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Owning property can be expensive and the barriers to entry can be too high for many purchasers. Whether you are trying to start your journey on the property ladder or are looking to buy the perfect holiday house, buying with family or friends has become an attractive prospect for many looking to own a home.
However, relationships change, and agreements between family or friends can breakdown. There can be complications when trying to divide the shares of a property, on sale. One party may want to stay, but the other party may want to cash in their share. So, what happens when the person staying cannot or does not want to buy out the other owner’s share?
The law for the division of property
One way to avoid a dispute is by way of a Property Sharing Agreement. A Property Sharing Agreement should clearly outline the terms of your co-ownership with another party including how the property can be disposed of in future.
Without a Property Sharing Agreement , disputes can arise between co-owners. Under the Property Law Act 2007 (PLA), Sections 339 to 343 give a Court the power to intervene when co-owners cannot agree on how to divide the shares in a property. Any co-owner, mortgagee (if they are entitled to exercise their power of sale), or person holding a charging order can apply for the division of a property. There are 3 ways a Court can elect to divide property. These are:
- Order the sale of the property and the division of sale proceeds amongst the co-owners;
- Divide the property amongst the co-owners (if the property can be subdivided in accordance with the Resource Management Act 1991); or
- Require one of the co-owners to purchase the other owner’s share in the property.
A Court has wide discretion when making an order for the division of property and can consider a variety of factors including:
- The extent of the share of the property of any co-owner;
- The nature and location of the property;
- The number of other co-owners and the extent of their shares;
- The hardship that would be caused to the applicant if the order was refused in comparison to the hardship to the other co-owners if granted;
- The value of the contribution of any maintenance or improvements made by any co-owner; and
- Any other matters the court considers relevant.
How the law is applied in practice
An example of the division of land is Whimp v Bigham [2016] NZHC 1261. Mr Whimp and Ms Bigham were in a relationship for approximately 8 years and purchased a house together as tenants in common in equal shares. Ms Bigham lived in the house with her son, but Mr Whimp never moved in, although he continued to pay half the mortgage.
Mr Whimp tried to sell his share to Ms Bigham, but the negotiations came to nothing, and Mr Whimp filed with the High Court for the division of the property under section 339 of the PLA. The court found in favour of Mr Whimp and ordered a sale of the property and division of the sale proceeds. The court considered the factors under section 342 of the PLA and found Mr Whimp would suffer considerable hardship if the order for sale was not made. The facts considered included:
- Mr Whimp never lived at the property. This demonstrates exclusion from the use of his interest in the property.
- He had suffered ongoing stress due to being financially tied to a property he was not living in.
- Ms Bigham could not afford to purchase his share so his interest would never be realised without a sale.
- The property had no capital gain and had decreased in value since it was purchased, and the court suggested that the interest in the property should be realised to try avoiding additional capital loss.
The court found it would be simply unreasonable to expect Mr Whimp to continue to contribute to a property which he had obtained no benefit from and was unlikely to realise any capital gain. The sale was ordered with the balance of sale proceeds to be divided equally between Mr Whimp and Ms Bigham.
Our Comment
Buying homes with others can be a great way to start your journey on the property ladder or share a mortgage, rates and other obligations between multiple parties. However, multiple parties can have multiple interests and when those interests diverge there can be a stalemate in terms of realising an interest in the property. Having a Property Sharing Agreement which clearly outlines how a property can be disposed of can avoid lengthy and costly disputes.
Fortunately, if you do end up in a situation where you have a share in a property, but no Property Sharing Agreement was ever entered, the issue can still be resolved by a court.
If you have any questions about the division of property and the process, please get in touch with our Property Team or your usual contact at Hesketh Henry.
Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature. It should be used as a guide only and not as a substitute for obtaining legal advice. Specific legal advice should be sought where required.
