When a relationship breaks down involving a shared home, dividing relationship property can become a complicated matter. An often overlooked yet significant element of this process is known as “occupational rent.” Essentially, this aims to ensure fairness in situations where one person continues living in the former family home after the other has moved out.

Occupational rent refers to a payment made by the person who remains in the shared property to the person who has vacated it. The logic behind this arrangement is that the occupant enjoys the exclusive benefit of a jointly owned asset, effectively denying the other party use of or access to their share of the property. While it is considered a rental payment, if applicable, it is usually accounted for in the final division of relationship property.

How Is Occupational Rent Calculated?

Occupational rent is complex and is typically determined on a case-by-case basis, with Courts and legal professionals carefully considering several key factors, including:

• What would the shared property realistically rent for under current market conditions.
• If the occupant is covering the mortgage and additional property-related costs, that expenditure can reduce or negate their obligation to pay occupational rent due to those costs being joint obligations.
• The length of time one party remains in the home can significantly influence the amount of occupational rent owed.
• If the occupant pays all mortgage instalments and upkeep costs, this may lower or eliminate occupational rent. Conversely, using the property for commercial purposes (such as taking in paying boarders) could increase the amount owed.
• If the property primarily serves as a residence for children, Courts may consider this when deciding whether to reduce or waive occupational rent.
• Courts strive for a fair and equitable outcome, taking into account any unique circumstances that might affect the calculation.

Basic Example

Imagine a couple, Jane and Mark, who live in the family home. After they separate, Jane stays in the house while Mark moves to a rental property. Without occupational rent, Jane would benefit from the free and full use of the home, while Mark also shoulders the cost of renting elsewhere. Occupational rent is designed to address this imbalance. It effectively recognises any financial benefit Jane has by continuing to live in the property while ensuring Mark can be appropriately compensated by Jane for using his interest in the property.

If the property could be rented for $600 per week (with no mortgage or outgoing costs being considered), each party should be entitled to $300 per week in rent. However, if Jane remains in the property, she should compensate Mark for his $300 per week share (an amount he would have received if the property were rented to a third party). If Jane does not recognise Mark’s rental entitlement at the time (for example, by paying the full mortgage, rates, and insurance etc), she may have to account for occupational rent it in a lump sum to Mark when all relationship property matters are resolved. So, after six months of occupation in the above circumstances there could be occupational rent of $7,800 that needs to be accounted for to Mark (26 weeks x $300.00).

Since various factors can significantly affect the occupational rent calculation (which are not covered in this basic example), both parties should carefully consider their respective rights and obligations as soon as one party vacates the property.

Practical Tips for Addressing Occupational Rent

Negotiating occupational rent can be sensitive and may lead to disputes. It is frequently more cost-effective and less time-consuming to settle these matters out of Court if possible. Below are some steps that can help:

• Obtain a formal rental appraisal from a reliable agency, valuer, or real estate professional.
• Document all expenses related to both the property and any alternative accommodation.
• Consult a lawyer experienced in relationship property to understand your rights and responsibilities.
• Engage in honest and transparent discussions to help both parties reach a mutually acceptable solution.

Final Considerations

It is crucial to understand that occupational rent is not always applicable, or an automatic legal entitlement. One party must bring it to the Court’s attention or negotiate it as part of a broader relationship property settlement. The Courts have discretion to decide whether it applies and, if so, how much should be granted. Factors such as trusts, farms, and other complexities can further complicate the situation, so it is always wise to seek professional legal guidance tailored to your circumstances.

This article provides general guidance and does not constitute legal advice. For personalised advice specific to your particular circumstances, it’s advisable to consult with legal professionals earlier rather than later. If you would like to discuss in more detail regarding how we can assist please contact either Nick Newbery on nick@corelegal.co.nz or Shannon Norling on shannon@corelegal.co.nz or book a free 30 minute consultation with us.