What Is Equitable Accounting?

If a jointly owned property is sold, once the net equity in the property has been split between the owners in accordance with their interest in the property, the court can be asked to undertake an "equitable accounting" exercise.

Equitable accounting is the process whereby the court orders the co-owners to account between them for various items of expenditure related to the property and its ownership from their share of the net proceeds of the sale. Equitable accounting can drastically affect the ultimate division of the proceeds (although not the underlying beneficial interests).

Equitable accounting is an equitable remedy and is granted at the court's discretion.

Equitable accounting is an account that is distinct from the determination of beneficial interests.  

Our Property Litigation Team are experts in cohabitation rights and property ownership disputes. We have a wide range of experience in these cases and can help you to understand your options and guide you through the process, so please get in touch.

How does equitable accounting occur?

Equitable accounting generally has implications for the following:

• When one party makes payments towards the mortgage, and the other does not;
• Expenditure on improvements or repairs at the property.
• The application of an occupational rent.

It is called equitable accounting because you effectively take a balance sheet of each co-owner's financial claims and responsibilities arising out of their co-ownership and draw up an account of these, providing either a credit or debit to one party or a nil account.

What is occupational rent?

Occupation rent is a notional rent charged against the occupier of a property in favour of the non-occupier. The occupation rent is a compensatory payment to the non-occupying party and is usually calculated as 50% of the market rent for the property.

Occupation rent is confined to cases where one party was 'excluded' from the home. The court will generally approach the issue on the basis that a relationship breakdown necessitates one party to leave the property.

What if the occupying party has children to house?

The responsibility of both parties to continue to house their children may provide a good defence to a claim for occupation rent.

What about improvements?

The general approach is that expenditure on a property without the non-occupying party's knowledge or consent will not be credited to the payer. This will also relate to larger expenditures and not general property repair and maintenance.

Generally, the payer may seek an account to be credited with the lesser of (a) 50% of the increase in the value of the property resulting from the expenditure or (b) 50% of the actual expenditure.

What about rent received and other payments?

If the occupying party receives rental income (for example, from a lodger), it must be accounted for by the non-occupying party.

Account may be taken off buildings insurance payments (and perhaps contents if the content remain both parties' property).