Senior Associate and Litigation Lawyer Charles Lethbridge discusses the disputes that arise from the joint ownership of real property and how to resolve these problems.
Disputes concerning the ownership of property have been going on since the beginning of the human race. We are all familiar with the wisdom of King Solomon: two mothers brought a baby boy before the King disputing who was the true mother. King Solomon ordered the baby to be cut in half and divided – he awarded the boy to the mother who agreed to allow the boy to go to the other mother and live rather than see him die on the grounds only the true mother would protect the baby in this way.
Whilst we may not always have the wisdom of King Solomon to resolve our disputes, it is common in modern times for people to own real property with others and to disagree on the ownership or what is to be done with it (real property is any land or a unit) This may be because of family relationships (eg. husband and wife may own property together), or because a business ventures requires it (eg. 2 individuals or companies might jointly own property for the purpose of developing it). Of course relationships, be they family or commercial, often break down. For example, a co-owner may not be accounting to you for your share of rental profits. In such circumstances, the ongoing co-ownership of a property may become untenable. Another common dispute is where one party wants to sell the property and the other does not or where they cannot agree on a value for one owner to buy the other’s share.
Property which is owned by 2 or more people can be held in two different ways. Property can be owned as joint tenants, where two or more people own a property equally, the share of each passing to the other or others on death, or as tenants in common, where two or more people own a property together in equal or unequal shares, where those shares do not pass to the other co-owners upon death.
What if one owner wants to sell their share of the property but the other owner does not, what happens then??
In New South Wales, section 66G of the Conveyancing Act 1919 allows an owner to make an application to the Supreme Court for the appointment of a statutory trustee for the sale or partition of a property. There are costs involved in making such an application and these costs are likely to increase if the application is opposed by the other owner/s. The equivalent provision in Queensland is section 38 of the Property Law Act 1974.
In both states, once the Court makes orders under the respective sections of those acts, ownership of the subject property immediately vests with the trustee or trustees which are appointed by the Court for the purpose of selling the property. Once the property is sold, the proceeds of the sale of the property are apportioned between the parties (the former owners), after payment of the trustee’s fees, real estate agents fees, auctioneers fees (if applicable) and legal fees relating to the conveyance of the property.
Many people are unaware they have this remedy and usually it is the quickest and most economical way to resolve the dispute between them. Although there are the costs of the court application, usually it is the only way the parties can move forward and achieve a solution. Some people can carry on these disputes over many years and waste time, energy and legal costs fighting over something they will never agree upon. Sometimes the intervention of the Court is the circuit breaker needed.
Of course the other owners always have the option available to purchase that part of the property which is owned by the owner wanting to sell. That option should always be explored before making the application to Court. Any such purchase can be made by agreement between the parties prior to the commencement of Court proceedings, or at a point after the commencement of the Court proceedings, or even after the Court orders have been made.
How to protect yourself
Often family members or friends purchase property together, however due to the nature of the relationship, a formal agreement is not entered into which sets out agreed terms about the property for example, how rental income is to be apportioned between owners, or when the property is to be sold or transferred. It is important to consider the following issues:
- Are the co-owners aware of their obligations in relation to the payment of outgoings associated with the property?
- How is income (if any) generated by the property apportioned to the owners?
- Are you aware that if the property is owned as joint tenants, that upon your death, your share in the property will pass automatically to the surviving owner/s.
- If you own the property as tenants in common, upon your death your share will be distributed in accordance with your Will.
- What will happen if your circumstances change and you need to sell your share of the property but the other owner/s don’t want to?
- Do you have a contingency plan if someone becomes ill or dies and cannot continue contributing to the property?
A simple partnership agreement can assist in resolving any questions by co-owners or disputes between co-owners in relation to the property. Such an agreement will outline both parties rights and obligations in relation to the payment of outgoings/the apportionment of rental income, and will also detail the options available if one party wants to sell their share in the property. Sometimes having a proper agreement signed by the parties can avoid the angst of litigation and Court orders. It may be the closest you can get to the Wisdom of Solomon…
If you would like more information or want to obtain the best possible chance of a successful outcome in your dispute, please contact our Commercial Litigation Department Manager, Amanda Heather on direct line 07 5506 8245, email [email protected] or free call 1800 621 071.
We have an experienced dedicated Commercial Litigation team that practices exclusively in these areas.
Please click here to access our team brochure with details of our professional staff.