Following on from Peter’s article last month concerning the appointment of a Trustee, it is pertinent to discuss co-ownership disputes arising in relation to real estate. In my insolvency practice, primarily, these co-ownership disputes relate to Trustees in bankruptcy and dealing with the sale of co-owned property in which the bankrupt’s interest in the property vests in the Trustee in bankruptcy under section 58(1) of the Bankruptcy Act 1966 (Cth) (the Bankruptcy Act). Upon bankruptcy, the joint tenancy is severed and the Trustee in bankruptcy then becomes a tenant in common with the other registered proprietor who is usually the bankrupt’s spouse. However, these practical issues in respect of co-ownership disputes are not unique to bankruptcy and the same principles apply in circumstances where property is owned as joint tenants or tenants in common and a dispute arises between the co-owners of the property for a range of reasons – family members falling out; change in persona circumstances; one co-owner moving away from the property – one co-owner may wish to sell the property and the other co-owner does not wish to sell the property.
Co-ownership disputes in respect of land (and goods which include personal chattels and fixtures severable from land) are dealt with by Part IV of the Property Law Act 1958 (Vic) (the Property Law Act). It is important to understand your rights and obligations in relation to these types of disputes and what steps can be taken, particularly where contributions have been made by a co-owner to improvements and maintenance to the co-owned property which has increased the value of the co-owned property and it may have a significant effect on the other co-owner’s interest in the co-owned property.
If there is a co-ownership dispute that cannot be resolved and orders are required to sell the land and division of the net sale proceeds between the co-owners, an application for the appropriate orders pursuant to section 228 of the Property Law Act can be made to the Victorian Civil and Administrative Tribunal (VCAT) but there is also jurisdiction for the Federal Circuit and Family Court of Australia (the Court) to determine these disputes when one of the parties is the Trustee in bankruptcy.
Pursuant to section 228 of the Property Law Act, there are various orders which VCAT or the Court may make to ensure that a just and fair sale or division of land or good occurs including the sale of the land or goods and the division of the proceeds of sale between the co-owners or the physical division of the land or goods between the co-owners or a combination of both of those options. There are various factors which will be taken into consideration, including whether the land is used for residential or business purposes and whether the land or the goods are unique or have a special value to one or more of the co-owners, but a sale of the land or goods and division of the net sale proceeds is the preferable option to be adopted. If there are circumstances that warrant the appointment or removal of Trustees for the purposes of the sale of the land, this order can be made under section 231 of the Property Law Act including the terms and conditions upon which the sale is to be carried out and the particular distribution of the net sale proceeds by the Trustees.
In respect of the sale of the co-owned property, there may be other orders which may be relevant to each particular case including that the land or goods be sold by private sale or by auction; for a private sale, the sale be at fair market price as determined by an independent valuer or for an auction, the reserve price shall be set by VCAT; an independent valuation of the land is to be conducted; the costs of the sale be met by one or more of the co-owners or from the proceeds of sale and any other necessary orders which may be required to give effect to the Transfer of Land Act 1958 (Vic) concerning the sale of the land. In circumstances where the co-owner fails to cooperate in dealing with the co-owned property and any proceedings which may be issued, the applicant co-owner may be entitled to have its costs associated with the proceedings deducted from the other co-owner’s share of the net sale proceeds (see Official Receiver v Fall & Anor  FMCA 489).
In addition, specific orders may be required to be made under section 233 of the Property Law Act in respect of compensation which may be required to be paid by one co-owner to another co-owner (see Gates v Robinson [2018[ VCAT 40; Sherwood v Sherwood  VCAT 1746). Alternatively, an accounting may be required to be undertaken where an adjustment may be applied against one of the co-owners’ interest in the property. This may occur by reason of costs incurred by a co-owner for improvements made to the co-owned property; maintenance or insurance; proportionate share of rates; and rent which may be payable by a co-owner to another