Bankruptcy – Trust of land – Beneficial tenants in common – Interest of one beneficial owner vesting in trustee in bankruptcy – Sale of property – Trusts of Land and Appointment of Trustees Act 1996 – Whether occupation rent to be deducted from other owner’s share of sale proceeds – Appeal allowed
In 1992, the respondents purchased a house, which they occupied as joint tenants in common. In June 1994, the first respondent was adjudged bankrupt and his 50% beneficial interest in the property vested in the trustee in bankruptcy, to which position the appellant was appointed in 2004. In 2006, the appellant applied to the county court for an order for possession and sale of the property. An issue arose as to whether, and to what extent, any deductions should be made from the second respondent’s share of the sale proceeds as a payment for her use and occupation of the property since the date of the bankruptcy. The district judge held that the position was governed by the Trusts of Land and Appointment of Trustees Act 1996. Section 13(6) of the Act provided for the payment of compensation to a beneficiary under a trust of land in circumstances where his statutory right of occupation, under section 12, was restricted or excluded. The district judge ruled that since a trustee in bankruptcy was not a beneficiary entitled to occupy under section 12, the appellant did not fall within the scheme of the 1996 Act and was not entitled to compensation in respect of the continued occupation of the property by the other beneficiary, namely the second respondent.
On appeal, the appellant argued that the district judge had erred in regarding the 1996 Act as an exhaustive code. He contended that the Act did not apply to the instant case, and that the second respondent’s share of the sale proceeds should be debited with an occupation rent in accordance with established equitable principles. The second respondent submitted that the former practice regarding occupation rents payable by beneficiaries in occupation had been replaced by the compensation regime under sections 12 to 15 of the 1996 Act and that the district judge had been correct in his approach.
Held: The appeal was allowed.
Sections 12 to 15 of the 1996 Act did not provide an exhaustive regime for compensation for the exclusion of a beneficiary from occupying property held subject to a trust of land. The right to compensation, under section 13(6) of that Act, was triggered by the exclusion or restriction of the statutory right of occupation under section 12. Where a person such as a trustee in bankruptcy held an interest under the trust but had no such right of occupation, there was no scope for the operation of section 13 and the statutory scheme did not apply. There was no reason in such circumstances to deny the trustee compensation if recourse to the court’s equitable jurisdiction could justly compensate him: Stack v Dowden [2007] UKHL 17; [2007] 2 WLR 831 distinguished.
An occupying tenant in common would be free of any liability to pay rent only where the other tenant in common was also in a position to enjoy the right to occupy but voluntarily chose not to do so. Where on enquiry it would be unreasonable, looking at the matter practically, to expect a co-owner who was not in occupation to take up occupation, for example because of the nature of the property or the identity or relationship of the co-owners, it would normally be fair to charge the occupying co-owner an occupation rent: Dennis v McDonald [1982] 2 WLR 275 and RePavlou (a bankrupt) [1993] 1 WLR 1046 considered. Where one co-owner’s interest had vested in a trustee in bankruptcy but the other co-owner remained in occupation, application of that principle would normally result in the occupying co-owner having to account to the trustee in bankruptcy for an occupation rent. An occupation rent was payable in the instant case: Re Byford (deceased) [2003] EWHC 1267 (Ch); [2004] 1 P&CR 12 applied. Although the appellant was not prevented from applying to realise the property or from entering into a formal rent agreement, that did not detract from the fact that, from a practical and common-sense view, he could not reside in the property.
On a sale of the property, the second respondent’s share of the proceeds fell to be reduced by a sum equal to one-half of the property’s letting value from time to time since the first respondent’s bankruptcy.
Stephen Davies QC and Stefan Ramel (instructed by Moon Beever) appeared for the appellant; Alexander Learmonth (instructed by Tilbrooks, of Ongar) appeared for the second respondent; the first respondent did not appear and was not represented.
Sally Dobson, barrister
