A Life interest differs from a right of residency in property ownership. A life interest gives the life tenant the privilege to reside in the property, collect rental income, and utilise the property as they wish while being responsible for property maintenance and certain expenses. Conversely, a right of residency is more limiting, involving restricted rights and responsibilities, and does not entail any transfer of ownership rights. The main distinctions are in the extent of rights and responsibilities, duration and transferability, upkeep, and expenses.
Davis v Davis (No 2) [2023] NSWSC 1563 involved three properties approximately 18 km apart in Macksville and Yarranbella towns near the northern coast of New South Wales.
1. 42 X, X;
2. 38 X, X;
3. 121 xxxxxxx, xxxxxxx.
Background
No. 42 was purchased by Victor Davis (the Defendant) and his then-wife, Irene Rowsell, in 1973 and became the family home. The marriage produced two children, including Paula Davis (the plaintiff), while Irene Rowsell had a daughter, Patricia, from a previous relationship.
The defendant
The defendant and Irene Rowsell divorced in 1985. Afterwards, the defendant stayed at No. 42 with the plaintiff and John, the other child of the marriage. Patricia went to live with her mother, and John later moved to Sydney.
As part of the divorce settlement, the defendant became the sole owner of No. 42. He secured a loan from Bananacoast Community Credit Union, borrowing $9,000 from the plaintiff, approximately 20% of the property’s value.
The defendant retired around 2003 after working as a butcher/slaughterman.
The plaintiff
The plaintiff left school at age 14, worked various jobs, and oversaw an alterations business. Since 2010, she has worked full-time for Australia Post while operating her own tailoring business.
In 1993, the plaintiff was in a relationship with Warren Lynch, lived with him in a caravan and gave birth to her son, Blake, in May 1994. Due to the limited space in the caravan, she returned to No. 42 with Blake. The relationship with Warren Lynch ended in 1998, and Blake lived at No. 42 until 2014.
In July 1996, the plaintiff placed a caveat on No. 42 to register her claimed interest in the property.
The Deed
In 2005, the plaintiff and the defendant entered into an agreement acknowledging her contributions to the property’s upkeep. It was agreed that No. 42’s ownership would be transferred to the plaintiff, while the defendant would retain a “life interest,” granting him the right to live at the property for life. This was formally registered as a “life estate,” and both parties continued residing at No. 42. Also, 2005 the plaintiff invested $45,000 in renovating No. 42.
The defendant’s half-siblings passed away in January 2013. The defendant inherited their estate, which included $518,000 from the sale of their house in October 2014 and about $400,000 in cash, which the defendant used to purchase No. 38 in February 2015 and No. 121 in November 2016.
Blake and his daughter Ivy returned to live at No. 42 in 2018. However, tensions arose between the defendant and Blake, leading to Blake obtaining an Apprehended Violence Order (AVO) against the defendant in June 2019. This resulted in the defendant moving out of No. 42 and relocating to No. 38.
On August 2, 2019, the defendant’s solicitor demanded that the plaintiff leave No. 42, claiming the defendant had exclusive possession rights. The plaintiff refused and continued living at No. 42 with Blake and Ivy. The defendant has remained at No. 38.
In February 2021, the defendant sold No. 121 for $350,000.
The plaintiff sought an order transferring the defendant’s interest in No. 42 to her. The plaintiff abandoned a claim for $400,000 at the start of the hearing, leaving her dependent on s 20 of the Property (Relationships)Act.
The defendant sought an order that he holds a life interest in No. 42 while the plaintiff has the remainder. Therefore, the defendant is entitled to exclusive possession of No. 42 or a personal right of residence. However, the plaintiff’s residence license at No. 42 has been revoked.
The defendant sought possession of No. 42 and permission to issue a writ of possession. They were enforcing the right to exclusive possession for life.
The plaintiff must pay mesne profits as unpaid rent from June 2019 until the plaintiff vacates No. 42 or ensures that Blake leaves. Compensation under the Property (Relationships) Act and damages for breach of contract, trespass, or equitable compensation.
The Deed gave the defendant a continuing occupation right for his life. Under the Deed, the plaintiff was registered as owner in remainder, with the defendant holding a registered life estate. Both parties resided at the Property until mid-2019, when the defendant moved out because of a dispute with Blake.
The plaintiff brought a claim in the Supreme Court seeking exclusive possession of the Property pursuant, relevantly, to s 20 of the Property (Relationships) Act 1984 (NSW). In a cross-claim, the defendant sought exclusive possession based on his registered life estate.
In Davis v Davis (No 2) [2023] NSWSC 1563, the Court concluded that the Deed did not create a life estate in favour of the defendant, who only held a personal right of residence in the Property. Under s 20 of the Property (Relationships) Act 1984 (NSW), an order was made that the defendant transfer “for no consideration the whole of his interest in the property” to the plaintiff.
Alternatively, the defendant sought an order that the plaintiff pay him $100,000 in return for extinguishing his interest in the Property. No appeal was brought from the dismissal of the cross-claim.
The plaintiff must pay mesne profits as unpaid rent from June 2019 until the plaintiff vacates No. 42 or ensures that Blake leaves. Compensation under the Property (Relationships) Act and damages for breach of contract, trespass, or equitable compensation.
Decision
The court made the following orders:
1. The defendant must transfer all his interest in No. 42 to the plaintiff at no cost.
2. The defendant must take all necessary steps to complete the transfer.
3. If the defendant fails to comply, the Registrar in Equity is authorised to take all necessary actions to execute the transfer.
4. The plaintiff must pay the defendant $6,815.27 within 42 days.
5. The defendant’s cross-claim is dismissed.
6. The defendant must pay the plaintiff’s legal costs, including for the cross-claim.
7. Both parties have leave to request amendments to the costs order.
The defendant appealed against the order under s 20, seeking to retain his residence right.
Appeal
In Davis v Davis [2024] NSWCA 222, the appellant is the respondent’s father. The dispute relates to a house in Macksville (no.42) that the appellant had owned until he transferred ownership to the respondent under a deed executed in November 2005 (the Deed).
The court allowed the appeal in part and concluded the following:
In cases covered by s 20 of the Property (Relationships) Act, property interests in a domestic relationship can be adjusted by identifying and valuing relevant property and assessing each party’s contributions. The court determines what is just and equitable based on these contributions rather than detrimental reliance or failed expectations. The appellant’s inheritance was deemed marginally relevant as it did not contribute to the acquisition or improvement of no.42. The court of appeals held that the primary judge erred in considering the appellant’s supposed promises about sharing the inheritance with the respondent.
Furthermore, the primary judge did not correctly account for the appellant’s significant financial contribution to the property before executing a Deed of Agreement. The appellant’s contribution should have been considered valid under s20 despite being classified as a gift.
The primary judge also failed to consider the total value of the appellant’s life interest in no.42, which was extinguished by the orders. Compensation for this loss should have been addressed in assessing what was just and equitable. Additionally, the appellant’s allowing the respondent to live rent-free in no.42 for many years was considered a financial contribution to her, which the court found had not been adequately acknowledged.
It’s important to note that s20 is not intended to remedy past injustices or punish the parties for their conduct. However, factors such as the appellant’s age, the familial nature of the relationship, and the respondent’s promises could be relevant in assessing what is just and equitable.
The court found procedural errors and misdirection in the primary judge’s reasoning, particularly concerning the promises about inheritance and issues surrounding an unrelated previous relationship. As a result, the appeal allowed the court to re-exercise discretion in adjusting the parties’ property interests.
Decision
In allowing the appeal in part the Court of Appeal set aside orders (1)-(3) and (6) made in Davis v Davis (No 2) [2023] NSWSC 1563. Instead of these orders, the Court has ordered that the defendant transfer his entire interest in the property to the plaintiff. The defendant must take all necessary actions and execute all required documents to transfer the interest mentioned above. If the defendant fails to comply with this order, the Registrar in Equity is authorised to take all necessary actions and sign all essential documents to effect the transfer. Additionally, the plaintiff is ordered to pay the defendant $100,000. Each party is responsible for bearing its costs for Davis v Davis (No 2) [2023] NSWSC 1563, and the respondent must pay the appellant’s costs for Davis v Davis [2024] NSWCA 222.