Co-ownership of Real Property
Where there is co-ownership of real property the parties will hold the property as either joint tenants or tenants in common. For purposes of the Property Law Act 1974, if there is no evidence of an intention to the contrary when purchasing a property together, the presumption is that the co-owners will hold as tenants in common. However, if there is a partnership as defined by the Partnership Act 1891, in that the co- owners are carrying on a business with a view to profits, then, the property is partnership property held in the same proportions as the partner’s interest in the partnership.
Tenants in common own specified shares of the property (equal or unequal) which are recorded on the Certificate of Title. This might be an equal share with the other owners or a defined share (e.g. half each or a quarter and three quarters). As a tenant in common, you can transfer your share to someone else. If a tenant in common dies their share of the property passes in accordance the instructions of their will. It is important to have a valid and enforceable will if you are holding property as a tenant in common.
Joint tenants each own the whole property together. Following the death of a joint tenant the share passes to the other joint tenant/s (in equal shares if more than one) automatically without reference to any intention of the deceased person. The most common use of holding as joint tenants is a husband and wife situation where upon the death of the husband or wife their interest automatically passes to the surviving party.
Change of Tenure
If you choose one particular holding over the other it is possible to alter the holding to the other form. The most common example of this is the severing of a joint tenancy in favour of a tenancy in common.
As per section 143 of the Duties Act 2001 (Qld) you will not pay duty on a transfer, or agreement to transfer, that changes the registered ownership of the property if all the following apply:
- the change is from joint tenants to tenants in common, or vice versa;
- the value of each co-owner’s interest in the property doesn’t change.
By changing from one to the other legal fees and registration costs will be incurred, however you also won’t pay duty on the transfer of an interest in your home to your spouse if all of the following apply:-
- the transfer is by way of gift (regardless of whether your spouse becomes a borrower on an existing mortgage);
- the transfer is from you to your spouse;
- after the transfer, you and your spouse will own the home as joint tenants or tenants in common in equal shares;
- the home will be your principal residence.
Corporations as Co-owners
Corporations can hold property as joint tenants as per section 34 of the Property Law Act 1974 (Qld). For the purposes of Survivorship the dissolution of the corporation is equated with the “death” of a natural person.
Can a co-owner force the sale of a property?
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 do not have the funds to buy you out, you can make an application to court seeking the appointment of a statutory trustee to sell the property regardless of whether the other co-owners agree or not, as per section 38 of the Property Law Act 1974 (Qld) (“the Act”).
There is also another historical remedy allowing for the partitioning (dividing up) of the property so that each party gets a share. Now there are rarely large blocks of land to be split and multi-storey apartments and zoning rules with minimum block sizes provide difficulties.
The process of the sale of the property and dividing up the proceeds of sale requires 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.
The usual order sought is to have a trustee appointed to oversee the sale of the property. This order is usually granted, but other factors can be considered by the court (see below) which may result in it not being granted.
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.
Opposing the application for sale of the co-owned property
The appointment of a statutory trustee can be opposed on the following grounds:-
- One of the co-owners holds the property as a trustee, and there is a written trust document dealing with the entitlement to the property – for example, a father remarries and holds property on trust for his children.
- There is a contract or agreement in place between the co-owners that stipulates how the property is to be sold. For instance, there may be an agreement requiring a notice period, or 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, for example in order to allow time to raise sufficient finance to buy out the other party’s share. A court may allow a co-owner to purchase the property without paying a deposit and may allow the purchaser to set off or account for part of the purchase money without paying it.
- Where one co-owner is estopped from making an application for sale as he or she has exhausted their share in the property and no longer has any right to claim to have an interest in the property. This may occur if a co-owner borrows a large sum against the equity in the property for his or her benefit and then does not repay that money.
- The equity of exoneration. This doctrine applies where a number of parties are registered owners of real property, but where borrowed funds secured against it are used for the benefit of only some of the owners. For instance, a co-owner (eg. The husband) gives a second mortgage against the property to start a new business; the other co-owner (the wife) has no interest in or benefit from the business. The business then fails, and the husband is declared a bankrupt. The husband’s bankruptcy trustee may seek to sell the house to pay the husband’s debt. The wife may be able to argue that only the husband should bear the burden of the debt, and she should be exonerated from it (this is not restricted to husband and wife scenarios). A recent Federal Court decision held that the court did not have the power to make an order for sale under the Bankruptcy Act 1966 (Cth) if it would destroy the interest of the co-owner who is not bankrupt.
It will depend on the factual background and evidence to be presented whether the appointment of the statutory trustee (and subsequent sale of the property) goes ahead. It make sense to consider drafting an agreement recording the co-owners’ rights and obligations to guard against the event that only one co-owner wishes to sell.