It is trite to say that a single piece of land can be owned by multiple co-owners. This may be a couple with a residential home, or business partners with the land they operate their commercial business on. The question of what happens when the co-owners are in dispute about the land can be taken for granted.
Nobody wants to be stuck with a piece of land when they cannot agree with the other co-owners what is to happen with it. Fortunately, there is a statutory remedy in section 66G of the Conveyancing Act, that allows the Supreme Court to make an order vesting the land to an independent trustee, who then sells the co-owned property for the benefit of the former co-owners. All well and good. However, what happens if the co-owners purport to contract out of section 66G? Is such an agreement enforceable, and what happens if the co-owners are in dispute and cannot rely on section 66G?
A regularly exercised discretion
Section 66G is drafted in such a way as to leave the Supreme Court with discretion as to whether to make an order. This being said, it is well established that applications will ordinarily be granted. In Sutherland v Tsaprounis, Young AJA stated that, “except in very special cases” an applicant is entitled to an order “almost as a right”. This is well grounded from a public policy perspective: one of the key features of owning property is the right to get rid of it, or alienate it. If co-owners cannot agree a deadlock may be reached, leaving everyone stuck with the property. Accordingly, the Courts will be quick to use the forced power of sale to break these deadlocks.
This begs the question, however, as to what is a “special case”. In Tory v Tory, White J of the Supreme Court of NSW stated that an application would be refused if it would be “inconsistent with a proprietary right, or contractual or fiduciary obligation”. This would suggest that if there is an express contractual covenant not to make an application pursuant to section 66G would be a “special case”, as the making of the application would be inconsistent with a contractual obligation. As stated by the unanimous Court of Appeal of NSW in Stephens v Debney, section 66G cannot be used by a party “to escape contractual obligations”.
Getting alienation right
But what of the Court’s desire to preserve the right of an owner of a property to alienate property? The High Court has held in Hall v Busst that any contract that purports to impose a total restraint upon the alienation of land is void. That is, a contract that outright prevents anyone from alienating their property would be void. However, this principle has been subject to qualifications. In Forrest v Nix, Ball J of the Supreme Court of NSW listed some of these qualifications, one of which being that the restriction on alienation must be “total or at least sufficiently extensive”. Therefore, if the contractual restrictions allow some means for alienating the property, the Courts will likely respect that agreement.
In Permanent Trustee Nominees (Canberra) Ltd v Coral Sea Resort Motel Pty Ltd, Needham J of the Supreme Court of Queensland stated that the question of whether a particular contractual restraint preventing an application under section 66G will be enforceable is a question to be “resolved on a case by case basis”. In Coral Sea Resort, the deed in question only prevented an application under section 66G for twelve months. This was held to not be sufficient to be a fetter upon alienation, and the contractual restraint was upheld. Similarly, Darke J of the Supreme Court of NSW in Capolingua v Da Silva held that a contractual precondition requiring an interest in the property to be marketed for sale for one year prior to a sale also precluded an application under section 66G until the contractual requirement had been satisfied.
Going even further, Ball J in Forrest v Nix refused to make an order under section 66G in circumstances where a deed remained on foot that stated that the parties could not sell the property in question. The deed had no express time in which the restraint from selling under section 66G expired. Accordingly, unless it was terminated, the restriction would last the parties’ entire lives. His Honour found that this was not a complete restriction on alienation as the parties’ successors (after their deaths) would have the right to alienate the property.
What appears to be critical for the enforcement of a covenant to not make an application under section 66G is there being some other means to alienate the property. As Brennan J of the High Court stated in Nullagine Investments v Western Australia Club:
“The purpose of [section 66G] is to provide a statutory mechanism for terminating the co-ownership of land when the co-owners fail themselves to agree on the manner in which the co-ownership shall be terminated… When a term bargaining away the statutory right to apply for an order for partition or sale is part of an agreement which itself provides for the termination of the tenancy in common, the bargain is consistent with the policy of [section 66G]… But where there is no agreement between or among co-owners which provides for the termination of the co-ownership or where an agreement between or among co-owners would prevent the termination of the co-ownership, it would be contrary to the policy of [section 66G] to deny the remedies they afford. To deny those remedies would be to leave the land in the hands of the co-owners who may be unable or unwilling to agree on its management and use and who have made no agreement for its disposition. To leave the land in that situation is wholly inconsistent with the policy of facilitating alienability which, in my opinion, is one of the chief purposes of [section 66G].”
From the authorities, it is clear that parties can contract out of the application of section 66G, and except in extreme circumstances where such contracting out would amount to a complete fetter on the right to alienate, and such an agreement will be enforceable. It is important to consider any contractual arrangement concerning joint property carefully. McCabe Curwood has experience in advising its clients on contractual disputes and in making applications pursuant to section 66G of the Conveyancing Act.