There are dangers in contributing part of the purchase price and not being recorded as a registered owner on the title

In many ‘family arrangements’ it is not uncommon for a family member to make a cash contribution towards the purchase price for a house but not be recorded as a registered owner on the title of the property.

Unfortunately relationships can subsequently deteriorate and there may be a dispute regarding the ownership of the property. To resolve the dispute, a court is often required to determine whether the payment was a gift or whether the contributing party can claim a beneficial ownership in the property.

Resolving the dispute will depend upon the circumstances of the case.

It is important to obtain independent legal advice before entering into the proposed transaction. There are measures that can be taken to protect your position and pitfalls to be avoided.

If the transaction has already occurred, you should consider obtaining legal advice regarding what can be done to protect your position.

Dimitrijevic

In Dimitrijevic v Dimitrijevic [2014] NSWSC 863, the New South Wales Supreme Court had to resolve a dispute between a father and son.

The father was an elderly pensioner who moved to Australia in 1970. The son came to Australia in 2006 on his father’s invitation to be his carer, and on the basis that the father would ‘buy a house’ for the son.

The father owned a house in Hobart, which he sold in 2007 for $350,000.

The father proposed that he and his son (as his carer) move to Sydney to be closer to family.

The son purchased a house in Sydney for $378,000. The purchase price of $378,000 was paid by a mortgage of $100,000 taken out by the son over the Sydney property, with the balance coming from the sale proceeds from the father’s house in Hobart. The father was not registered as a co-owner of the Sydney property.

The object of the exercise was that the Sydney house would be acquired as a joint residence for both the father and son, and that the son would provide care for his father.

Unfortunately, the arrangements between the father and son were not documented. Their subsequent recollections were not readily reconcilable.

The son claimed that his father’s contribution to the purchase price of the Sydney property was an outright gift. The father claimed that he had a resulting trust for his contribution to the purchase price.

The decision

Given the differing recollections and lack of uncorroborated evidence, the Court said that it would need to consider the objective facts.

On the facts the Court held:

  • there was a common intention that the property would be purchased in the name of the son for the joint benefit of the father and son living together;
  • by providing the bulk of the purchase price, the father was providing a home for the son; and
  • the son was making a commensurate contribution to his father’s welfare by entering into the mortgage to allow the purchase to be made and by his caring for his father.

Significantly, the Court was not prepared on the facts to decide that the respective interests of the father and son should be limited to, or measured by, an arithmetical calculation of their respective financial contributions to the acquisition or their development or maintenance of the property.

The Court decided that there was a common intention that the property was to be purchased in the name of the son for the joint benefit of the father and the son and that it was intended that the property would be, equally, a home for both of them.

The Court said that it would be unconscionable for either party to be denied a half share of the property and decided that the son held the property on trust for the father and son in equal shares.

A timely warning

Although the father was successful in obtaining an order that he had a half interest in the property, Dimitrijevic is a timely warning that a contributing party should obtain independent legal advice regarding the risks of a proposed transaction before paying any money, and look into the options available to protect their interest in the property that is being purchased.

As a starting point, the best way to protect your interest as a co-owner of a property is to be registered as a co-owner on title.

Failing to be registered on title may result in your interest in the property being defeated.

In certain relationships, such as a parent and child, there may be a presumption of advancement that the parent intended to make a gift and did not intend to have any beneficial interest in the property. The presumption is rebuttable, depending upon the facts.

Given that there could be a falling out between the parties and different recollections at a later date, we stress the importance of properly documenting the terms of the arrangement, in particular what beneficial interest the contributing party will have in the ownership of the property.

The risks of the registered owner further mortgaging or dealing with the property also need to be considered and guarded against. There is also the risk that the registered owner may encounter financial difficulties at a later date and judgment creditors may seek to execute against the property.

If the registered owner goes bankrupt, the registered owner’s interest in the property will vest in the trustee in bankruptcy, causing further complications.

Even if the transaction has already occurred, you should consider obtaining legal advice as to what steps can be taken to protect your position.

If you become aware or suspect that the registered owner may be intending to deal with the property (such as further mortgaging or selling it) you should obtain legal advice. If the registered owner is in difficult financial circumstances, do not delay in obtaining advice.

You may be entitled to lodge a caveat to give notice of your interest in the property and to ‘freeze the title’, preventing the registered owner from dealing with the property.