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Should you buy property with a friend or family member?
Understanding your rights when you own property jointly or as tenants in common
Published 21 May
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Attwood Marshall Lawyers Commercial Litigation Senior Associate and NSW Law Society Accredited Specialist in Dispute Resolution, Charles Lethbridge, discusses disputes that can arise when people own property together.

Introduction

Buying property is one of the biggest financial investments you will ever make, and for some people, the only way to achieve this goal is to buy property with someone else so that they can share the cost, not only to purchase the property and service the home loan, but to also share the responsibilities and costs involved in maintaining the property.

Combining your savings with a friend or family member may seem like a good idea in order to achieve your home ownership or investment goals, however there is a lot to consider. It is not uncommon for disputes to arise when multiple people own a property, particularly when their financial circumstances change and one party wants to sell the property, and the other does not.

What to be aware of when purchasing property with friends or relatives

One of the key things people need to establish when they purchase property with other people is if they will be “joint tenants” or “tenants in common”. These two types of joint ownership arrangements can confuse people when buying property.

Joint Tenants

Joint tenants can own property in equal shares, depending on the number of owners there are. So, if there are only two owners, then each owner will own half of the property equally.

If a property owned by joint tenants is sold, each owner has an equal interest. Should one tenant die, their interest in the property will automatically pass to the surviving joint tenant, without reference to your Will. It is extremely important to understand that if you own property as a joint tenant, you cannot gift your share of a property in your Will.

Tenants in Common

Tenants in common can own property in unequal or equal shares. The specific share of ownership can be altered at any time, subject to all owners agreeing on the arrangement and signing the necessary transfer documentation.

This type of ownership is common with investment properties and each tenant in common is able to deal with their interest in the property individually. What this means is each owner is able to leave their portion of ownership of the property in their Will to anyone they choose, and other ‘tenants in common’ have no legal claim on their share.

They can also sell their interest in the property without all parties having to sell the entire property.

It is very important to consider the type of ownership you wish to establish when purchasing property as this will ultimately determine the types of decisions you are able to make about your share of the property down the track.

When purchasing a property with other people, it’s imperative to formalise your agreement

An important tool to put in place if you are purchasing property with another party, is to complete a formal co-ownership agreement.

Purchasing property in today’s market can be difficult. Especially given the property boom we have seen as a result of the COVID-19 pandemic. Often family members or friends purchase property together to make homeownership more achievable and affordable, whether it be for residential or investment purposes.

Although these types of arrangements may not cause any major disputes and in most cases friends or family can simply sort out their differences and come to a resolution if a dispute does arise, there are many instances where co-owners are unable to agree on certain issues which can cause a breakdown in relationships.

This is where a co-ownership agreement is valuable. A co-ownership agreement provides co-owners with the tools to resolve disputes effectively when they arise.

A co-ownership agreement can set out any number of terms, specific to your unique situation. The most important factors to outline and agree on before buying property with a family member or friend include:

  • Outlining each owner’s obligations in relation to the property’s expenses, such as the mortgage.
  • Confirming how the property will be used or occupied.
  • Determining how rental income may be divided and paid to each owner.
  • Understanding how the property is owned, whether that be as joint tenants or tenants in common and what will happen to the other person’s share if that person dies or becomes incapacitated.
  • Determining what will happen if your circumstances change and you need to sell your share of the property.
  • Outlining who is responsible for the management of the property.
  • Putting a contingency plan in place if someone becomes ill or cannot pay their share of the rates and other property expenses.

By entering into a co-ownership agreement, everyone is clear on what they are committing to and what their obligations are from the very start. This gives you something to reference if disputes arise, which can help you resolve issues without having to escalate the matter and fight it out in court.

Types of disputes joint property owners can engage in

Whilst there are benefits in owning property with another party, disputes can often arise very suddenly. This usually happens when there is a sudden change in circumstances of one, or both, parties.

We only need to look at the uncertainty COVID-19 brought in 2020. Many people lost their jobs or had their work hours reduced for extended periods, businesses struggled to continue to operate with restrictions in place, and relationships were put under stress due to lockdown directives. These are just a few of the sudden changes that took place and impacted many people’s lives and livelihoods.

Because we don’t always know what the future holds, we need to do our best to prepare for the unexpected. What may suit one property owner may not match the goals and aspirations of the other. This is when disputes can arise.

We often see co-owners get into disputes over the contributions being made to the property if they are disproportionate. These contributions may be towards loan repayments, property maintenance, and other expenses. Not all property owners always meet their obligations. 

The most common disputes tend to arise when one owner wants to sell the property, however the other owner/s does/do not.  

What happens when one owner wants to sell their share of the property, but the other owner does not want to?

When trying to resolve a dispute between property owners in regard to whether or not the property should be sold, the first option to explore is whether the party that does not want to sell the property has the means to buy the other owner’s share. This option should always be explored first and foremost.

If the owner who does not wish to sell the property does not have the means to buy the other share, or does not want to, the owner that wishes to sell can make an application to the Supreme Court for the appointment of a statutory trustee for the sale or partition of a property.

It is important to note that there are costs involved in making such an application and these costs are likely to increase if the application is opposed by the other property owner.

If the Supreme Court considers the application appropriate and makes the court orders, ownership of the property immediately vests with the trustee who will be appointed by the court to sell the property.

Once the property is sold, the proceeds of the sale are divided between the former owners, after payment of the trustee’s fees, real estate agents fees, auctioneers fees (if applicable) and any other legal fees.

Many people are unaware that they have this remedy available to them, and that this strategy is usually the quickest and most economical way to resolve this type of property dispute.

What happens if the court refuses the application to sell the property?

In very rare circumstances, a court may refuse the application to sell the property, however, there needs to be evidence of a prior agreement between the property owners that can be presented to the court which shows that the co-owners will not sell unless all owners agree.

An application may also be rejected by the court in family situations where one owner is providing care for another person, such as a parent looking after a child or caring for an elderly relative.

There are significant hurdles a resisting party will face in defending these types of applications, so it is important to obtain trusted legal advice if you choose to go down this path.

Attwood Marshall Lawyers can help you resolve your dispute

Jointly owned property disputes can be complex and cost you a lot of time and money and stress if you do not resolve them effectively. If you have tried to resolve the dispute with the other owner/s and are just going around in circles unable to find a resolution, then it is time to get legal advice from an experienced property dispute lawyer.

This is particularly the case if the relationship between the property owners has broken down so much that they are not willing to communicate and compromise.

Attwood Marshall Lawyers will help you understand your rights and the most appropriate course of action to take for your unique circumstances.  

While it is always recommended to seek to settle any property disputes out of court via negotiation or mediation, if this is unsuccessful, court may be the only option.

Our expert dispute resolution team use strategies and negotiation to resolve matters quickly with a view to avoiding litigation. This is the most cost-effective way forward and can reduce the stress on all involved so that everyone can move on with their lives sooner.

If you are involved in a property dispute, please contact our Department Manager, Amanda Heather, on (07) 5506 8245, email [email protected] or free call 1800 621 071 to find out where you stand.

You can visit our experienced team at any of our conveniently located offices at Robina Town Centre, Coolangatta, Kingscliff, Brisbane, Sydney or Melbourne.

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Published on 30 September, 2021