What do you do if you own real property as a joint tenant or tenant in common with another party and wish to sell your share in the property, but the other owners do not wish to sell or cannot buy you out?
In this Alert, Senior Associate Jason Down and Associate Ben Ricketts discuss what to do if you and another party are disputing the sale of a co-owned property, as outlined in the Property Law Act 1974 (Qld).
Under section 38 of the Property Law Act 1974 (Qld) (the Act), a co-owner may make an application to court, seeking the appointment of a statutory trustee to sell a property regardless of whether the other co-owners agree or not. This can occur when family members or friends buy real property and then fall into dispute (note: de-facto relationships are a separate area of law and are not covered here).
If the co-owners cannot reach agreement on what to do with the property, or one co-owner cannot raise enough funds to buy out the other co-owner’s share, then you can compel the sale of the property under the Act.
The process is relatively straightforward requiring an application to the court supported by affidavit evidence and the consent of a statutory trustee. Usually statutory trustees will be solicitors (or accountants) who will act to sell the property.
There is also another historical remedy allowing for the partitioning of the property which is the dividing up of the property so that each party gets a half or a third and so on. This was applicable in days gone by where large tracts of land could easily be split. In the modern world, with multi storey apartments and zoning rules with minimum block sizes, this remedy is rarely sought. Instead, seeking the sale of the property and dividing up the proceeds of sale is the most common step taken.
Once appointed, the statutory trustees can sell the property either by auction or private treaty. A real estate agent may be appointed to sell the property. Once sold any parties owed funds will be paid from the proceeds of sale (i.e. mortgagees, solicitor’s fees and real estate agent’s commission). Any funds left over will then be divided between the co-owners in proportion of their ownership.
Traditionally, a section 38 application is very difficult to oppose and usually the court will grant the appointment of the statutory trustee, which will then allow the sale of the property. However the following grounds provide bases for opposing the appointment of a statutory trustee:
- One of the co-owners holds the property as a trustee as evidenced by a written trust document dealing with the entitlement to the property. For instance, a father may remarry and hold property on trust for his children.
- There is a contract or agreement in place between the co-owners that deals with how the property is to be sold. For instance, there may be an agreement giving a co-owner a first right of refusal, or requiring a certain period of time, i.e. 12 months to pass before the property can be sold (in order to allow time to raise sufficient finance to buy out the other party’s share).
- An estoppel argument that one co-owner has exhausted their share in the property and no longer has any right to claim to have an interest in the property. That is, a co-owner draws a large amount of money out against the property for their own benefit and then does not repay that money.
- The equity of exoneration. For instance, a co-owner (husband/partner) gives a second mortgage against the property to start a new business; the other co-owners have no interest in or benefit from the business. The business then fails, and he is declared a bankrupt. The husband’s bankruptcy trustee may seek to sell the house to pay the husband’s debt. The remaining owners may be able to argue that only the husband should bear the burden of the debt, and they should be exonerated from it (this is not restricted to husband and wife scenarios).
In any case there can be no guarantee that the appointment of the statutory trustee (and subsequent sale of the property) will not go ahead. Much depends on the factual background and evidence to be presented.
If you are considering buying real property with others, you should give consideration to what is to happen should the relationship sour or one co-owner wants to sell. A properly drafted agreement recording the co-owners’ rights and obligations could potentially save a lot of long term difficulties.