Joint Property Ownership Disputes

Joint property ownership disputes

Your property might be your most valuable asset. No wonder people now often see joint ownership as a means to grow their portfolio, acquire business premises, or secure that first foot on the property ladder. But while clubbing together with a partner, friend or relative may seem the perfect solution, what happens if things go wrong? It’s perhaps not surprising that we are seeing ever more joint property ownership disputes.

For cohabiting couples, see: Cohabitation and Jointly Owned Property

Unmarried couples buying a home together is not the only joint ownership scenario. You might acquire a joint interest:

• in an investment property, possibly a ‘buy to let’ or a property development opportunity.
• with friends to buy your first home using mates’ mortgages.
• because you and your co-owner(s) need premises for your business.
• through inheritance, perhaps with a sibling.
• where residential flat lessees own a share of freehold in their individual names. Such co-owners are together ‘the landlord’ of themselves as tenants (i.e. the owners of the leases of individual flats).

In all cases where the land is co-owned by you as individuals rather than a company, you might encounter difficulties if you do not have a Declaration of Trust in place.

Declaration of Trust

If you own property jointly, the starting position in law is that you must act unanimously as trustees of that land. Of course, that can make taking even the most basic decisions difficult – particularly if relationships sour. So, unless joint owners are married or in a civil partnership, we strongly recommend agreeing and drawing up a trust deed, often called a ‘Declaration of Trust’.

Ideally, a Declaration of Trust comes into effect at the point you acquire the property, but you can draw one up at any time. This written agreement regulates the relationship, enabling the co-owners to make property-related decisions should they disagree.

Management Companies

Alternatively, co-owners may purchase property in the name of a company of which they are the members and directors. In this case, they must manage the company and its assets according to detailed Articles of Association and company law.

Common ways co-owners disagree

Declarations of Trust cover making decisions where not everyone agrees. A typical scenario is what happens if one co-owner wishes to dispose of their share of the property. A well-drafted Declaration of Trust covers issues such as:

• whether and how the property should be valued;
• whether the other co-owners should have the right to buy out the departing owner’s share; and
• timescales.

In most cases, unless the co-owner(s) can raise the funds within a reasonable timeframe, the whole property is sold on the open market.

Other common co-ownership disagreements that a Declaration of Trust might mitigate include:

• Who owns what shares of the beneficial interest in the property? How should the co-owners divide the net proceeds on sale?
• How should the co-owners manage the property on a day-to-day basis?
• Who pays what towards the mortgage, maintenance, insurance, and other property-related expenditure?
• How are decisions made concerning routine and non-routine repairs, alterations, or improvements?
• Who decides whether to renew or terminate an occupier’s tenancy agreement in a buy-to-let scenario?
• How should co-owners share the property, and for what purposes?
• How should co-owners share any profit or loss? If it is rented out, how is the rental income divided between the co-owners?
• What happens if one co-owner refuses or is unable to sign legal documents?

Joint Property Ownership Disputes: Resolution

Where co-owners cannot agree, the County Court has jurisdiction to determine disputes under the:

• Trusts of Land and Appointment of Trustees Act 1996 (TOLATA); and
• the Trustee Act 1925.

Where a dispute concerns the parties’ respective shares of the proceeds of sale or rental income, TOLATA enables the Court to make orders after establishing the parties’ intention when they acquired the property and sometimes if their common intention has changed over time. While a Declaration of Trust should prevent such disagreements from arising, this is not always the case, especially with poorly drafted documents.

Freehold/Leasehold disputes

Where the leasehold owners of flats jointly own the freehold of their building, problems can arise if one leaseholder breaches the terms of their lease (e.g. using it for short-term Airbnb-type lets). In such cases, the freeholder can – and possibly must – take enforcement action against the problem leaseholder. Because that leaseholder is also a co-freeholder, there may be a temptation to obstruct the legal action by refusing to sign the legal documents. In that case, the other co-freeholder(s) can ask the Court to make orders under the Trustee Act 1925, removing that party as a trustee.

However, in all cases, the court expects parties to consider alternative means of dispute resolution—most often mediation—before bringing the dispute before a judge. Mediation is also a considerably cheaper option in most cases, appealing to many involved in joint property ownership disputes.