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Selling your home when it is owned by a Family Trust

Written by Joanne Chilvers and Shukti Sharma on December 11th, 2014.

Why you need to make sure all trustees are consulted and in agreement before you sign an agreement to sell your home.
 
Written by Joanne Chilvers and Shukti Sharma on August 25th 2014.
 
The High Court has delivered two separate decisions within the last five months on the issue of whether a sale and purchase agreement is binding if the vendor is a trust and only some of the trustees have signed the agreement.  In short, can a trust commit to the sale of trust property without the unanimous consent of all the trustees?
 
WT Trustee Company Ltd v Cato and Ors[1]
 
This case concerned the sale of a couple’s home that was owned by their family trust.  The couple and a third independent trustee were the trustees of the family trust and were recorded as the registered proprietors of the property.  The property was listed for sale with a real estate agent with the agreement and knowledge of all three trustees.  Following the listing of the property, the couple and a purchaser signed an agreement for sale of the property.  The purchaser claimed he was told by the agent that the couple had authority to bind the independent trustee.  When the agreement was presented to the independent trustee for signing, he refused to sign the agreement on the basis that he considered that the offered price was lower than the market value of the property. 
 
Dong v Sun[2]
 
In this case, a property was owned by a family trust with two trustees.  The trustees of the trust decided to put the property on the market.  The property was put to auction but did not sell.  Following the auction, the purchaser made an offer to purchase the property and paid the deposit to the real estate agent.  Satisfied with the price, one of the trustees accepted the offer without any consultation with the second trustee, who had no knowledge of the price offered by the purchaser or that the agreement had been signed by the first trustee.  The second trustee made it clear that not only did she not agree to sell the property at the offered price to the purchaser, she was not even aware of the negotiations that had preceded the agreement being signed by the first trustee.  The second trustee refused to sign the agreement and ultimately both trustees subsequently sold the property to a related party.
 
Decision
 
In both cases, the Court began by noting that as a general rule, all registered proprietors of a property were required to sign an agreement for the sale of the property before there was a binding agreement in place between the vendor and purchaser.  The Court confirmed that an agreement will only come into existence when all co-owners have signed the agreement.  In cases of a trust, this means that each trustee is required to execute the agreement in order for it to be valid and binding unless there is power to the contrary conferred by the trust deed or a power of attorney under section 31 of the Trustee Act 1956.
 
Conclusion
 
When acting as a trustee of a family trust, it is important to remember that each trustee is obliged to consider the best interests of the trust before signing an agreement to sell trust assets.  The above cases make it clear that where a trust is a party to a sale and purchase agreement, then in the absence of power to the contrary being conferred by the trust deed or a power of attorney pursuant to section 31 of the Trustee Act 1956, all trustees must sign the agreement in order for there to be a binding contract. 
 
If your home is owned by a family trust, you need ensure that all the trustees, including any independent trustees, are fully consulted and in agreement with any proposal to sell the home.  Never assume that the independent trustee will blindly affirm any decision made by the rest of the trustees.
 
If you would like to know more please contact Joanne Chilvers, Senior Associate at Hesketh Henry on 09 375 8752 or email joanne.chilvers@heskethhenry.co.nz
 
 
[1] WT Trustee Company Limited v Cato & Ors [2014] NZHC 1084
[2] Xiaojie Dong v Changmin Sun & Rongjun Zhang & Yanming Wang Wang & Rongfang Zhang [2014] NZHC 208
 
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