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Read This Before You Decide to Co-own Property With Family

Posted on: July 30 2020

Many happy memories are forged by families spending time together at the family home, a holiday house or the family farm.

Many well-intentioned will-makers in planning their estates envisage the next generation continuing to enjoy the benefits of family properties through co-ownership long after the parents are gone.

Given that real estate often forms the bulk of the wealth in an estate, the desire for an equal division of assets often leads to a decision to require the property to be sold or the children/beneficiaries to remain as co-owners when the Will-maker dies. Unfortunately, co-ownership of property can often lead to disputes down the track.

What is co-ownership?

Co-ownership involves a situation where you own property with others, whether as a result of inheritance or because you have decided to buy or invest with others.

Legally, there are two forms of co-ownership: ‘joint tenancy’ and ‘tenants in common’. The main feature of joint tenancy is the right of survivorship, meaning that the surviving co-owner receives the deceased person’s interest in the property by operation of law. Tenants in common can sell or leave their interest in the property via their will.

Common areas of dispute

Ownership of property is far from a passive investment.

Issues such as use, enjoyment, funding and maintenance of a property often lead to a minefield of disputes. Some common areas of disputes we’ve seen in our practice include:

  • One co-owner residing in the property, paying no rent and expecting the other co-owners to contribute equally to rates, land tax and maintenance.
  • Use of the property by all co-owners, but the maintenance, upkeep and cleaning falls unfairly to one co-owner.
  • Co-owners failing to agree on whether the property should be sold and the timing of the sale.
  • Whether or not to retain the property and develop it.
  • Who will fund the development and how.
  • None of the co-owners being in a financial position to buy-out any of the other co-owners but refusing or not cooperating in the sale.

Co-ownership agreements

Anyone wanting to invest in property jointly with a friend or family member (other than their spouse) should carefully consider entering into a co-ownership agreement. Unfortunately, co-owners of inherited do not have the opportunity to negotiate a co-ownership agreement before the ownership occurs. However, if the beneficiaries decide to continue co-ownership into the future, the benefits of a co-ownership agreement should be considered.

A co-ownership agreements is a legal agreement that sets out the rights and obligations of each co-owner of the property. A co-ownership agreement sets out the rights and obligations of each co-owner. It can cover issues like:

  • Maintenance and contribution to expenses (such as rates, land tax, capital improvements)
  • The purpose of the joint investment (e.g. to use as a holiday home or for investment or development purposes)
  • Access to the property
  • The time frame for the co-ownership to continue
  • Exit arrangements if the parties wish to cease the co-ownership
  • What happens if a co-owner gets divorced or dies
  • Dispute resolution

Resolving disputes

In the event of an ownership dispute among co-owners arising, reaching a resolution can take many forms.

Co-owners have a right to the sale or partition of the property in Victoria. A co-owner may apply to the Victorian Civil and Administrative Tribunal (VCAT) for orders.

In general, the public policy favours ‘alienability’, namely the right to freely transfer or sell property. In essence, co-owners who have fallen into dispute may seek to end their co-ownership at VCAT.[1]

Parties to a dispute should consider alternative dispute resolution procedures, such as mediation, prior to resorting to the expense and inconvenience of litigation. The benefits of a mediated resolution are that the parties can decide on an outcome themselves which leads to a greater chance of maintaining family relationships.

In general, the parties must decide:

  1. Whether one co-owner wishes to buy out the other;
  2. If so, what is the method for valuing the sale.
  3. If the property is to be sold, the method of sale (e.g. via auction) and other particulars such as which estate agent will be appointed, what the advertising budget is and what reserve will be set.
  4. Will there be any other adjustments or compensation due to a disproportionate contribution to the purchase price, mortgage payments or rent received?

If the parties cannot reach agreement, VCAT will decide for them.

Using expert property lawyers like us to help you with the legal issues of co-ownership is the best way to avoid the situation becoming overly difficult or heading to VCAT, so reach out to us and let us make it as simple as possible for you. Contact us on office@baysidewills.com.au or on 03 9592 3356.

  [1] There are some exceptions to this rule. For example, co-owned property by spouses or domestic partners falls within the jurisdiction of the Family Court.

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