the period after the parties’ separation: Clarke v. Harlowe [2007] 1 FLR 1. This is the time when ordinarily the common purpose of the trust has come to an end.
  4. It is highly fact-specific.

 Outgoings and improvements

After separation, when common agreements have ended, each party should discharge his proportionate share of the outgoings on a property. For this reason recompense is often sought for mortgage payments, but it can also extend to maintenance and improvements: Clarke v. Harlowe. The improver should be credited with half of cost of the works.  If the property has increased in value, they should also receive half of the increase in value over and above their outlay: Re Pavlou.  This would be appropriate where there is an obligation to keep in repair (perhaps under an insurance policy or lease) or where works had already been agreed prior to separation.

However this does not extend to contributions to works “voluntarily and unilaterally incurred”: Leigh v. Dickeson (1884) 15 QBD 60, such as the installation of a new kitchen by the person remaining in the property without the other’s blessing or consent.

 Occupation rent

By section 12 of the Trusts of Land and Appointment of Trustees Act 1996 (‘TOLATA’), anyone with a beneficial interest in land is entitled to occupy it if that is one of the purposes of the trust. The trustees can agree to exclude that right under s.13.

If one party is excluded then they can claim compensation in the form of occupation rent. The first requirement is therefore that there has been an exclusion.  Warren J in Amin v. Amin [2009] EWHC 3356 (Ch) held that it need not be “actual physical exclusion or a demand…If a person is effectively excluded by threat or unpleasantness, that must surely qualify as an exclusion. It will be a matter of fact and degree in any particular case” [289].

Alternatively the exclusion can be by agreement, as in Stack v. Dowden where one party agreed to leave as part of Family Law Act 1996 proceedings.  The agreement engages section 13 of TOLATA which can give rise to a claim for occupation rent.  However it should be noted that, on those facts, the majority of the House of Lords refused the occupation rent claim.

As to the quantum to be awarded, the following general principles apply:

  1. The criteria in sections 12-15 of TOLATA should be applied: Stack v. Dowden;
  2. There is judicial disagreement over how to assess the value of the occupation. Use of a market rent or the cost of alternative accommodation (as favoured by Lord Neuberger in his dissenting judgment in Stack v. Dowden) may be inappropriate. In general the court will strive to do justice between the parties;
  3. In most cases, the occupation rent will be offset in its entirety against the mortgage interest paid by the person in occupation, though this is not a rule of law: Re Pavlou;
  4. Where there is a capital repayment mortgage, the payer should be given credit for half of the capital element unless there are good reasons not to (e.g. where rent is meeting the cost).

A word of warning to end: with any claim for an account, practitioners should be aware of the words of Lord Walker in Stack v. Dowden as he cautioned against an expensive trawl through bank statements in cohabitation cases:

“In the ordinary domestic case where there are joint legal owners there will be a heavy burden in establishing to the court’s satisfaction that an intention to keep a sort of balance-sheet of contributions actually existed, or should be inferred, or imputed to the parties. The presumption will be that equity follows the law” [33].

If you are interested in attending the Cohabitation seminars in Canterbury or Eastbourne in March 2017, please contact the clerks for more information.