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What is an Equitable Interest?

What is an Equitable Interest?

Having an equitable interest in a property may give the holder the right to acquire legal title. Find out what this means and when it can occur here.

19th November 2019
Reading Time: 2 minutes

Property ownership goes beyond simply purchasing a property and having complete control over it. There are circumstances where someone may have a legitimate interest in property, without being the legal owner of it. To account for this, there are two different types of title – legal and equitable. In this article, we’ll explain the less-common equitable title, and what it means.

Legal Title

Before understanding what an equitable interest is, we must first understand why it can arise. Equitable interests arise where there is an interest in a property, albeit the party with the interest does not have legal title. Legal title is the true and enforceable ownership of a property. This cannot easily be overridden, save for when an equitable interest exists.

A legal title carries with it many responsibilities such as maintaining, using, and controlling a piece of property. A common example of this is found in the Torrens title system of land ownership, where a legal interest is registered on the title of the property. Although this type of ownership appears to be absolute, there are circumstances where this can be challenged. This is what is called an ‘equitable interest’.

Equitable Interest

An equitable interest arises where there is an interest in the property, but no legal title exists. However, this title is not “true ownership”, and ordinarily, this type of interest can be overridden by legal ownership. The only way an equitable interest can be enforced is by the Court.

Common examples

Having equitable rights to a property doesn’t come with the same rights as having legal title to the property. However, the reason Courts recognise these interests is because ‘it is just and fair to do so’.

Equitable title does not transfer legal ownership of the property, as it simply gives the individual or entity the right to use and also enjoy the property. Some common examples of this type of interest include:

  • beneficiary’s interest in a fixed trust
  • A partner’s interest in the partnership
  • Proprietary interests that are counterparts to common law interests
  • Equitable security interests
  • Equitable rights over land

Example

Mary and Gustav have started a partnership and purchased an investment property. Mary funded 50% of the purchase, however, the legal title is in Gustav’s name. Although Mary is not the legal owner of the property, she maintains an equitable interest in the property which is enforceable.

If you have further questions about how property ownership works, it may be worth contacting a property lawyer.

Conclusion

It is important to first understand what comprises a legal title as this distinguishes the benefits and rights from an equitable interest. An equitable interest, whilst not affording full legal rights, does offer remedies which are afforded on a case by case basis.

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Author
Alex Vella

Alex works in the content team as a Legal Intern for Lawpath. He is studying a Bachelor of Commerce (Professional Accounting) and Bachelor of Laws at Macquarie University. His passion resides with commercial, corporate and tax law.