January 19 2010

Disputes Between Co-Owners of Land and the Property Law Act 2007

If there is no formal agreement co-owners of real estate sometimes find themselves in dispute on a variety of issues relating to their joint venture property.

The underlying relationship between them will, prior to purchase, generally determine whether or not a co-ownership agreement is formalised. This article is not aimed the consequences of the breakdown of a relationship between co-owners whose rights fall under the Property (Relationships) Act 2006.

Before acquiring a property, co-owners should address the need to have a formal agreement to record variously their respective contributions, the duration of the joint venture, whether or not a sunset clause is appropriate, and how one of several co-owners wishing to exit the property early is to be paid. Prior consideration of such issues will relieve future uncertainty. Disputes between co-owners who do not have a formal agreement will often need to work within the Property Law Act provision where one or more seeks the court’s assistance in terms of a partition or sale of the property.

Old legislation

Broadly speaking, under the now repealed 1952 Property Law Act a co-owner wanting a partition was on the face of it entitled to this, and the court had only two choices: partition or sale.

If the court did not order a sale it had to order partition. Furthermore, where people owning an undivided half share (or more) in land applied to the court for an order for sale of all the land, the court was bound to grant that order unless evidence from the remaining co-owners demonstrated good cause.

Property Law Act 2007

In the new legislation the position is now broader under the corresponding provisions (ss339-343) of the Property Law Act 2007. Essentially, the court may now:

  • Order a sale or partition
  • Refuse a sale or a partition, or
  • Compel one or more of the co-owners to buy the share of the other co-owners at a fair price.

There are consequential orders (fixing of price, compensation and so on) available under s343 where one of the three central outcomes noted above is granted.

In reaching its decision the court must take into account the following:

  • The extent of the applicant’s share in the property
  • The nature and location of the property
  • The number of other co-owners and the extent of their shares
  • The hardship to the applicant arising from a refusal of the order, compared with the hardship to any other person arising from making of the order
  • The value of any contribution made by a co-owner to the property, and
  • Other matters the court considers relevant.

In a High Court decision on the new provision, Holster v Grafton¹, the judge was not prepared to compel the owner of an undivided 1/6th share in a property to sell that share against her wishes to other family co-owners from whom she had become estranged. The judge further observed that such a request should rarely be granted.

What was particularly noteworthy about the Holster decision was the judge’s unwillingness to avail himself of any of the remedial options available, even after taking into consideration all the factors referred to earlier in this article and in particular, the ‘hardship’ criteria. The judge’s reasoning was that the legislation requires a careful balance between resolving conflicts fairly on the one hand and undermining property rights on the other hand. On these particular facts, there was insufficient hardship to justify forcing one of the minority owners to sell their share in the properly against their wishes.

As with all new legislation, there is a settling-in period and it is not until the new provisions have been thoroughly tested in the courts on a number of occasions that outcomes become more predictable.

Holster won’t be the last word on the subject.

¹ High Court, Christchurch, CIV 2006-409-001982