How can a co-owner force the sale of a property?
It is becoming increasingly more common for relatives and friends to purchase real property together in order to gain entry into the property market because they would otherwise not have the financial resources to purchase the property on their own.
However, disputes can arise when one party wants to sell their share of the property but the other owners do not wish to sell or one party cannot “buy out” the other parties.
Under section 38 of the Property Law Act 1974 (Qld) (the Act), a co-owner may make an application to court, seeking the appointment of a statutory trustee to sell a property regardless of whether the other co-owners agree or not. This can occur when family members or friends buy real property together and then fall into dispute (please note this does not cover matrimonial property settlements which are dealt with under the Family Law Act).
If the co-owners cannot reach agreement on what to do with the property, or one co-owner cannot raise enough funds to buy out the other co-owner’s share, then you can compel the sale of the property under the Act.
The process is relatively straightforward and requires an application to the court supported by affidavit evidence and the consent of a statutory trustee. Usually statutory trustees will be solicitors or accountants who will act to sell the property.
Once appointed, the statutory trustees can sell the property either by auction or private treaty. The statutory trustee will undertake research to determine the market value of the property and decide on the best method of sale to be utilised to gain the best price for the property at the time. A real estate agent may also be appointed to sell the property.
Once sold, any parties owed funds will be paid from the proceeds of sale (i.e. mortgagees, solicitor’s fees and real estate agent’s commission). Any funds left over will then be divided between the co-owners in proportion of their ownership.
What happens if one co-owner is residing in the property and won’t leave?
Often in the cases of co-ownership, one owner resides at the property in question and is the party refusing to sell, given the disruption it would cause for them to vacate the property.
In the event that this party disputes the sale and refuses to vacate the property, the statutory trustee, once appointed, will obtain an order for possession of the property from the court. The statutory trustee will then serve this order on the owner residing at the property, giving them a timeframe in which the property is to be sold.
If this party still refuses to leave the property, the statutory trustee will then obtain a warrant for possession and a bailiff will remove the person from the property (and will then be left to clear their belongings before the property is placed on the market).
Can the appointment of the statutory trustee be disputed?
A section 38 application for the appointment for a statutory trustee is very difficult to oppose and usually the court will grant the appointment of the statutory trustee, which will then allow the sale of the property.
However the following grounds provide bases for opposing the appointment of a statutory trustee:
- One of the co-owners holds the property in their capacity as a trustee as evidenced by a written trust document dealing proving the entitlement to the property. For example, a person may remarry and hold the property on trust for their children.
- If there is an agreement in place between the co-owners that deals with how the property is to be sold in the future. For example, there may be an agreement giving a co-owner a first right of refusal, or requiring a certain period of time, i.e. 12 months to pass before the property can be sold (in order to allow time to raise sufficient finance to buy out the other party’s share).
- The argument that one co-owner has exhausted their share in the property and no longer has any right to claim to have an interest in the property. For example, is a co-owner takes out a mortgage against the property for their own benefit and then does not repay that money.
- The equity of exoneration – for example, a first co-owner takes out a second mortgage against the property to start a new business; the other co-owners have no interest in or benefit from the business. The business then fails, and the first co-owner is declared a bankrupt. That co-owner’s bankruptcy trustee may seek to sell the house to pay the debt. The remaining owners may be able to argue that only the first co-owner should bear the burden of the debt, and they should be exonerated from it.
In any case there can be no guarantee that the appointment of the statutory trustee (and subsequent sale of the property) will not go ahead. Much depends on the factual background and evidence to be presented, however these applications are almost impossible to defend.
If you are considering buying real property with others, you should give consideration to what is to happen should the relationship sour or one co-owner wants to sell. A properly drafted agreement recording the co-owners’ rights and obligations could potentially save a lot of long term difficulties.
If you require advice in respect of forcing the sale of your co-owned property, or defending a s38 Application for the appointment of a statutory trustee that has been served upon you, please contact us.