Equitable interest

An interest or right enforceable in a court of equity, protected by equitable remedies. An equitable interest is an interest in or right over property, which gives the holder the right to acquire formal legal title. The concept of an equitable interest only exists in jurisdictions with common law backgrounds. Examples of recognised equitable interests include:

  • A 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

An equitable interest is usually defeated by a legal interest (such as one registered on the PPSR), as it has not been registered, or is incapable of being registered, but there are exceptions to this. An equitable interest arises where formal legal requirements have not been complied with for whatever reason, and looks primarily to the intention and not the form of a legal transaction. An equitable interest usually has to be in writing, but does not require creation by deed.

An equitable interest attaches to land and is good against the whole word except a bona fide purchaser for value without notice (BFPFVWN), or an interest that is otherwise formally registered in a superior way. An equitable interest in land may arise where expressly created or where inferred or imposed by a court. Numerous identical equitable interests may arise over the same piece of land. Where valuable consideration has been paid for property, and even where it hasn’t but all has been done that is necessary to complete the transfer by the transferor, an equitable interest may arise in order to preserve fairness.

An equitable interest as a beneficiary of a trust can be contrasted to a trustee’s legal interest in the trust property, which gives them the rights and powers to deal with and invest the trust property, subject to the interest of the beneficiary.