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No need to document it - right?
People often deal with family and friends informally, even where large sums or property is involved, because that informality is typically the basis for that interaction.
For instance a parent might want to help their child get a foothold in the property market and to do so provide all of the funds required for the purchase of a house. In such a scenario the parent might pay from their own funds all of the relevant purchase monies e.g. deposit, stamp duty, balance of the purchase price and any applicable legal costs for the conveyance.
The child, who may have recently gotten married, in such circumstances is very lucky to have the benefit of the "bank of mom and dad" and the future at point looks very bright indeed.
Unfortunately, where substantial amounts of money is involved there is a high risk of a dispute arising unless things are put in writing.
Things that go wrong with an informal property deals
Unfortunately such handshake arrangements can and often do fall apart. In the above example that may come about for a range of reasons such as the relationship between the kids and parent may break apart or the relationship between the newly weds could splinter - all raising questions about what must be done with the property owned.
The above scenario is just one example of how informal property purchases can come apart and other examples include joint venturers who no longer get along, if an aging parent helps fund a purchase of real property with a view to live in a granny flat alongside the kids and so on.
Need for writing to create interests in Land in NSW
In NSW there are various requirements under the Real Property and Conveyancing Legislation regarding the need for writing to create an interest in land.
However, despite those requirements the legislation recognises that an interest in land can be created, in appropriate cases, by reason of resulting, implied or constructive trusts. See for instance s 23C of the Conveyancing Act 1919 (NSW).
Trust concepts and informal deals
Where all of the purchase money is provided by the parent it may be said that the children effectively hold the property on trust for the parent subject to other arguments that could be raised including perhaps estoppel. The parent could in this scenario approach the court for an order that a trust be declared and that the property interest be transferred accordingly.
Other trust type remedies may apply depending upon the circumstances of the dispute. It is not uncommon to seek relief on the basis of trust concepts involving:
- express trusts
- resulting trusts; and
- constructive trusts
Going after 3rd parties
In some cases the interest of the plaintiff (often the parent) in the property may be transferred to third parties (such as spouses of children). This can create a range of complications as the liability of any third party largely depends on their state of knowledge. For instance if the third party takes the benefit for value and without notice then little can probably be done, however, if the third party knew that the property was received in breach of a trust (or otherwise assisted to facilitate the breach of trust) there may be a liability in equity to make good the plaintiff's loss.
Injunctions and caveats
One option to protect your interest in real property may be to lodge a caveat (or to seek an injunction) if there are grounds for it. It is important to ascertain whether you have the right to lodge a caveat as the wrongful / improper lodgement of a caveat may render you liable. However if you have the right to lodge a caveat then that is a statutory injunction that may operate effectively to prevent someone dealing with the property whilst your case is heard and determined.
How we help fix property deals gone wrong
If you find yourself in a dispute regarding an informal property deal (aka handshake arrangement) then contact our litigation lawyers to find out about the options for seeking legal redress.
Disclaimer
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