HOW CAN YOU OWN REAL ESTATE WITH SOMEONE ELSE?

INTRODUCTION

There are various considerations that need to be made when buying a piece of real estate. One of the
most important considerations is the decision relating to the choice of the purchasing entity.

In general, one can own a real estate in various ways. This includes acquisition in individual capacity,
using company structures, trust structures and/or a combination of all of them.

In essence, a piece of real estate can be owned by more than one person or entity. There are,
however, some essential considerations to be thought of in this regard.

MANNER OF OWNERSHIP

Perhaps the main questions in relation to joint ownership of a real estate are:

- how are the parties acquiring the property jointly?

- how would their joint acquisition be reflected in any title documentation relating to the
property.

There are essentially few main and common ways that one can own a property jointly with another
party or parties. This includes (non-exhaustive) purchasing as joint proprietors, as tenants in common,
via company structures and/or trust structures.

This article will only focus on ‘joint proprietors’ and ‘tenants in common’.

JOINT PROPRIETORS

In general, a joint proprietor has no severable share in the property and each party owns a
contemporaneous right of the whole property and not in any individual share or shares.

A party to a joint proprietor owns the whole of the land, along with the other joint proprietor or
proprietors. Another feature of joint proprietor is when one proprietor passes away, then the property
automatically passes into the ownership of the surviving joint proprietor or proprietors and does not
form part of the deceased proprietor’s estate.

TENANTS IN COMMON

A tenant in common on the other hand own a proportionate interest in the property. This proportion is
reflected on the title document relating to the property.

A tenant in common can in theory deal with their share of the property as they see fit. For instance,
they may take up a mortgage against their share of the property or even sell their share to a third
party. A Joint proprietor can also leave their share of ownership of the property to their nominated
beneficiary in their Will.

Of course, there may be various practical difficulties in effecting these, without the cooperation of the
other tenants in common.

WHICH STRUCTURE?

The most appropriate manner of holding will of course depend on the circumstance of each party.

A husband and wife or domestic partners may wish to own some property jointly as joint proprietors,
so as to ensure that upon death of one of them, their surviving spouse will automatically be entitled to
take ownership of the property.

This manner of holding (as joint proprietors) is clearly not appropriate in a situation of two unrelated
business partners, purchasing an investment property together. This is especially true if their
respective contribution towards the property is unequal. In this instance, the parties may wish to
consider owing the property as tenants in common, or by adopting a company or trust structure
whereby their respective ownership can be specified clearly on the relevant ownership documents.
Depending on the structure adopted, there may be different taxation considerations to be taken into
account.

And of course, anyone owing a real estate whether individually, jointly, via any structure or otherwise
should consider their own estate planning so that upon their death their assets can go to their
nominated beneficiaries.

DISPUTE

Various issues may arise in the event of dispute between the owners.

In the case of co-owners registered on title, such a dispute may be resolved in VCAT pursuant to
section 221 of the Property Law Act 1958 (Vic).

For instance, sibling Mary Smith and Jane Citizen owing a property in joint names as tenants in
common in the proportion of 80:20. Mary, owing 80% of the property wants to sell the Property but
Jane refuses to sell and is being difficult with the whole process.

Mary can propose to acquire Jane’s 20% or failing which, she can make an application to VCAT to
force Jane to sell under section 225 of the Property Law Act 1958 (Vic).

CO-OWNERSHIP AGREEMENT

Whilst there are clear legal avenues of resolving disputes between co-owners offered by VCAT, co-
ownership proceeding can be costly and time consuming.

Parties intending to purchase a property together with any other party should consider entering into an
agreement to properly and legally document the arrangements between them relating to the property.

Amongst other things, a well drafted agreement to this effect should provide a background as to the
ownership of the property and deal with matters such as:

- proportion of ownerships;

- how expenditures and income and proceeds of sale of the property is to be distributed;

- each party’s rights, liabilities, responsibilities and obligations in relation to the property;

- the agreed procedures in the event of disputes between the parties, sale of the property and
other important events relating to the property.

Of course, other matters may need to be considered, depending on the circumstances.

In the case of spouses, any agreement between them must comply with the strict requirements of the
Family Law Act 1975 (Cth).

Agreements not otherwise in compliance with the Family Law Act 1975 (Cth) will not be binding or
enforceable by one party against the other and the Family Court will retain jurisdiction to decide how
the property is to be divided between the parties in the event of a breakdown in their relationships.

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