This article was originally published in STEP Journal Plus, April 2021, and can be accessed here.
Can a former spouse be required to pay rent pending the sale of the family home?
Many divorcing couples decide (or are ordered by the court) to sell their former family home and divide the proceeds between them, enabling each to purchase a new home with their share. However, interim arrangements pending sale are often overlooked, which can cause problems if the home takes longer than expected to sell. This was the situation in Derhalli v Derhalli  EWCA Civ 112, where the Court of Appeal was required to give judgment on this issue. It was, as Lady Justice King put it, a “somewhat sorry cautionary tale”.
Mr and Mrs Derhalli married in 1989. In 2004 they purchased a London property as their family home, though it was registered in the husband’s sole name. They lived there until the breakdown of the marriage in 2014, when the husband moved out. Following highly acrimonious financial negotiations, the parties agreed a settlement in June 2016 and it was enshrined in a court order shortly thereafter. In line with the agreement, the property was placed on the market in June 2016; the sale proceeds were to be divided between them. The order also provided for the wife to pay the outgoings on the property and cancel the Notice of Home Rights she had entered at the Land Registry, and required the husband to give 24 hours’ notice if he wished to attend the property.
The home was marketed for offers in excess of £7million, with both parties expecting a quick sale. However, given the impact of the Brexit referendum on the high-end property market, the property did not sell until March 2019. During this period the husband became increasingly frustrated; although the wife was paying the outgoings on the property, he was being kept out of his capital interest whilst the wife continued to benefit from it.
In March 2017 the husband served notice on the wife to either vacate the property within four weeks or pay weekly rent of £5,000; he then issued County Court possession proceedings and sought damages for trespass in the sum of £600,000. He argued that, following the making of Decree Absolute, the wife was simply a licensee who had no right to occupy the property without his continuing agreement. Initially the County Court accepted the husband’s position, but the wife successfully appealed. Applying general principles of construction of contracts, the judge held that it was clear from the order that the parties had anticipated that the wife would occupy the property until it was sold on the basis that she would pay the outgoings on the property but not rent.
The Court of Appeal dismissed the husband’s appeal. The judges agreed that the “reasonable reader” with “all the background knowledge which was available to the parties” would conclude that the parties’ intention was that the wife was entitled to stay in the property until it was sold, without having to pay the husband rent. The Court made clear that they were simply interpreting the agreement reached, and not setting out the arrangements that should apply in other cases.
The case emphasises the importance of talking a client through the various scenarios that might arise following a proposed agreement, and ensuring that these are properly provided for in a carefully drafted order. Had the parties’ advisors put their minds to the question of what should happen if the property took a long time to sell, they might have agreed (and drafted into the Order) that whilst the wife would be responsible solely for the outgoings for the first six months, thereafter and until sale she would pay the husband some level of rent – perhaps to be deducted from her share of the sale proceeds.
In this instance, the original oversight was compounded by the husband’s attempts to seek redress through possession proceedings, involving the parties in significant additional litigation with the attendant costs. Lady Justice King (an experienced family law judge) made clear that disputes on the interpretation of financial remedy orders made on divorce should be brought before the Family Court rather than the County Court, describing the husband’s application to the latter as “inappropriate”.
It may be that the impact of Covid-19 on today’s property market results in similar challenges arising. In any event, clients must be alerted to the risk of potentially difficult and expensive disputes if proper thought is not given to the appropriate interim arrangements pending sale.