An equitable interest is an "interest held by virtue of an equitable title (a title that indicates a beneficial interest in property and that gives the holder the right to acquire formal legal title) or claimed on equitable grounds, such as the interest held by a trust beneficiary." The equitable interest is a right in equity that may be protected by an equitable remedy. This concept exists only in systems influenced by the common law (connotation 2) tradition, such as England, Australia and the United States.
Equity is a concept of rights distinct from legal rights, "the body of principles constituting what is fair and right (natural law)". It was "the system of law or body of principles originating in the English Court of Chancery and superseding the common and statute law (together called 'law' in the narrower sense) when the two conflict". In equity, a judge determines what is fair and just and makes a decision as opposed to deciding what is legal.
An example of an equitable interest, may be found in a trust. In a trust, the trustee has a legal interest in the trust. However, the beneficiaries to the trust has an equitable interest in the trust. The trustee has the power of attorney, or legal rights over the trust. Meanwhile the beneficiaries, the holder of the equitable interest has an equitable right in the trust. If the trustee fails to perform the duties, then the beneficiary may sue the trustee in equity to perform the duties. Such a situation includes the trustee failing to disburse cash from the trust's property, corpus, to the beneficiary. Likewise a trustee may embezzle the trust's property and, although the trustee has a legal interest in the trust, the beneficiary has an equitable interest in the trust and so may sue for the trustee to return the trust's property or reimburse the trust for the value of the property embezzled.
If a person has an equitable interest in property, this implies that some other person has the legal interest in that property. If one person has both the legal and equitable interest in the relevant property, he or she has no ‘equitable interest’ in that property as such. “If one person has both the legal estate and the entire beneficial interest in the land he holds an entire and unqualified legal interest and not two separate interests, one legal and the other equitable”.
An equitable interest over that which is not conveyed correctly may still be effective because of the rule in Walsh v Lonsdale. In this case it was held that 'equity looks on as done that which ought to be done' and a contract, which does not meet the requirements of a deed, required by the Law of Property Act 1925 s.52(1), may be specifically enforced to convey the equitable interest to the new purchaser. This rule has had a significant impact because it allows interests that have not been conveyed by a deed to still be binding on future purchasers, through the doctrine of constructive notice. However, the UK Parliament has weakened the impact of this rule, with the Law of Property (Miscellaneous Provisions) Act 1989 s.2, which requires all contracts for the sale of land (which could be specifically enforceable) to be in writing and be signed by both parties. Any contracts that are not in writing and signed by both parties cannot be specifically enforced and so will not create or transfer an equitable interest in land.
- Black's Law Dictionary. Second Pocket Edition. p. 361. 2001 West Group. Bryan A. Garner (editor in chief)
- Black's Law Dictionary. Second Pocket Edition. p. 241. 2001 West Group. Bryan A. Garner (editor in chief)
- “DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW)”(1982) HCA 14, 463 .
- DKLR Holding Co (No 2) Pty Ltd v Commissioner of Stamp Duties (NSW) (1982) HCA 14, 463  (Aickin J).
- (1882) 21 Ch.D. 9.
- Law of Property (Miscellaneous Provisions) Act 1989 s.2