I was reading a recent decision reported in the Dominion Post about the failure of a property partnership which reminded me of the need for appropriate dispute resolution clauses in those agreements. The link for the article is https://www.stuff.co.nz/busine..., Which tells the sad story of a property owning partnership in Lower Hutt, near Wellington, which in the words of the article "descended into hostility with complaints of food smells, disconnected power, and unpaid bills".
Under New Zealand property law there is specific provision to apply to the High Court to sell the property owned by a number of owners in a procedure called partition and sale. In essence, the law enables one of the owners to apply to the court to either have the property sold or the other owners purchase the applicant's shares.

There are many reasons why people buy property or acquire property in multiple ownership. Families frequently inherit property from their parents, and for sentimental reasons will often decide to keep the property. The news story was about a more commercial partnership but the same principles apply. At the beginning when the property is vested in the multiple owners, the administration of the property will often be relatively easy. But as time moves on, the need for payment of overheads such as rates, insurance and any mortgage will concentrate the minds of the owners on the future of the property. If the property is being used to provide an income, that can help with the costs, but I have seen family owned properties deteriorate into unfortunate disputes because some either cannot pay or stop paying leaving the burden on others. Sometimes a member of the family choose to live there and disputes can arise over the payment of rental, and maintenance as often an issue as well.

Sadly, a common feature of many of these cases is a failure to include appropriate dispute resolution clauses in the contract. While the procedure of partition and sale in the High Court is available, this is a discretionary remedy and of course comes at considerable cost. It is possible to include cheaper alternatives for the possibility of disputes. Of course, the issues of contribution to the overheads, and the distribution of income and the possibility of family occupying the property must also be carefully outlined in the property agreement. Careful attention to these issues will assist in avoiding some disputes. But it is also important to consider a mandatory referral to mediation. Mediation can be set up quickly, and enable the independent neutral to facilitate a result which is owned by the parties, rather than the chancy prospect of a judge making the decision, which may or may not please the parties. An experienced mediator will often tease out the real issues which have caused the dispute in a way which is not possible with a litigation based application, which cannot deal with the emotional and human disputes.

Of course, not every dispute can be mediated and so the next step should be considered. In New Zealand AMINZ has evolved an expedited arbitration procedure, which is a form of simplified fast track arbitration which would be ideally suited for the 2nd level of dispute resolution. Again, it can be set up very quickly and because it is expedited, the arbitrator will set a timetable to enable the matter to be dealt with quickly. There is nothing worse than the slow and poisonous effect on relationships caused by waiting for a court fixture. Expedited arbitration can avoid that delay and the cost associated with high court procedure.

It may sound cynical, but every time someone decides to enter an arrangement where they own property in common, they must think of the possibility that the relationship may deteriorate, and agree upon a procedure which will do the least harm and preserve the property rather than have it consumed by time and litigation costs.