As we have explained in one of our previous blogs, it is possible for two or more people to own real estate as joint tenants or tenants common.
Joint tenants are said to own land jointly and equally to the extent that if one of the joint tenants dies, the other joint tenant is entitled to the whole of the estate and interest in the land, by what lawyers call a “right of survivorship”.
Tenants in common are said to own a designated share in land, which may be equal or not equal. No “right of survivorship” applies, which means that when a tenant in common dies, their share does not necessarily go the other tenant in common; rather it goes to whoever they nominate in their will.
As often happens in life, especially when families, business partners and valuable assets such as land are concerned, disputes can arise between co-owners of real estate.
We have seen all manner of disputes over the years in our practice and have been called upon to find the best and most cost-effective solutions possible to often very difficult situations.
Here are what we consider to be the top 10 most important things you should know if you find yourself in this type of conflict:
- If you own a property as a joint tenant with another person (for example, a spouse or child) and do not want your joint interest to automatically pass to the other joint tenant on your death, then it is possible to get around this by severing the tenancy, which involves changing the “mode of holding” of the property. This is done by signing a Memorandum of Transfer and can potentially be done without the knowledge of the other joint tenant.
- If you are going to purchase a property with another person, and your respective contributions to the property are not equal (for example, you put in 75% of the money towards the acquisition of the property and your friend is putting in 25%), then it is probably wise to put the property in your respective names as tenants in common (ie “75 hundredth parts” in your name and “35 hundredth parts” in the other tenant in common’s name). This will most likely save a lot of argument later on if there is a dispute about the value of the respective interests of each party.
- It is probably a good idea to take things a few steps further by signing a co-ownership agreement, usually in the form of a Deed (a formal, written agreement) setting out the terms of the co-ownership, for example, how rates and taxes are to be paid, who keeps what records in relation to the property, and perhaps most importantly, dispute resolution procedures to minimise ongoing conflict and litigation, and to ensure the orderly sale or transfer of the property when co-ownership is no longer tenable. It is best to seek our assistance in relation to the preparation of such a Deed, because a written agreement that is poorly worded or ambiguous may not be enforceable.
- Whether you are a joint tenant or a tenant in common, if the property is owned subject to a mortgage, the owners will invariably be jointly and severally liable to the mortgagee under the terms of the mortgage. It is therefore possible for you to own 1% of the land, yet be separately, indeed in effect wholly, liable for the mortgage debt if the property is sold by mortgagee sale and there is a shortfall.
- Joint tenancies and tenancies in common identify legal interests in land but it is possible for one joint tenant or tenant in common to argue that they have made special contributions to the property which entitles them to a greater share in the property than is signified by the manner in which they hold the property. The civil Courts may determine that a joint owner has an equitable interest in land over and above their legal interest. For example, it is possible for a tenant in common to claim that the other tenant in common holds their interest in the land on trust for them.
- If you are a joint tenant, there is usually no need to protect your interest in the property by lodging a caveat. However, if you are a tenant in common, and you are concerned about the ability of the other tenant in common to deal with or encumber their interest in the land, over which you claim to have some equitable interest, then it is possible to lodge a caveat over the interest of the other tenant in common.
- It is of course possible for a tenant in common to gift their interest in the land to the other tenant in common during their lifetime (called an “inter vivos” gift) or upon their death pursuant to the terms of their will. It is also possible for a person to give the other tenant in common a right to occupy their share of the property for a finite period, or a “life estate” in the property which entitles the other tenant in common the right to use and enjoy the property as their own until they die. Disputes can arise between tenants in common, and their respective families, about the terms of such gifts, so it is best to seek our advice first before making any commitments in this regard.
- It is possible for a joint tenant or tenant in common to sell or dispose of their respective interests in the property. If you want to sell and the other joint tenant does not want to sell, then the other joint tenant may be forced to buy your interest out, usually by agreement between the parties as to the value of your share, or after a market valuation is obtained. The same applies to tenants in common. Agreed transfers between co-owners can usually be achieved by negotiation after legal notice has been given. It is also possible for one party to be forced by Court Order to sell to another co-owner of the other party who is interested in purchasing the co-owner’s share. It is best to use our skill and expertise if you are faced with this problem. It is also important to remember that stamp duty will need to be paid on the market value of the share being transferred, or the price paid for that share, whichever is the higher.
- If it is not possible for one co-owner to buy out the other co-owner, the parties will need to sell the land by agreement. If there is no agreement in this regard, for example if neither co-owner is ready, willing and able to buy out the other co-owner, then an application can be made to the Supreme Court of South Australia for an order for “partition” and sale of the property.
- A “partition” involves the Court apportioning shares to the property between the parties which may be different to their designated legal shares as set out on the title and the sale of the property can involve various orders including listing of the property on the market usually by public auction. The Supreme Court has the power, and can be asked to make, various orders adjusting the shares of the parties in the distribution of the net proceeds of sale of the land after taking into account any mortgage loan that is due to be paid, the costs of sale and any outstanding rates and taxes. It is important to know that stamp duty does not apply in relation to any order for partition and sale of land.
With housing affordability becoming harder and harder in Australia, the number of properties with multiple owners is set to rise in the future. It is best to seek our advice before you commit to buying a property with another person who is not your spouse, and we certainly advocate entering into a co-ownership agreement.
Where there is no such agreement, and a dispute arises, which you feel cannot be resolved, then it is absolutely vital that you contact us for advice and assistance. We have managed to negotiate most of our clients’ property disputes without stepping foot in Court, and will be able to assist you if Court intervention is unavoidable.