Forcing The Sale Of Property Owned With Others

15 December 2014

Barry is a retired farmer who has invested a substantial sum of money in a commercial building. Barry purchased the building many years ago with Sam. Each of them owns a one half share. Originally the building was leased to a blue chip tenant. It has been a good investment over the years. Times have changed. The tenant has gone elsewhere. The building needs a large amount of money spent on it to make it an attractive letting proposition.

Barry wants to sell. The Council rating valuation (formerly called the Government Valuation) is $2.0m, but after attempting to sell for over a year, the only offer they have received is for $1.0m. Barry thinks that $1.0m is the market value and he wants to sell at that price. Sam thinks that the property must be worth its valuation of $2.0m. He doesn’t want to sell. Sam won’t sign the sale and purchase agreement. Sam won’t purchase Barry’s share either. Sam wants too much for his share so Barry can’t afford to buy it. Barry is frustrated. What can he do?

Can Barry force a sale?

Barry can apply to the Court under section 341(1) of the Property Law Act 2007. Under that Act the Court has power to make any of the following orders:

  1. for the sale of the property and the division of the proceeds among the co-owners; or
  2. for the division of the property among the co-owners; or
  3. requiring one or more co-owners to purchase the share in the property of one or more other co-owners at a fair and reasonable price.

The division of the property among co-owners might be possible if there is more than one title involved, or where an existing title can be divided into two or more separate titles. However, the Court cannot order a division of the property among the owners if that would be contrary to the subdivision rules in the Resource Management Act 1991.

The Court can also order payment of compensation or fair occupation rent by one owner to another, order the terms of any sale and any other matters the court considers necessary or desirable.

Anyone affected by the application under section 341(1) must be served with the proceedings and have an opportunity to be heard – for example, a person who holds a mortgage over the property.

A court considering whether to make an order must have regard to the following:

  1. the extent of the co owners’ shares in the property and the number of co-owners
  2. the nature and location of the property
  3. the hardship that would be caused by the refusal of the order or the making of the order
  4. the value of any contribution made by any co-owner to improvements or maintenance of the property
  5. any other matters the court considers relevant.

If Barry is going to be successful in seeking an order that the building be sold for $1.0m, he will need to show the Court that the property is in fact worth only $1.0m. This would normally be by way of a registered valuation.

How could Barry have avoided this situation?

Barry wishes he could avoid the cost and delay of Court proceedings. Even if he is successful, the interested purchaser may no longer wish to purchase the property by the time he obtains the order.

Barry could have reduced the likelihood of a deadlock with Sam if they had signed a property sharing agreement when they purchased the property. A property sharing agreement could set out their rights and obligations on all sorts of matters relating to ownership of the property, including the process to be followed if one of the owners wants to sell. For example, it could state that if the other owner did not wish to purchase at valuation, then the property would have to be sold on the open market.

Sort it out before you buy

Ownership of property with someone else is a serious commitment. Before making such a commitment it pays to give serious consideration to signing a property sharing agreement and coming to understandings with your co-owner in relation to all sorts of matters relating to your co-ownership.

Barbara McDermott is part of our Private Client team at Norris Ward McKinnon.