Hindsight is a wonderful thing: occupation of the family home when it just won’t sell

The consent order is drafted, the ink on the judge’s signature is almost dry, and everyone is raising a glass in self-congratulation.  The family home is to be sold, the proceeds divided and a clean break provided for.  A great result.  Except when the family home won’t sell.  For 3 years.  And only then at a much-reduced price.

A disappointment, certainly, but the problem for Mr Derhalli was that the wife was in occupation and he wanted his dues.  Such was the subject matter of Derhalli v. Derhalli [2021] EWCA Civ 112.

The parties were married in 1989 and purchased the family home in 2004.  It was registered in the husband’s name and the wife accepted that she held no beneficial interest.  In 2014, upon the breakdown of the marriage, the husband left the family home.

A consent order was signed in June 2016 which provided for the sale of the property with the husband to receive the proceeds.  Thereafter he was to pay to the wife two lump sums, one of which represented her share of the proceeds from the family home.  The lengthy consent order ran to 47 paragraphs, and (as Lady Justice King put it) “built in every possible protection to prevent either party varying the lump sum and, therefore, the distribution of wealth which had been agreed between the parties whether by reference to the Barder jurisdiction or otherwise” [61].

Notwithstanding the detailed nature of the order, no mention was made of the actual occupation of the family home. Provision was made for the wife to pay the outgoings on the property, but no end date was given.

The family home was placed on the market in June 2016 and it was anticipated by both parties that the high-end property (marketed at £7 million) would sell quickly.  However, its desirability was significantly affected, we are told, by the outcome of the Brexit referendum later that month.  The property did not sell until March 2019 and then for the much-reduced price of £5.9 million.  The wife and children (by then adult) remained in the property until its sale.

The husband applied for possession of the property in the civil courts.  The claim later became one for occupation rent, presumably because the property had sold by the time that the case was heard.  The first instance judge ordered that the wife pay damages for her occupation, calling her “a gratuitous licensee”.  The wife successfully appealed, and the Court of Appeal upheld the appeal judge’s decision.

The key question raised for the appeal court was for how long did the wife have a right to occupation after the making of the consent order? It was decided that the answer depended on the construction of the consent order, rather than having a basis in property law.  Such interpretation was to be considered by reference to “what a reasonable person, having all the background knowledge which would have been available to the parties, would have understood them to be using the language in the contract to mean” (per Lord Hoffman in Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38).

The Court of Appeal was clear that, on a construction of their agreement, there was no question of the wife and children being evicted prior to a sale.  The Justices took particular notice of the fact that the consent order was in “full and final settlement” of all claims, thereby leaving no room for further issue to be taken over the payment of rent.  The fact that “to this limited extent, the husband had made a ‘bad bargain’ cannot be taken into account when interpreting the Order” [60]The husband’s claim for £600,0000 by way of occupation rent (£5,000 per week for two and a half years) therefore failed.

The fact that the wife had agreed to remove her home rights, registered on the property, as part of the agreement did not mean that she thereafter became a mere licensee.  The removal was a mere administrative act to facilitate the sale of the property, the court held.

Lady Justice King called the saga of Mr and Mrs Derhalli a “somewhat sorry cautionary tale”. In a footnote she suggested that, “in an excess of caution”, in future parties might choose to be more specific “as to the precise terms under which a party remains in occupation of a matrimonial home pending sale” (whilst noting that the case set no precedent).

In terms of the procedure followed, she was critical of the husband having brought possession proceedings in the civil courts.  She reminded the parties that powers exist under s.24A of the Matrimonial Causes Act 1973 to make “such consequential or supplementary provisions as the court thinks fit” to facilitate an order for sale, and specifically under rule 9.24 of the Family Procedure Rules for the delivery up of possession of a property subject to an order for sale.  While the two other presiding judges did not wish to echo those comments on the basis that no argument was heard on the point, it is to be remembered that the family courts have often emphasised the importance of marital property issues being dealt with in the family rather than the civil jurisdiction (Tee v. Tee [1999] 2 FLR 613 and Miller-Smith v. Miller-Smith [2009] EWCA Civ 1297).