The interim arrangements to be made whilst the family home of a divorcing couple is sold can be tricky to work out. Particular problems can arise if the home takes longer than expected to sell, as happened in Derhalli v Derhalli [2021] EWCA Civ 112, a recently reported case which went all the way to the Court of Appeal on this issue.

The “somewhat sorry cautionary tale”, as Lady Justice King coined it, begins in all too familiar circumstances. Mr and Mrs Derhalli married in 1989 and in 2004 bought a London property as their family home, registered in the husband’s sole name. They lived there together 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 a couple of months later.

The family home was placed on the market in June 2016 in line with the parties’ agreement. As also agreed, the wife took responsibility for paying the outgoings on the property.

The home was on the market for offers in excess of £7million, and both parties expected the highly desirable property to be snapped up quickly at, or close to, the asking price.  Some of the proceeds of sale were to be paid to the wife to settle her claims, with the balance to be retained by the husband. But things did not go quite to plan and, as a result of the impact of Brexit on the property market, the property did not sell until March 2019 for the significantly lower sum of £5.9 million.

Possession Proceedings

In the meantime, the husband became increasingly frustrated with the situation. Although the wife was paying the outgoings on the property, he considered it unfair that he was being kept out of his capital interest in the property, whilst the wife continued to benefit from it.

In March 2017 the husband served notice on the wife to either vacate within four weeks or pay weekly rent of £5,000. The wife did neither and so the husband issued possession proceedings whilst also seeking damages for trespass in the sum of £600,000, arguing that the wife had no right to occupy the property without his agreement – that she was simply a licensee.

Initially the county court sided with the husband and required the wife to pay rent until she vacated, but she successfully appealed, with the judge holding that it was clear from the terms of the order that the parties anticipated that the wife would occupy the property until it was sold on the terms set out in the order; i.e. paying only the outgoings and no 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 paying rent.

The Court made clear that all they were doing was interpreting the agreement reached in this particular case – not setting out the arrangements that should apply in this scenario in other cases.

Lessons

 So what, if any, lessons can be learned from this “sorry cautionary tale”?

The case certainly shows how important it is to think through the various scenarios that might arise and ensure that they are properly provided for in a carefully drafted order.

For example, had the parties put their minds to the question of what should happen if the property took a long time to sell, they might have agreed 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.

It may well be that the impact of Covid-19 on today’s property market means that similar challenges are faced to those following the Brexit referendum. In any event, one should always plan for the unexpected to reduce the risk of potentially difficult and expensive disputes down the line.

“Reality-testing” proposed agreements with our clients is an important part of what we do, to ensure that all eventualities are catered for. If you are negotiating arrangements with your former partner, then we can advise on how best to protect your position – whether you are currently living in the family home or not.