Where two or more people own property, there needs to be complete understanding between the parties regarding their respective rights and obligations. This is particularly important when the co-owners are not married. Very often, the parties will assume they share the same views on how a property is to be maintained and whether or not it will be rented or sold.
Where these views are not expressed, misunderstandings and disagreements may arise. Property Co-Ownership Agreements are most important when the co-owners are unequal investors and / or where one of them intends to live in the property. In this article, our experienced property contract lawyers discuss your key considerations regarding Co-Ownership Agreements and buying a property with another individual.
Overview:
- Joint Tenancy vs Tenants-in-Common
- Property Co-Ownership without an agreement
- Property Co-Ownership Agreement terms
- Family law considerations
Joint Tenancy vs Tenants-in-Common
Property owned by two or more people will be held either as “Joint Tenants” or “Tenants-in-Common”.
Married or de facto couples generally prefer property to be held as joint tenants. Both parties have an equal interest in the property and, on the death of one party, the property passes to the survivor automatically by operation of law.
Property held as Tenants-in-Common allows joint ownership in equal or unequal shares. On the death of an owner, the deceased’s share is transferred in accordance with their Will. It is therefore critical for a person holding property as a Tenant-in-Common to have a valid and up to date Will. Our Wills and estate lawyers will be able to assist you in this. It is also important for co-owners to understand that after the death of the other co-owner, they will end up owning the property with the deceased’s beneficiary.
For a detailed discussion on these two forms of ownership refer to our article “Joint Tenants or Tenants-in-Common?“.
Property Co-Ownership Without an Agreement
What happens when you don’t have a Co-Ownership Agreement and one co-owner wants to sell the property but the other one doesn’t?
If all avenues of negotiation have been exhausted, a party may decide to settle the dispute through litigation. A party can commence an action in the Supreme Court of South Australia (in relation to South Australian property) requesting partition of the property into one or more parts (s69 Law of Property Act, 1936). This option is only available where the property is capable of being partitioned, for example a large block of vacant land. However, there will be situations where this is not feasible.
If a large building is occupying the property or it is not capable of being subdivided, the Court can order the sale of the property (s70 Law of Property Act, 1936).
The Supreme Court has made it clear that where one or more persons own land, with one or more wanting to sell and one or more not wanting to, there are two options: Partition of the land (s. 69 of the Law of Property Act, 1936) and sale under s. 70.
In Van der Wolff & Ors v Van der Wolff (2024), 5 brothers owned parcels of land at Aldgate. Four of the brothers wished to sell; the brother living on the properties demurred. The Supreme Court ordered that the land be sold, and citing earlier authorities, stated:
“It is rare for the Court to order partition. The Court can only order partition where it is permissible under the Planning, Development and Infrastructure Act 2016 (SA) to subdivide the land…The provisions of s 70 make it clear that the court shall direct the sale of the property unless it sees good reason to the contrary. Interstate authority in respect of equivalently worded legislation makes clear that an eligible applicant is entitled to an order for sale almost as of right. The onus is on the defendant to establish good reason to the contrary such as to persuade the Court not to order a sale. The court’s discretion pursuant to s 70 is properly described as limited. The court cannot refuse an application merely on the grounds of hardship or unfairness.”
Litigation will be costly, time-consuming and stressful. A Property Co-Ownership Agreement is likely to help co-owners avoid the expense and uncertainty associated with legal proceedings.
Property Co-Ownership Agreement Terms
A properly drafted Property Co-Ownership Agreement will establish and formalise the agreed issues. The parties then have a framework for dealing with the property which should eliminate the need to resort to litigation.
Property Co-Ownership Agreements should contain terms which address the following:
- the financial contribution of each party toward the purchase of the property;
- the division of ongoing costs (which may include mortgage repayments, rates, and maintenance such as painting and lawn mowing) and income from rent;
- whether the property will be leased and if the tenancy will be professionally managed;
- whether the co-owners can live in the property, and if so, whether they can invite others to live with them;
- the period of notice one party needs to give the other if he or she wants to sell their interest in the property;
- the price to be obtained for the sale of the property (and to this end it would be advisable to obtain a valuation from a registered valuer);
- dispute resolution procedure; and
- how the net proceeds of sale will be divided.
Family Law Considerations
If the property is owned by a married or de facto couple and the relationship has irretrievably broken down due to separation or divorce, a Property Co-Ownership Agreement may be of assistance. However, Co-Ownership Agreements do not take the place of a certified financial agreement (also known as a co-habitation or de-facto agreement) under the Family Law Act. Where the co-owners are married or in a de-facto relationship, we recommend they seek advice from a separation lawyer about the benefits of a certified financial agreement.
Conclusion
Property Co-Ownership Agreements will set out the key points for dealing with property owned by Tenants-in-Common and will reduce the likelihood of litigation between the parties.
A Co-Ownership Agreement can be prepared before or after the purchase of property and would be useful where friends, family members or business partners agree to purchase an investment property or where siblings inherit a property from a parent’s estate.
For further information or legal advice on Co-Ownership Agreements please contact our experienced property lawyers on 8362 6400 or email us at adelaide_lawyers@beger.com.au.
Our family law lawyers are also here to assist with any issues related to joint ownership of property if you’re experiencing a relationship breakdown. Join our mailing list to receive updates and advice on current issues.
People also asked:
Can I change from joint tenants to tenants in common?
Yes it is relatively straightforward to change ownership from joint tenants to tenants in common and vice versa provided that the ownership percentage as tenants in common remains at 50% each (otherwise stamp duty may apply). Conveyancing fees would apply but stamp duty should be nil.
Can one tenant terminate a Joint Tenancy?
A joint tenancy comes to an end by the death of one of the joint tenants. The ‘Rule of Survivorship operates with joint tenancies so that when one joint tenant dies their interest goes to the survivors by operation of law. The only other way that one joint tenant could terminate a joint tenancy is by Court Order.
How to resolve property boundary disputes
Property boundary disputes are best resolved by agreement after the parties have had an opportunity to consider a recent survey plan. The Encroachments Act, 1944 (SA) deals with encroachments and provides a framework for sorting out what happens if a fence or building encroaches onto someone else’s property.
