No one goes into the co-ownership of property imagining that they might finish up in a dispute with their co-owners.  However, disputes between co-owners of property can carry on for many years, becoming a significant burden on all parties involved, financially and emotionally.  If you own property with one or more others, you should consider what will happen if things do go wrong.

How can you protect your interests?

We recommend that you enter into a co-ownership agreement before the co-ownership relationship arises, though it may be implemented at any time.

A co-ownership agreement should be tailored to your individual needs.  In our experience, the following matters should be included:

1. use of the property, including mechanisms for the use of the property between co-owners and whether the property can be rented out to a third party;

2. where the property is used as a holiday house, who can use the property and at what times of the year;

3. maintenance, insurance and repair obligations;

4. apportionment of costs such as capital expenses, mortgage repayments, rates, taxes, maintenance, insurance, and repairs;

5. first right of refusal - how you buy a co-owner's share of the property and the process to obtain independent valuations;

6. what happens in the event of death or insolvency of a co-owner - for example, will the property be sold to the other original co-owner or co-owners or to a third party?  Is it appropriate for the property to be transferred pursuant to the terms of a will?;

7. who is responsible for the day to day management of the property;

8. indemnities and risk; and

9. a dispute resolution mechanism. 

Hopefully, a co-ownership agreement will eliminate the need to resort to litigation in the event of a dispute.  If not, the agreement can be relied upon if a co-owner needs to take legal action.

What happens if a dispute arises and there is no agreement between the parties?

Mediation will typically fail where there is an un-cooperative co-owner.  Whether or not the co-owners attempt to resolve a dispute via mediation, where the co-owners can't reach agreement, one or more co-owners can apply to the Court under section 66G of the Conveyancing Act 1919 (NSW), to appoint a trustee for the purposes of selling the property, subject to any encumbrances.

Once a property is sold, the trustee will deal with the proceeds of sale in accordance with the relevant Court orders.  Liabilities and costs associated with the sale of the property are paid first out of the sale proceeds (such as any mortgage, sales costs, agent's fees and the trustee's costs and expenses).  The balance of the sale proceeds will be distributed generally in accordance with the ownership interests registered on the title or as set otherwise set out in any Court orders.

How can we help?

The consequences of co-ownership of property should be carefully considered at the outset when purchasing a property as co-owners, and in estate planning, to ensure that the rights and obligations of the co-owners in respect of the property are clear and comprehensively documented.

We have extensive experience in property matters, and in particular drafting co-ownership agreements to meet your individual needs, advising testators on gifting real property in their wills and assisting clients in the event of a dispute between co-owners.

Please do not hesitate to contact Maria Poniros (Estate Planning) or Cherrie Homer (Litigation) of our office to assist you with your co-ownership arrangements.

The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

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