When people own land jointly, co-ownership disputes can arise. In this article, we look at the different ways in which land can be owned, and what can potentially go wrong.
Co-owners may hold land as “joint tenants” or “tenants in common”. The way land is held is important because it impacts on the way the land can be dealt with and what happens after a co-owner dies.
A joint tenancy means that two or more people own land together in equal shares and each with equal rights and obligations. Importantly, when a co-owner who holds land as a joint tenant dies, his or her interest in the land automatically passes to the remaining owner/s. This is known as “survivorship”. Consequently, that share in the land cannot be given to anybody else after a co-owner dies, even under the deceased’s Will.
A tenancy in common means that the ownership in land need not be equal and co-owners are free to sell or transfer their share to another person, including under the terms of their Will.
Spouses and de facto partners often (but not always) hold land as joint tenants, whereas owning land as tenants in common is a popular arrangement between other family members, co-investors, or business entities.
What can go wrong with co-ownership of land?
Whilst there are benefits in co-owning land, disputes do arise, which can cause financial and emotional anguish.
Land disputes between co-owners are often triggered by changing circumstances, such as a relationship or business breakdown, financial stress, or the death of a co-owner. Some disputes arise simply because the owners do not understand how the interests in the land are held.
Co-owners may claim that interests held are disproportionate to contributions made, or argue over loan repayments, maintenance and other expenses, the use and development of the land and the entitlement to profits. Most often, disputes will be over when or whether to sell the land.
What remedies are available?
The following are examples of typical issues arising between co-owners and the possible remedies available. Please note that this article does not address instances of divorce or separation – if you are married or in a de facto relationship and own land with your spouse, you should seek advice from a family lawyer.
The parties wish to change the way the land is held
If a dispute involves the way in which the land is held, a joint tenancy can be severed or a tenancy in common converted into a joint tenancy.
Severing a joint tenancy effectively changes it to a tenancy in common, in shares apportioned to the parties’ contributions. Once a joint tenancy is severed, the co-owners may deal with or dispose of their individual interests as they wish.
Changing the way in which the land in Western Australia is held is done by lodging the appropriate documents with Landgate. Your lawyer should be able to assist with preparing the necessary documents and also consider any transfer duty implications.
The parties cannot agree on selling the land
The Property Law Act 1969 (WA) gives the Supreme Court power to order the sale of land (called an order for sale in lieu of partition). A partition involves a physical subdivision of land to carve it up between the co-owners in their respective shares, which, in many cases, will be undesirable or impossible because of planning restrictions. The more common order is for the land to be sold.
In ordering a sale, the Court will consider any pre-existing agreements between the parties and may order a valuation of the land, especially if the parties cannot agree on an appropriate sale price.
If the land is sold, any mortgage or other securities over the land will be repaid before distributing the balance to the co-owners. Distributions will often be in line with each co-owner’s legal share of the property, although, in some cases, a co-owner might make a claim to recoup contributions that they made over and above their legal share (such as additional mortgage payments, council rates, or improvements to the property).
A co-owner ousts another co-owner of possession of the land
All co-owners have a right to occupation of the land. If a co-owner deprives another of this right, then the aggrieved owner may be entitled to compensation.
Examples of ousting a co-owner include purposely changing locks to exclude a co-owner or instances of domestic violence against a co-owner causing that person to retreat from the land.
How do I prevent things going wrong?
You should always consider obtaining legal advice when buying land, especially as part of a business venture or investment. If buying with another person, your lawyer can assist you in deciding whether it is appropriate to hold the land as joint tenants or tenants in common.
If other purchasers (besides a spouse or de facto partner) are buying, you should consider having a land ownership agreement prepared. Ideally, this will address the following things:
- the agreed interests held,
- the agreed use of the land,
- how expenses will be apportioned,
- distribution of any profits,
- responsibility for management,
- options to purchase a co-owner’s share,
- the mechanism of sale, and
- how the proceeds of the sale will be distributed.
Co-ownership disputes are fairly common but most could be avoided (or, at least, minimised) by having a properly drafted land ownership agreement in place from the outset. Having said that, a land ownership agreement can be prepared at any time, assuming all parties can agree on the terms.
Without a land ownership agreement in place, co-ownership disputes can be very complex, time-consuming, and expensive, especially if the relationship between the parties has broken down considerably and Court proceedings are required.
If you need advice about the co-ownership of land, or you know somebody that does, please don’t hesitate to contact us.