Section 38 of the Property Law Act
When buying property, a range of factors needs to be considered before signing a contract. Some factors may seem more obvious than others such as price and location, but the future of the property is a factor easily overlooked. If you are buying a property with another person, you are becoming a co-owner in a property, and some factors may not be considered until a breakdown in the relationship.
If your relationship with your co-owner breaks down, you might find yourself between a rock and hard place when it comes to selling the property. In the usual instance, when a relationship breaks down between co-owners, the property is sold, and the proceeds distributed accordingly. But what happens when one co-owner wants to hold onto the property and the other wants to sell?
Where any property (other than chattels personal) is held in co-ownership the court may, on the application of any 1 or more of the co-owners, and despite any other Act, appoint trustees of the property and vest the same in such trustees, subject to encumbrances affecting the entirety, but free from encumbrances affecting any undivided shares, to be held by them on the statutory trust for sale or on the statutory trust for partition.Under section 38(1) of Property Law Act 1974 (Qld) (the PLA)
Therefore, should one co-owner want to sell, they may file an application to the court under section 38 of the PLA seeking an order for the property to be sold. Though there is no defence against an application, the court has the discretion to refuse an order under the appropriate circumstances. In the case of Re Bolous, the parties had bought a property jointly which they used to build a commercial shed and operate a motor trimmer business during their marriage. The marriage broke down and an application was filed by the wife.
In the application, the parties admitted there was a partnership agreement. Ryan J pointed out the clauses regarding the distribution of assets in the event of the partnership dissolving, stating that “an authorisation for the sale of the property would or at least could be inconsistent with the rights of the parties under the partnership agreement.” Therefore, no order was made by Ryan J, and the application was dismissed.
But what happens in the instance that there is no partnership agreement? Can any co-owner to a property file an application under section 38 of the PLA?
Who can apply?
A person considered to be a co-owner under the PLA can make an application under section 38, no matter the size of their interest. A “co-owner” is defined as a joint tenant or tenant in common. Joint tenants own the property jointly, and should a tenant die, the property title automatically transfers to the surviving tenant. Tenants in common own a share in the property, and should a tenant die, the deceased’s share of the property is distributed according to their will.
In the case of Clayton v Clayton, the formerly married parties bought a property in Holland Park with the help of the applicant’s mother-in-law. The property was later sold to buy a property in Riverhills. After the parties divorced, the Riverhills property became the subject of the application.
To help the parties buy the Holland Park property, the applicant’s mother-in-law contributed $200,000 on the conditions that the money be repaid and that she was offered a right to live at the property. However, the mother-in-law received only $13,000 upon the Holland Park property being sold. In the material submitted by the applicant, the issue of the mother-in-law receiving a financial benefit (upon the sale) was disputed. This was due to the mother-in-law living at the Holland Park property then the Riverhills property, without contributing to the outgoings of either.
Samios J stated that the mother-in-law may have an interest in the proceeds of sale of the Riverhills property, and therefore refused to make an order without hearing from her. The matter was adjourned until a later date and the parties were encouraged to find a solution before returning to court.
In the case of Coshott v Prentice, a co-owner to a property was subsequently made bankrupt, requiring the court to consider the implications of bankruptcy on the interests in the property. The Conveyancing Act 1919 (NSW), Bankruptcy Act 1966 (Cth) and Judiciary Act 1903 (Cth) all came into play when decisions had to be made about co-ownership, the appointment of a trustee in bankruptcy, and court jurisdiction.
The two cases above demonstrate that an application made under section 38 of the PLA requires careful consideration for a swift and favorable outcome, because it may not always be as simple as it appears on face value.
What to consider
When drafting an application under section 38 of the PLA, it is important to consider the interests of the parties and the necessary terms of the trust to ensure a beneficial outcome without delay and any unexpected costs.
Costs need to be considered before the process begins. If the application is not drafted with due care, the costs of the trustee may exceed expectations, which has the effect of diluting the proceeds of sale between the parties. Should the trustee be able to complete their role with less work, then the parties will reap the benefit of a greater balance of proceeds.
It is imperative the trustee can operate freely, so when drafting the application, it is important to exclude anything which may cause an issue for the parties involved, such as a fixed sale price or disproportionate contributions to property costs.
A fixed sale price can delay a sale as well as result in the terms of the trust being varied, which in turn can cause further expenses to the parties.
An imbalance of contributions to property costs by the parties can derail the proceedings by giving one party an advantage over the other. If one party assumes responsibility for the costs of property maintenance and repair, as well as costs of the appointed trustee, the other party may have unreasonable expectations of the trustee. An example may be the replacement of an old kitchen sink or garage door to attract a higher sale when the property is sold. In this instance, the unreasonable party may continue to demand alterations, knowing that the other party is paying the trustee’s costs, which in turn can make the dispute longer and more expensive.
As outlined above, it is normal for home buyers to forget factors which are not at the forefront of buying a property. When considering an application under section 38 of the PLA, it is important to consult a legal practitioner to ensure all factors are clearly explained, ensuring an efficient result without undue delay or unexpected costs.
If you have any questions related to this article or would like to query the cost and process of an application, please do not hesitate to contact Gibbs Wright Litigation Lawyers.