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Owning a property with someone else can get complicated

28 April 2017

The parties in a recent case had to resort to legal proceedings to resolve their dispute despite having a professionally prepared document recording their ownership of a property and the availability of relief under statute law being possible.

Mr Fraser’s and Ms Butler’s agreement

Mr Fraser and the executor of his late wife’s estate (the Public Trustee) owned an 86 hectare property. Mr Fraser got into financial difficulty. In order to avert a sale of the property Mr Fraser came to some arrangements with Ms Butler. The arrangements were recorded in a Deed which provided:
- Ms Butler would borrow money from the bank to pay out Mr Fraser’s creditors and the Public Trustee
- The bank borrowing would be secured by a registered mortgage over the property. Ms Butler would be responsible for paying the mortgage
- Ms Butler would be registered as the sole owner but Mr Fraser would retain a 71% share in the property
- After five years Mr Fraser would be registered as the owner of his 71% share and Mr Fraser and Ms Butler would look into how the property could be subdivided or partitioned (i.e. the ownership separated) so they each owned their 71% and 29% shares
- Ms Butler would live in the house on the property.

The falling out

Soon after the agreement had been made Mr Fraser and Ms Butler fell out. After the five year period no steps were taken to transfer Mr Fraser’s 71% ownership to him or subdivide or partition the property between them.

Mr Fraser issued legal proceedings. He sought a Court order requiring Ms Butler to perform the Deed and transfer his 71% share to him; orders under s 339 of the Property Law Act 2007 (which enable the Court to order the sale or division of a property which has different owners) including compensation for Ms Butler’s occupation of the property since the five year period had ended; and damages because Ms Butler had failed to comply with her obligations under the Deed. Ms Butler applied to have Mr Fraser’s claims to transfer the property to him struck out because she claimed he wasn’t a “co-owner” of the property as defined in the Property Law Act and because it was impossible to transfer the property to Mr Fraser because of the bank’s mortgage.

The judge held that Mr Fraser did qualify as a “co-owner” and could ask for relief available under s 339 of the Property Law Act even though he was not a registered owner of the property. The Judge also held that Ms Butler had not shown that the bank mortgage prevented a transfer of the property to Mr Fraser and that Mr Fraser had a reasonable argument for damages. As Ms Butler was not successful in striking out Mr Fraser’s claims the success of those claims will now have to be determined by the Court.

Proceed with care

Before agreeing to own a property with someone else you should consider how well you know that person, what disagreements could arise and whether you will be able to resolve them. You would be very unwise to proceed without a professionally prepared and carefully considered agreement.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott