What do you do 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 cannot
buy you out?
In this Alert, Senior Associate Jason Down and Associate Ben
Ricketts discuss what to do if you and another party are disputing
the sale of a co-owned property, as outlined in the Property
Law Act 1974 (Qld).
Under section 38 of the Property Law Act 1974 (Qld)
(the Act), a co-owner may make an application to
court, seeking the appointment of a statutory trustee to sell a
property regardless of whether the other co-owners agree or not.
This can occur when family members or friends buy real property and
then fall into dispute (note: de-facto relationships are a separate
area of law and are not covered here).
If the co-owners cannot reach agreement on what to do with the
property, or one co-owner cannot raise enough funds to buy out the
other co-owner's share, then you can compel the sale of the
property under the Act.
The process is relatively straightforward requiring 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.
There is also another historical remedy allowing for the
partitioning of the property which is the dividing up of the
property so that each party gets a half or a third and so on. This
was applicable in days gone by where large tracts of land could
easily be split. In the modern world, with multi storey apartments
and zoning rules with minimum block sizes, this remedy is rarely
sought. Instead, seeking the sale of the property and dividing up
the proceeds of sale is the most common step taken.
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.
Traditionally, a section 38 application is very difficult to
oppose and usually the court will grant the appointment of the
statutory trustee, which will then allow the sale of the property.
However the following grounds provide bases for opposing the
appointment of a statutory trustee:
One of the co-owners holds the property as a trustee as
evidenced by a written trust document dealing with the entitlement
to the property. For instance, a father may remarry and hold
property on trust for his children.
There is a contract or agreement in place between the co-owners
that deals with how the property is to be sold. For instance, there
may be an agreement 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 (in order to allow time to raise
sufficient finance to buy out the other party's share).
An estoppel argument that one co-owner has exhausted their
share in the property and no longer has any right to claim to have
an interest in the property. That is, a co-owner draws a large
amount of money out against the property for their own benefit and
then does not repay that money.
The equity of exoneration. For instance, a co-owner
(husband/partner) gives a second mortgage against the property to
start a new business; the other co-owners have no interest in or
benefit from the business. The business then fails, and he is
declared a bankrupt. The husband's bankruptcy trustee may seek
to sell the house to pay the husband's debt. The remaining
owners may be able to argue that only the husband should bear the
burden of the debt, and they should be exonerated from it (this is
not restricted to husband and wife scenarios).
In any case there can be no guarantee that the appointment of
the statutory trustee (and subsequent sale of the property) will
not go ahead. Much depends on the factual background and evidence
to be presented.
If you are considering buying real property with others, you
should give consideration to what is to happen should the
relationship sour or one co-owner wants to sell. A properly drafted
agreement recording the co-owners' rights and obligations could
potentially save a lot of long term difficulties. Equally, if you
require advice in respect of forcing the sale of your co-owned
property, or defending a s38 Application that has been served upon
you (meaning you need to act quickly) then do not hesitate to
contact HopgoodGanim's office.
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