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In Australia, if you co-own real property (land or real estate) with another person, you will either be a joint tenant or a tenant in common. Which type of co-owner you are will determine your rights in the property, including how a sale can take place. This article explains the rights of a tenant in common and explores issues that may arise when one co-owner wants to sell the property.
This guide will help you to understand your options when you purchase a business with leased premises.
Defining Tenant in Common
When parties own property as tenants in common it means that two or more people co-own a property in defined shares that they can dispose of as they wish. The individual interests may be unequal.
Should the co-owners sell the property, they should distribute the proceeds accordingly. This also means that an individual co-owner can sell their interest in the property to another person, rather than both having to sell the entire property to a new owner.
Tenants in common are also defined by having no right of survivorship. This means that if one co-owner dies, their interest in the property will not automatically transfer to the other co-owner. Instead, the will of the deceased co-owner dictates where this interest goes. The will could say it goes to the other co-owner, or that it goes to someone else.
Property Rights of a Tenant in Common
Delineation of Boundaries
Delineation means how the co-owners physically divide up the property. For example, whether 50% ownership means each takes possession of one half of the property. However, this is not necessarily the case that co-owners have rights to a specific boundary of the property according to their share. Separate agreements or contracts usually exist, delineating ownership and responsibilities.
Granting Interests to Other Parties
Each co-owner can grant interests in the property to another person (by sale or transfer). However, interests can only be granted on the basis that they do not interfere with the rights of the other co-owner. If the grant of interest interferes with the rights of the other co-owner, both co-owners must agree on the grant of interests.
Sole Occupation of Land
If one co-owner solely occupies the property, they usually do not have to pay rent to the other co-owner. However, there may be an agreement between the co-owners that requires one to pay the other. Payments may occur when:
- one co-owner has specifically excluded the other from accessing the property; or
- the occupying co-owner seeks compensation for improvements they make to the property.
Dealing with the Whole of the Property
There is no right of survivorship for tenants in common. Consequently, a co-owner can deal with their share in the property as they like. However, as each owner has the same rights to possess the property, there may be restrictions from dealing with the entirety or whole of the property. For example, a co-owner with 30% share in the property cannot subdivide their 30%, as the subdivision affects the other co-owners’ rights to possess and use of the whole of the property. Instead, in this case, each co-owner would have to agree on the subdivision.
When a Tenant in Common Wants to Sell the Whole Property
A tenant in common may want to sell the property for a myriad of reasons, perhaps due to a breakdown in the relationship with their co-owner. They can sell the property in one of two ways — by partition or by sale. Both the partition and sale process involves the appointment of a statutory trustee.
Whether they can do either depends on where the property is located, as each state and territory has different property laws. In New South Wales, for example, a tenant in common needs to apply to the Supreme Court of New South Wales requesting an order for the property to be partitioned or sold.
Although there are similar provisions in other states and territories in Australia, if there are issues between the co-owners in a property and a sale cannot be agreed, it is important to consider obtaining legal advice to discuss your options.
A partition refers to the division of the property, making each co-owner the single owner of a delineated section of the land. Therefore, partitioning the land terminates the relationship of co-ownership. However, courts do not typically grant partitions, particularly in the case where an outright sale of the property is more beneficial for the co-owners.
Selling the Property
Selling the property allows each tenant in common to benefit from the sale money. There is a deduction of any costs (e.g. an existing mortgage) and then the sale money is distributed to the co-owners. The distribution of the sale money depends on the share each co-owner has in the property.
Two or more individuals can own real property as either joint tenants or tenants in common. As a tenant in common, it is important to be aware of your rights in the property you co-own. For example, you have the right to possess and enjoy the whole of the property. You can also sell or transfer your property rights. However, in Australia, this largely depends on the location (state or territory) of your property.
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