How to terminate a right of occupation granted under a will

Wills sometimes grant a right of occupation to a particular person, allowing them to live in a property owned by the estate or by a trust set up under the will. These arrangements can serve various purposes: providing a home for a surviving spouse who is not the parent of the testator's children, or accommodating a dependent relative. But circumstances change. Sometimes the right of occupation needs to be brought to an end before it would naturally expire.

This guide explains how rights of occupation work, the grounds for terminating them and the procedure trustees and executors should follow.

What is a right of occupation?

A right of occupation is a personal right to live in a specific property. It is distinct from outright ownership and from a lease. Common forms include:

Right to live in the property for life

The occupant can live in the property until they die.

Right to live in the property for a fixed period

For example, until the occupant remarries, or until they cease to use it as their main home.

Right tied to a defined condition

For example, until the occupant moves into residential care.

Right subject to specific obligations

The occupant may have obligations to maintain the property, pay outgoings, or comply with specific terms.

The exact terms depend on the will. Reading the will carefully is the starting point for any decision about termination.

How rights of occupation typically arise

Trust of land

The most common structure. The will creates a trust of land. The trustees hold legal title. The occupant has the right to live there under the trust. The Trusts of Land and Appointment of Trustees Act 1996 (TLATA) applies.

Settlement under the Settled Land Act 1925

Older arrangements may use this structure, though it is now uncommon for new arrangements after 1996.

Life interest

The occupant has a life interest in the property, often with the remainder to other beneficiaries.

Personal licence

In some cases the will creates only a personal licence rather than any property interest. This is less common but does occur.

Common scenarios where termination is sought

The occupant has moved out

The occupant has ceased to live in the property and is unlikely to return. The arrangement is no longer serving its purpose.

The occupant has remarried

Where the will specifies remarriage as an ending condition, this may automatically end the right.

The occupant has moved into care

The occupant has moved permanently into residential care or sheltered accommodation.

Mutual agreement

The occupant and the trustees agree to bring the arrangement to an end, perhaps in exchange for a payment.

Breach of conditions

The occupant has breached the conditions on which the right was granted.

Mismanagement of the property

The occupant has allowed the property to deteriorate or has used it in a way contrary to the terms of the trust.

The first step: read the will

The terms of the will determine what is possible. Key questions:

• What was the precise nature of the right granted?
• Are there express ending conditions?
• What are the occupant's obligations?
• What discretion do the trustees have?
• Who are the remainder beneficiaries?
• What does the will say about decisions of the trustees?

Automatic termination by event

Where the will specifies ending conditions, the right ends automatically when the condition occurs. Common conditions include:

• Death of the occupant
• Remarriage or cohabitation
• Permanent cessation of occupation
• Voluntary surrender

Where the condition has clearly occurred, the trustees can take steps to recover the property. The challenge is usually proving the condition has happened.

Termination by surrender

The occupant may agree to give up the right. This can be:

Without compensation

The occupant simply releases the right because they no longer want it (for example, because they have moved into care).

With compensation

The trustees pay the occupant a sum reflecting the value of the right.

The arrangement should be recorded in a formal deed of surrender. The deed protects both parties and ensures the position is clear on the register.

Termination by court order

Where the occupant does not agree to surrender and the right has not automatically ended, the trustees may need to apply to the court.

Under TLATA 1996

Section 14 of TLATA allows the court to make orders relating to trusts of land. The court considers the section 15 factors:

• The intentions of the person who created the trust
• The purposes for which the property is held
• The welfare of any minor who occupies the property
• The interests of any secured creditor

The court's powers

The court can make orders requiring the property to be sold, occupation to cease or directions to the trustees about how to manage the trust.

Beneficiary consent

Where all the beneficiaries are of full age and capacity and agree, they can together end the trust under the rule in Saunders v Vautier. This requires unanimous consent of all beneficiaries.

The trustees' duties

Trustees making decisions about termination must:

Act in accordance with the trust

Follow the terms of the will.

Act in the best interests of the beneficiaries

Consider both the occupant and the remainder beneficiaries.

Act impartially between beneficiaries

Not favour one beneficiary at the expense of another.

Take advice

For significant decisions, take professional advice (legal, valuation).

Keep records

Document the reasoning for decisions, particularly contested ones.

Proving the occupant has stopped occupying

Where the termination depends on cessation of occupation, evidence is important:

Direct evidence

Statements from neighbours, family members, post-office holders or others who know whether the occupant lives there.

Documentary evidence

Utility bills, council tax records, electoral register, mail forwarding.

Care home records

Where the occupant has moved into care, records confirming the permanent nature of the move.

Visits to the property

Documented site visits by trustees showing the state of occupation.

Negotiating with the occupant

Even where the trustees have legal grounds to terminate, negotiation is often the better route:

Buy-out

Offering a lump sum to the occupant to surrender the right.

Alternative accommodation

Providing or contributing to alternative accommodation.

Conversion to a fixed-term arrangement

Replacing the indefinite right with a fixed-term arrangement that ends sooner.

Mediation

Where there is disagreement, mediation can sometimes break the deadlock.

Tax implications

Termination of a right of occupation can have significant tax implications:

Inheritance tax

Where the occupant has a "qualifying interest in possession" (often the case for life interests), termination can be a chargeable event for IHT purposes.

Capital gains tax

If the property is sold after termination, capital gains tax may apply. Different rules apply depending on the structure.

Stamp duty land tax

If a payment is made to the occupant for the surrender, SDLT may apply.

Specialist tax advice is essential before completing any termination arrangement.

Disputes between beneficiaries

Termination often involves competing interests:

• The occupant wants to remain in the property
• The remainder beneficiaries want the property to be sold or transferred to them
• The trustees are caught between the two

Where disputes cannot be resolved, court applications may be needed. These can be expensive and divisive.

Common mistakes

Misreading the will

The exact terms matter. Assumptions about what the will says can lead to wrong decisions.

Failing to consider the beneficiaries

Trustees who favour either the occupant or the remainder beneficiaries without proper analysis can face claims for breach of trust.

Acting without evidence

Asserting that conditions for termination have been met without proper evidence.

Ignoring tax

Tax consequences can be substantial and need to be factored in early.

Inadequate documentation

Where termination is by agreement, the absence of a properly drafted deed of surrender can cause problems later.

When to take legal advice

Terminating a right of occupation involves trust law, property law, family dynamics and tax. Specialist advice is essential, particularly where:

• The right is contested
• The estate is significant
• Tax implications are material
• The will is ambiguous
• Court applications may be needed

A direct access barrister with chancery and trust experience can advise trustees on their duties, the prospects of termination and any necessary applications.

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