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Q&A: Out of joint

Question

I bought a flat in London in 2006 with my ex-girlfriend, which we own 50/50. She moved out five years ago and has not paid anything in respect of the property since. I have paid the interest-only mortgage all this time, which is £650 per month currently. We now plan to sell the flat and I feel she ought to pay me back for half of all those mortgage payments when we divide up the proceeds, which she does not want to do. Can I insist that she pays me back out of the proceeds?

Answer

You can claim half of the mortgage payments, but your ex-girlfriend is likely to be able to cross-claim for an “occupation rent” from you for the years that you have occupied the property. Given how low interest rates are, you may be best advised not to pursue such a claim given that the balance of the two sums may end up heavily in her favour.

Explanation

As co-owners of property, the two of you hold the flat on a trust, of which you are both trustees and beneficiaries. The Trusts of Land and Appointment of Trustees Act 1996 (“TLATA”) regulates your rights to occupy the property and your obligations to pay for that occupation.

As you bought the flat as a home for both of you to live in, you each have a right to occupy it under section 12(1) of TLATA. Section 13(1) gives the trustees the power (acting reasonably) to exclude or restrict that entitlement and the trustees have power to impose conditions on the occupier, including paying any outgoings or expenses (for example, half of the mortgage instalments) and paying compensation to a person whose right to occupy has been excluded (ie the occupation rent).

In the context of a relationship breakdown, the party leaving the home will usually be treated as “excluded” so that an occupation rent is payable by the other (although if one co-owner has left voluntarily and would be welcomed back, an occupational rent will not normally be payable): Re Pavlou [1993] 1 WLR 1046.
In terms of how much your ex-girlfriend would be entitled to, an occupation rent will usually be the relevant proportion of the market rent for the property or the cost of alternative accommodation for her.

In the past, judges have encouraged a simple approach of treating the claim to half of the mortgage interest as “cancelled out” by the cross-claim for an occupation rent, but this was only ever a matter of practical convenience and not a fixed rule: Re Gorman [1990] 1 All ER 717. If you assert your own claim, a detailed accounting exercise is likely to follow and, given the historically low interest rates and high rental yields prevailing in those years, the net position is unlikely to be in your favour.

Question

My husband and I jointly purchased our family home where we live with our children. In 2011, he took over a family restaurant, which he ran as a sole trader. The same year, he obtained an overdraft facility, which was secured over our house. A part of it was used to pay for repairs to our property but most went on renovations to the restaurant. For three years, I helped out at the restaurant unpaid to support him, but I have been working in my own right for the past two years and consider myself financially independent. Sadly, the restaurant failed and my husband went bankrupt this year. His trustee in bankruptcy is claiming 50% of our house, but surely the bank debt should not affect my share?

Answer

In short, you may seek to argue that an "equity of exoneration" arises to prevent the debt affecting your share, but that argument requires closer investigation and may not succeed in your case. The law in this area is also awaiting imminent clarigication from the Court of Appeal.

Explanation

An equity of exoneration can arise where jointly owned property is used to secure a debt which is owed by just one of the joint owners. A presumption then arises that the one who owed the debt would protect and indemnify the other by ensuring that the debt was repaid just out of the former's share - providing there was sufficient equity for the creditor to be repaid from that share alone.

However, it is important to remember that this presumption is rebuttable and the circumstances of your case may make it inequitable for you to claim exoneration. A key question will be whether the lending was for your husband's benefit alone. If the sums have "the character of payments made for the joint benefit of the household", no such exoneration will arise. Obviously, the money used to repair your property would not give rise to any such claim.

How should the monies paid into the restaurant business be treated? This is likely to depend on a very detailed analysis of your personal circumstances. Did your livelihood and support (and that of your family) depend, in substance, on the income of your husband generated from the business, at least when those payments were made? Were you closely connected to the restaurant, as your work there suggests? How much did you benefit from the venture at any time? How closely linked were your finances with your husband's, eg did you mainly operate seperate bank accounts?

The significance of couples "pooling their earnings" and "operating as a single family unit" is still being worked out and there is some tension in rence reported cases as to the correct approach: see Re Chawda [2014] BPIR 49 and Armstrong v Onyearu [2015] EWHC 1937 (Ch). The law in this area is awaiting further clarification on the Court of Appeal in Armstrong is expected to offer further guidance following an appeal hearing scheduled to be heard next week, so watch this space.


This article was written by Georgina Redsell, associate, and Kavan Gunaratna a barrister at Enterprise Chambers. For more information please contact Georgina on +44 (0)20 7203 8897 or georgina.redsell@crsblaw.com


This article first appeared in Estates Gazette on October 15th 2016.

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