A co-owner is a person who owns land with one or more other owners. Co-owners may hold land as joint tenants or tenants in common. The way land is held is important in property law as it impacts on the way it can be dealt with generally, and what happens after the death of a co-owner.
Joint tenants hold property together as a whole – in other words it cannot be divided into shares. Joint tenancy is subject to survivorship provisions – when a co-owner dies his or her interest in the property is extinguished and automatically passes to the remaining owner/s. Consequently, that share cannot be given to anybody else, even if a contrary intention is contained in the Will of a deceased owner.
A tenancy in common can specify the individual shares of the property held by each owner. The shares need not be equal and co-owners are presumably free to transfer, sell or leave their share in the property by Will.
Co-ownership is a popular way for individuals to acquire interests in property – the pooling of resources and stronger borrowing capacity assists in obtaining finance which may otherwise not be possible.
Spouses and de facto partners usually hold property as joint tenants, whilst holding shares as tenants in common is a popular arrangement between other family members, friends or business entities.
Co-owners who are tenants in common each acquire a share proportionate to the contributions made. Any loan for the property is taken in all names and the parties are usually jointly and severally responsible for repayments and performance of all obligations.
What can go wrong?
Whilst there are benefits in co-owning property, disputes do arise causing financial and emotional anguish.
Property disputes between co-owners are often triggered by changing circumstances – a relationship or business breakdown, financial stress or the death of a co-owner. Some disputes arise simply because the owners do not understand the implications arising from how the interests in the property are held.
Co-owners may claim that interests held are disproportionate to contributions made, or argue over loan repayments, maintenance and other expenses, the use and development of the property and the entitlement to profits. Significantly, the dispute will be over when or whether to sell the property.
Co-owners have reciprocal rights and responsibilities regarding the property. Whether any of these have been breached or compromised may be a good starting point to determine the remedies available to compensate for damage or loss suffered by a co-owner.
What remedies are available?
The following are examples of typical issues arising between co-owners and the possible remedies available.
The parties wish to change the way the property is held
If the dispute involves the way in which the property is held, a joint tenancy can be severed or a tenancy in common converted into a joint tenancy.
This is done by lodging the appropriate Transfer with the relevant Government body authorised to deal with land titles in your State or Territory. Your Lawyer can assist with preparing the necessary documents and will consider any stamp duty implications.
Severance of a joint tenancy effectively changes the ownership of the property to a tenancy in common, in shares apportioned to the parties’ respective contributions. Once a joint tenancy is severed the co-owners may deal with or dispose of their individual interests as they wish.
Severance can be achieved either unilaterally or by agreement. Obviously, when parties agree there are less complications however the law recognises the right for a joint tenant to unilaterally severe a joint tenancy provided it is not unconscionable to do so. Your Lawyer can advise on the appropriate process and advise on any implications.
The parties cannot agree on selling the property
Parties who cannot agree on selling a co-owned property, or the specific arrangements for a party to buy out the share of the other/s, may apply for a partition order. A partition involves a physical subdivision of land which, in many cases, will be impractical and undesirable.
The more common order will be for the sale of the property. Generally, a trustee is appointed to sell the property and pay out any mortgage or other securities registered over the property before distributing the balance to the co-owners. Distributions will be commensurate with the respective contributions made by the parties and the surrounding circumstances.
Stamp duty and taxation implications may need to be considered and your Lawyer can advise whether these apply in your circumstances.
A co-owner ousts another co-owner of possession of the property
All co-owners have a right to occupation of the property. If a co-owner deprives another of this right, then the aggrieved owner may be entitled to compensation by way of an occupation fee.
Examples of ousting a co-owner include purposely changing locks to exclude a co-owner or the existence of domestic violence against a co-owner causing that person to retreat from the property.
A person contributes to the property but does not have legal ownership
A range of factors may lead to a property being legally held by a person despite another having made contributions towards the property. Financial contributions include paying the deposit for the property, making loan repayments or paying for or carrying out renovations or additions such as a granny flat.
These contributions are recognised as creating an ‘equitable interest’ in property. The law will presume that the legal owner of the property holds a share of the property ‘on trust’ for the person who has contributed to it. The share held is determined in accordance with the contributions made. In some circumstances, non-financial contributions may also be recognised.
If you have made contributions to a property which is not held in your name your lawyer may be able to negotiate with the legal owner to have your interest recognised. The same principles apply if your name is on the title deed but the contributions between you and the other owner/s are unequal and the interests shown do not reflect this.
If an agreement cannot be reached a beneficial interest in property can be determined by the Court. This will create a legal interest in the property allowing you to deal with that interest in accordance with general property law.
How do I prevent things going wrong?
You should always obtain legal advice when buying property. If buying with another person your Lawyer will assist you in deciding whether to hold the property as joint tenants or tenants in common.
If other purchasers (besides a spouse or de facto partner) are buying, you should consider having a property ownership agreement prepared. Ideally, this will set out the agreed interests held, options to purchase a co-owner’s share, distribution of proceeds on sale of the property, the agreed use, distribution of profits and responsibility for management.
Property disputes between co-owners are common. They can be very complex and often arise during the course of other legal issues such as family law proceedings and business disputes. Some disagreements are resolved by negotiation whilst others may need to be decided through the Courts.
If you need advice on a property matter, or you know somebody that does, please contact us on 02 9790 7000 or email [email protected].