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Co-ownership disputes

Co-ownership disputes

By Philip Barton

Dispute Resolution Real Property 

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Cases since the 2005 reforms to the law of co-ownership have helped to clarify central concepts.

Snapshot:

  • This article considers the law on sale or division of co-owned property, found in the Property Law Act 1958 Part IV, significantly reformed in 2005.
  • Decisions primarily of VCAT have clarified when relief will be granted, discretionary bars to relief, and the scope of VCAT's jurisdiction.
  • The law on when sale, as opposed to physical division, will be ordered has been developed, as have VCAT’s powers to order accounting, compensation, reimbursement or adjustment of proprietary interests between co-owners.

The right of a co-owner to sale or partition is statutory, found in the Property Law Act 19581 Part IV. In 2005 the substantive law was significantly reformed. It is now opportune to consider the first decade of operation of the new legislation.

Central concepts

A co-owner, defined as someone with an interest in land or goods2 with one or more other persons as joint tenants or tenants in common (s222), may apply to the Victorian Civil and Administrative Tribunal (VCAT) for an order for sale and division of proceeds or physical division or a combination of both (s225(1) and (2)). No particular matters are specified as requiring proof for the grant of any form of relief, nor are any particular matters nominated as defences.3 Part IV has been said to be part of general legal policy favouring alienability, embodying a principle of, in the words of Deputy President Michael Macnamara, “no fault divorce” for co-ownership.4 Equitable and legal co-owners are covered by the legislation.5 VCAT’s jurisdiction is wide but does not, for example, cover a claim for damages unrelated to land6 or concerning an executor’s performance.7

The Supreme and County Courts only have jurisdiction if, broadly speaking, the property is involved in proceedings between domestic partners, testator's family maintenance proceedings or partnership proceedings (s234C(1) and (2))8 or the issue of co-ownership arises in a court proceeding (s234C(4)(a)) or the subject matter is complex or at least a substantial part of the matter is outside VCAT’s jurisdiction (s234C4(b)(5)).9

Grounds for refusing an order – general

The jurisdictional requirement for an order is an application by a co-owner for an order in respect of land or goods.10 Nonetheless, the power to make an order may be declined if inconsistent with some proprietary right or some contractual or fiduciary obligation,11 eg, a binding agreement entitling a party to occupation or an estoppel to this effect12 or an existing contract of sale.13 Not inconsistent are a mortgage, charge or other form of security,14 or arguably a contractual provision requiring that the interest of a tenant in common be first offered to the other.15 There is no general discretion to refuse an application on grounds of hardship or unfairness, eg, that no equity will remain after discharge of encumbrances.16 If the applicant holds no equitable interest this may affect whether any order for sale and/or division will be made or at least its form.17

Grounds for refusing an order – trust

A proprietary interest commonly raised as being inconsistent with sale or division is the interest of a beneficiary under a trust, less commonly under a common intention constructive trust,18 more commonly under a purchase money resulting trust or a trust based on Muschinski v Dodds.19 An example of a resulting trust is Michell v Winch20 where money paid by a couple (the Johnsons) for land, of which they became registered in equal shares with their daughter and son in law, was traced through to give Mrs Johnson an interest in subsequently acquired property.

A Muschinski v Dodds trust broadly arises where a joint relationship or endeavour is removed without attributable blame, and the benefit of a contribution to it would be unconscionably enjoyed by the other party in unintended circumstances. Therefore, in Lyle v Lyle21 a joint family endeavour was held to exist to provide for the retirement of parents on a rural property, to which the parents with the knowledge of their children contributed both by alienating a part interest in the land to their children and otherwise improving it. An application by one child for an order for sale was dismissed on the ground that the joint endeavour had, due to family estrangement, failed without blame, and a sale in the widow’s lifetime would be unconscionable, she having the benefit of a constructive trust giving the right to remain for life. Examples of applications for sale being thwarted by Muschinski v Dodds trusts imposed in breakdowns of domestic relationships are Trakas v Aravopoulos22 and Ngatoko v Giannopoulos.23 In the former case the joint endeavour was to provide a suitable residence for domestic partners, with the applicant contributing equally financially, which failed when he vacated without financial contribution. In the latter case the joint endeavour was between brothers in law to buy a house and land package for their families to reside in, financed by a mortgage, which failed when one party did not move in or make substantial payment. However, in Gates v Robinson24 Senior Member Vassie rejected a trust argument on the grounds that the joint endeavour of holding the land as an investment property did not break down but was altered by one co-owner permitting the other to occupy the land herself and the non-resident did not then act unconscionably by not thereafter contributing equally financially, which inequality could be otherwise compensated for.

Sale and/or physical division

VCAT may make any order to ensure a just and fair sale or division and without limiting its powers may order sale and the division of proceeds (s228(2)(a)) and/or physical division (s228(2)(b) and (c)), including on the application of a co-owner with a small interest.25 If VCAT determines to make an order under s228(2), the order must be for sale, by a choice of methods (s232), unless it considers an order for sale and physical division or for physical division alone more just and fair (s229(1)). Without limiting what it may consider, VCAT, in determining justness and fairness (but not whether relief should be given at all),26 must take into account:

  • use
  • whether physical division is possible and practicable
  • any particular links with or attachment to the land or goods, including whether they are unique or have a special value (ie, value to the owner above market value)27 to any co-owner (s229(2)).

Justness and fairness is not determined by applying instinctive justice but in a manner best according with the legitimate rights and interests of each party.28 An example of a dispute between two groups of co-owners – one favouring sale, the other physical division – is Keam v Mason.29 Sale was ordered particularly because the highest and best use was residential subdivision and, although the land could be subdivided, there was insufficient evidence that this could be done in proportion to each co-owner’s fractional interest.

Physical division may be into parcels or shares differing from original entitlements, with compensation (s230), and if the honours are even as to who gets which piece of land the outcome may be determined by the drawing of lots or toss of a coin.30 Farmland may be divided in favour of the person better equipped to farm it, with compensation.31 In Binns v Binns32 a one-third owner was ordered to transfer his share to his co-owner for one-third of the land’s market value because it accorded with the wishes of their father under whose will they had taken, the applicant had solely borne outgoings, costs of sale were avoided, and VCAT found they would not cooperate in an auction process.

Accounting, compensation, reimbursement and adjustment – general

VCAT is widely empowered to order accounting, compensation, reimbursement or (to take account of amounts payable between them during co-ownership) adjustment of proprietary interests (ie ss28A, 233 and 234). It must take into account reasonable expenditure on improvement, reasonable maintenance and insurance costs, disproportionate payment of certain listed and other outgoings, and damage from unreasonable use (s233(2)(a)-(d)). An amount equivalent to rent is payable if an occupying co-owner is seeking compensation etc, or the other co-owner has been excluded or has suffered a detriment because of impracticability of occupying the land with the other co-owner (s233(2)(e)-(f), (3) and (4)).

Adjustment and compensation

An adjustment eliminating a co-owner’s interest may occur where a trust is established33 or a co-owner has made no or little contribution.34 The subtlety involved in weighing factors is demonstrated by Protyniak v Henry (Protyniak).35 Although a daughter’s monetary contributions exceeded her share in land co-owned with her parents, she had also resided there and belatedly opposed an order for sale. An adjustment of interests in her favour was rejected based on considerations “which ultimately boiled down to her having conducted herself badly as regards her parents despite the very large assistance which they gave her and to her having had the exclusive enjoyment . . .”36 A list of sundry adjustments or orders for payment includes:

  • adjustment due to disproportionate contribution to purchase price and mortgage repayments, and an order for repayment of rent received37
  • adjustment securing part of a mortgage debt solely over one party’s interest38
  • compensation for loss of a chance for sale at a higher price39
  • payment of the equivalent of statutory interest on contribution ordered.40

An adjustment must relate to the position of the parties as co-owners41 and accordingly an extraneous debt will be excluded.42 It is unnecessary that a party’s expenditure increase the value of the land.43

Works

In Venn v Saward44 VCAT held that expenditure on works without a co-owner’s consent or adoption of their benefit would be unrecoverable at common law but might be recoverable under s233 if just and fair. In Sigal v Astakhov (Sigal)45 VCAT held that “reasonably spent” (s233(2)(a)) and “reasonably incurred” (s233(2)(b)) did not cover a co-owner’s own labour. In both cases the claim for expenditure was rejected on grounds including unreasonableness because no improvement had been achieved. In Sigal VCAT also held that any authority to do works on behalf of the other co-owner necessarily ended when the parties fell out.

Rent

Rental claims triggered by s233(3)­(a) (the occupying co-owner seeking compensation etc) are common but claims triggered by s233(2)(b) (exclusion)46 or detriment through impracticability co-occupying47 also occur. Occupation may be taken into account not just under specific provisions (ie s233(2)(e) and (f)) but also under s233(1) which “creates an open discretion allowing adjustment”.48 Therefore, in Protyniak49 VCAT held that as the purpose of acquisition was to provide a home for a particular co-owner the subsequent imposition of rent would not be equitable, but nonetheless weight should be given to her sole use. A rent claim may be defeated by a trust arising in favour of the occupying party before the non-occupier departed50 supported by considerations of fairness such as lack of benefit to, and (as suggested by s233(3)) expenditure by, the occupying party.51

 

Philip Barton practises at the Victorian Bar in commercial, property, probate and land valuation law. He publishes the caveatsvictoria.blog.

 

1. Section numbers in the body of the article refer to this Act.

2. Including dogs: Grover v Grover [2016] VCAT 1122.

3. Moll v Noblett [2009] VCAT 353 at [39].

4. Note 3 above, at [40].

5. Garnett v Jessop [2012] VCAT 156 at [21].

6. Eg, Riffat v Riffat [2016] VCAT 1398.

7. Bills-Thompson v Bills-Thompson [2017] VCAT 341.

8. Eg, Edelsten v Burkinshaw [2011] VSC 362 at [2].

9. Note 8 above.

10. Yeo v Brassil [2010] VSC 344 at [16].

11. Note 10 above, at [21].

12. Note 10 above, at [22]. An estoppel argument failed in Koroneos v Koroneos [2016] VCAT 461 at [74]-[80].

13. Note 10 above, at [24].

14. Note 13 above.

15. Bluestone Park Pty Ltd v Kevin Hunt Property Pty Ltd [2015] VCAT 1813.

16. Note 10 above, at [26].

17. Krsteski v Jovanoski [2011] VSC 166 at [43].

18. Failing in Krsteski v Jovanoski (note 17 above) and Sherwood v Sherwood [2013] VCAT 1746.

19. (1984) 160 CLR 583.

20. [2012] VCAT 1524. No trusts were established in Hopkins v Hopkins [2013] VCAT 414 and Krsteski v Jovanoski (note 17 above).

21. [2011] VCAT 323.

22. [2016] VCAT 592.

23. [2017] VCAT 360.

24. [2018] VCAT 40.

25. Sigal v Astakhov [2017] VCAT 456 (20% interest).

26. Note 3 above, at [36].

27. Keam v Mason [2010] VCAT 242 at [73].

28. Note 8 above, at [27].

29. Note 27 above.

30. Note 3 above, at [49].

31. Note 8 above.

32. [2018] VCAT 759.

33. Note 22 above and note 23 above (Muschinski v Dodds trusts). No trust was found in Sherwood v Sherwood, note 18 above (no failure of joint venture) and Miller v Martin [2016] VCAT 854 (no resulting trust). 34. Venn v Saward [2012] VCAT 1970.

35. [2009] VCAT 8.

36. Note 35 above, at [48].

37. Tien v Pho [2014] VSC 391; Sherwood v Sherwood, note 18 above.

38. Bornyan v Bornyan [2014] VCAT 1103.

39. Grigoriu v Petran [2009] VCAT 2272 at [139].

40. Sherwood v Sherwood (No 2) [2013] VCAT 2017.

41. Cappellin v Brondolino [2011] VCAT 1778 at [148].

42. Sutherland v Corkhill [2011] VCAT 709 at [21].

43. Note 24 above.

44. Note 34 above.

45. [2017] VCAT 456.

46. Note 34 above (exclusion by violence).

47. Michell v Winch, note 20 above (trustee in bankruptcy).

48. Note 35 above, at [46].

49. Note 35 above, at [45], [46].

50. Note 22 above and note 23 above.

51. Note 23 above, at [61], [62], [65]-[67].

 


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