The importance of having a co-ownership agreement

Wednesday, 22 Aug 2018

If you have purchased a property with someone else, it is likely that you’ve at least had an initial chat about sharing the costs of owning the property – but have you discussed what happens if one of the co-owners wants to sell their interest in the property?  Or worse still, if one of the co-owners dies?

These issues can be dealt with in a co-ownership agreement.  Not only will the agreement set down in writing exactly what has already been agreed to between the parties, but the whole process of drafting the agreement will flag a number of other issues to be discussed and agreed upon – for example, if an owner wants to sell their interest in the property, do they have to offer it to the other co-owners first?  Or to one particular co-owner, in preference to the other co-owner(s)?  Who will be responsible for repairs and maintenance?  Will a handyman be engaged, or will all of the co-owners need to attend a “working bee” twice a year?

Recent dispute between co-owners

The Supreme Court of New South Wales recently considered a matter involving a dispute between co-owners of a property at Werrington County (near Penrith): Leasi v Fono [2018] NSWSC 1280

Back in August 2017, the Fonos expressed an interest in purchasing the Leasis’ interest in the property.  The parties attempted to reach agreement regarding the price to be paid by the Fonos to the Leasis, but without success.

The Leasis then commenced the court proceedings, seeking an order for the appointment of a trustee for the sale of the property (pursuant to section 66G of the Conveyancing Act 1919 (NSW)).  Under section 66G, once the property is sold, the net proceeds of sale are held in trust by the trustee appointed, and then distributed between the parties in accordance with the Court’s orders.

In this case, shortly after the proceedings were commenced, the parties reached agreement to appoint a trustee for sale, but there was the remaining issue as to who would be responsible for the costs of the court proceedings.

Each party’s position

The Leasis sought an order that their costs be paid out of the Fonos’ share of the property, on an indemnity basis – this means that all of the costs incurred by the .  The Leasis claimed that the Fonos unreasonably withheld their consent to the sale of the property, effectively forcing the Leasis to commence the court proceecdings.

The Fonos however argued that each party should pay its own costs, claiming that the Leasis failed to negotiate to put the property on the market before commencing proceedings, and that the proceedings were conducted wastefully.

The Court held …

The Court acknowledged that the right course of action for co-owners who cannot agree on a suitable regime for the sale of the property was to approach the Court for such orders.  The Court noted that usually, the costs incurred by each party come out of the net proceeds of sale.  However in this instance, the Court noted that the Leasis extensive evidence, which provided a “lengthy and detailed account of the circumstances of the plaintiffs’ falling out with the defendants” was “unnecessary and unreasonable”.  Accordingly, the Court ordered that each party pay for its own costs of the court proceedings.

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If you are thinking about purchasing a property with another person or people, or even if you already own a property with others, then you should consider entering into a co-ownership agreement - it may avoid expensive and extensive litigation down the track if a dispute arises.  Contact the team at Shire Legal if you have any questions about owning property.



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