by John Wojtowicz (Director - Law Central Legal)

Unaffordability in the Australian property market is well documented and is a concern for people wishing to buy a home to live in or acquiring a property to invest in. Cities in the eastern states of Australia, particularly Sydney, have borne the brunt of high property prices.

It has been reported that analysis by the Housing Industry Association (March 2021 report) shows that it now takes 1.2 average incomes to service a mortgage on a typical loan.

One strategy for a person to acquire property to live in or to invest in is to acquire the property with another person. There are advantages and disadvantages in co-owning a property with another party.

The main advantage of co-ownership is that the initial outlay and ongoing costs associated with owning a property are spread amongst multiple parties, thereby reducing the financial stress on each party.

The main disadvantage to co-ownership largely revolves around legal issues pertaining to such matters as when the property should be sold, should the property be rented out, should the property be developed or upgraded and to what standard, who pays the bills etc.

The disadvantages can be largely addressed by the parties entering into a legal contract that sets out their rights and obligations relating to the property. By entering into a contract the parties lessen the likelihood of legal action being taken in the future in relation to the property as their rights and obligations are clearly set out and become binding on each party. Court action would only be necessary when one party wishes to enforce their rights under the contract.

The absence of a legal arrangement in place between co-owners of a property can result in the parties resorting to court action to resolve their differences. A common example of this is when the parties cannot agree to sell the property. State law has legislation in place to allow for one party (a co-owner) to make an application to the Supreme Court for the sale or partition of the property.

Should you have a disagreement with a fellow co-owner of a property that cannot be resolved, then, following an application under the partition laws of each State and Territory, a court may make an order for partition or sale of the property. The relevant State laws are:

• Section 66G of the Conveyancing Act 1919 (NSW);
• Section 243 of the Civil Law (Property) Act 2006 (ACT);
• Subsection 40(1) of the Law of Property Act 2000 (NT);
• Subsection 38(1) of the Property Law Act 1974 (Qld);
• Subsection 69(1) of the Law of Property Act 1936 (SA);
• Sections 3 and 7 of the Partition Act 1869 (Tas);
• Part IV of the Property Law Act 1958 (Vic); and
• Subsection 126(1) of the Property Law Act 1969 (WA).

In making an order for partition a court may usually order that the co-owners transfer their respective share to one another or have the property sold by a court appointed trustee. A court appointed trustee will follow the court orders which would normally require the trustee to sell the property and divide the net proceeds accordingly (after discharge of mortgages, costs and expenses incurred by the trustee etc) or subdivide the property and transfer the divided parts to each co-owner or implement a combination of both scenarios.

Given the options available, what is considered to be the preferred remedy to be adopted by the court - sale or partition? The case of Segal v Barel [2013] NSWCA 92 considered this issue. The NSW Court of Appeal kept away from the “preferred remedy” debate raised by the judge in first instance and focused their findings on how the statute (section 66G of the Conveyancing Act 1919) worked. Their Honours found that if one remedy is sought by an applicant – ie an order for sale and the respondent is simply resisting the application - then the issue to be decided is whether such an order should be made. The alternate remedy of partition should not be considered by the Court. Where the application is for partition of the property, then the onus is on the party who seeks the partition to prove that it is more beneficial than an order for sale.

Often co–owners may wish to borrow against the property, the subject of the co-owners agreement. Platinum members, please read our platinum section.

The Law Central Co-Owners Agreement sets out the rights and obligations of each party if a dispute arises. Legal issues covered include:

• Ways to resolve disputes;
• What share each party owns;
• When you can sell;
• Who pays the bills;
• What happens when a party dies;
• What happens if a party becomes bankrupt;
• When you can exit the agreement; and
• When you can buy the other party out.

Disclaimer: The content of this Bulletin is general information only. It is not legal advice. Law Central recommends you seek professional advice before taking any action based on the content of this Bulletin

Related documents:

• Co-owners Agreement
• Build a Company (ELodgement)
• Family Trust
• Unit Trust
• SMSF Restricted Commercial Property Assessment
• SMSF Restricted Residential Property Assessment

Related webinars:

• Webinar - Introduction to Family Trusts - the basics