SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICE AND INDIGENOUS AFFAIRS and PAYNE

[2010] AATA 347

Administrative Appeals Tribunal

DECISION AND REASONS FOR DECISION [2010] AATA 347

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          No 2009/4870

GENERAL ADMINISTRATIVE DIVISION		)
Re		SECRETARY, DEPARTMENT OF FAMILIES, HOUSING, COMMUNITY SERVICE AND INDIGENOUS AFFAIRS

Applicant

And MARY PAYNE

Respondent

DECISION

Tribunal Honourable Dr B H McPherson CBE Deputy President and
M J Carstairs, Senior Member

Date11 May 2010

PlaceBrisbane

Decision The Tribunal sets aside the decision under review and remits the matter to the respondent for reconsideration in accordance with these reasons.

....................[Sgd]..........................

Deputy President

CATCHWORDS

SOCIAL SECURITY – Age pension – Assets test – Fractional interest in land – Valuation – Decision set aside and remitted. 

Property Law Act 1974 (Qld) s 43(1)

Social Security Act 1991 (Cth) s 1118(1)(h)

Bedson v Bedson [1965] 2 QB 666

Brickwood v Young (1905) 2 CLR 387

Giumelli v Giumelli (1999) 196 CLR 101

Henderson v Eason (1851) 17 QB 715

Jones v Challenger [1961] 1 QB 176

Leigh v Dickeson (1884) 15 QBD 60

Luke v Luke (1936) 36 SR NSW 310

McMahon v Public Curator [1952] St R Qd 197

Ralph and Repatriation Commission [2006] AAT 258

Re Bolous [1985] 2 Qd R 165

Re Permanent Trustees Nominees (Canberra) Limited [1989] 1 QdR 314

Spencer v Commonwealth (1907) 5 CLR 419

REASONS FOR DECISION

11 May 2010 Honourable Dr B H McPherson CBE Deputy President and M J Carstairs, Senior Member      

1.      Joseph Donegan, late of 57 Donegan’s Road, Allora, died in 1997 leaving five surviving children including Barry, who is aged 69 and is the oldest, and Mary Payne, who is the respondent to these proceedings.  On 1 May 2009, Mary applied for an age pension.  It was initially granted to her, but on 10 September 2009 the decision was varied by an Authorised Review Officer who directed that, in determining the value of her assets, regard was to be had to her interest in land at 57 Donegan’s Road which Mary had inherited from her father.  An appeal to the Social Security Appeals Tribunal (SSAT) was successful and resulted in a direction that Mary’s interest in that land be disregarded.  These proceedings are brought to review that decision.

2.      By his will, Joseph Donegan left all his property, including the land at 57 Donegan’s Road, to his five children in equal shares of one fifth each.  Transmission has been entered up in their favour, so that each of them is now registered as the holder of an estate in fee simple in equal shares as tenants in common of the land in Donegan’s Road (the homestead land).  It is about 40 acres (160 ha) in extent and was originally part of a larger area from which 400 acres (the working property) were subdivided and sold to Barry in 1975.  He uses it to graze cattle and latterly to grow small crops.  The homestead land accommodates not only the house, in which Barry lives and has always lived, but also various improvements such as sheds, cattle yards, grain silos, and an underground bore.  There is some reason to believe that the working property can only be operated successfully in conjunction with the neighbouring homestead land and its improvements.

3.      The whole of the homestead land including permanent improvements has recently (1 May 2009) been valued at $300,000, of which arithmetically a fifth is $60,000.  The problem confronting Mary is that, having an asset apparently worth $60,000 would take her beyond the threshold for a pension and so disqualify her from obtaining one.  As, however, is correctly pointed out by Mr Robert Smith, who was a Commonwealth valuer (and Mary’s brother in law), what falls to be valued here is Mary’s interest as tenant in common in the homestead land.  Its value is not to be ascertained simply by taking 20% of the assessed value ascribed to the whole of the homestead land and improvements.  Instead, what has to be determined is the price that is likely to be paid for Mary’s 20% interest by a willing but not over-anxious purchaser of that interest as tenant in common in the homestead land:  Spencer v Commonwealth (1907) 5 CLR 419.

4.      The criterion laid down in Spencer’s case was applied in Ralph and Repatriation Commission [2006] AAT 258, which concerned the fee simple in a house in suburban Brisbane, which was owned by two couples (parents, and their son and daughter-in-law) as tenants in common.  Deputy President Hack SC remarked that the “market” for a fractional interest in such land was in practice likely to be limited to the other co-owners.  The same is true of the fractional interest in the land in the present instance.  The learned Deputy President added that it was possible to conceive of an investor being prepared to acquire a fractional interest in land in the expectation that trustees for sale could be appointed under the Property Law Act 1974.  However, a major disincentive would be the expense of applying to the Supreme Court as well as outlays on advertising, agents’ commission, and so on.  Mr Paul Lee, a valuer who was called by the Secretary, said in evidence that almost anyone would be prepared to buy the land if the price was purely nominal; but this may overlook the liabilities that ensue, such as repairs, and the rates, which amount to more than $800 annually.

5.      In Ralph’s case the approach of valuing an interest in common by simply adopting a proportion of the value of the whole land was rejected as “erroneous” because it failed to consider the market value of the fractional interest, which under Spencer’s case is “the proper measure of value”.  Extracts from texts by JFN Murray and Rost & Collins, which are referred to in Ralph, at 6-7 of the reasons, confirm this approach to the valuation of a fractional interest in common.  Simply dividing by five the total valuation figure here of $300,000 = $60,000 is open to the objection noticed in Ralph that it does not claim to be the market value of a 1/5^th interest as tenant in common in the land.

6. The range of potential buyers of a fractional interest as tenant in common in residential farming land in Allora must be very limited indeed, if it exists at all. The disincentive to buying Mary’s interest can be readily stated. In a case like this a prospective purchaser would face as his co-owners a family circle of blood relatives and their spouses. They may fairly be expected to have ties that they would be likely to think were threatened by the intrusion of a complete stranger. It is, of course, possible for someone who acquired an interest as tenant in common in the homestead land to apply to court to appoint trustees for sale of the property and distribution of the sale proceeds among the tenants in common as owners of the land. Such appointments are made under s 38(1) of the Property Law Act 1974.  It provides that the court “may” appoint trustees to sell the land.  In Re Permanent Trustees Nominees (Canberra) Limited [1989] 1 QdR 314, 317-318, it was held to be not mandatory, but a matter for the exercise of the court’s discretion whether or not to appoint trustees for sale.

7.      Inevitably, the reasons for judgment in that case do not spell out any precise guidance about the manner in which the discretion will be exercised in future.  There is, however, a suggestion that the power of appointing trustees for sale will not be exercised if it would be inconsistent with the purposes or circumstances in which the trust for sale came into existence.  See Re Bolous [1985] 2 Qd R 165, 167; Re Permanent Trustees Limited, supra; and cf Jones v Challenger [1961] 1 QB 176, 181; Bedson v Bedson [1965] 2 QB 666, 679. The power to appoint trustees for sale might not necessarily be exercised in favour of a stranger who bought a share in a family tenancy in common knowing that the other co-owners wished it to remain as it was.

8. It has been submitted that in this instance the father of the present co-owners always intended that Barry should have a tenancy for life in the homestead land. If effect were given to such an intention, in which all the other children are said to have acquiesced, by allowing Barry to occupy and work the land rent-free, the result would, it is said, be to bring Mary’s case within the scope of s 1118(1)(h) of the Social Security Act 1991.  It provides, so far as relevant, that in calculating the value of a person’s assets, the value of any “contingent, remainder or reversionary interest” of that person is to be disregarded.  It is suggested that Mary’s interest in the homestead land satisfies this description because the common understanding of all the children was that Barry was to have the right to occupy the land for life.  On this hypothesis, what Mary was left with was only a contingent interest in remainder in the land.

9.      It seems to us, with respect, that this interpretation of Barry’s rights under the tenancy in common created by his father’s will is quite untenable.  Reliance was placed on Giumelli v Giumelli (1999) 196 CLR 101; but in that case and others like it, the claimant had sustained detriment by following a course of conduct that he was encouraged to adopt by a promise that the defendants failed to fulfil. The broader proposition cited in Young, Croft and Smith, On Equity, para 12.00, at p 819, is that the detriment must arise in the mistaken belief induced by the defendant that the claimant had or would acquire a particular interest in the property.  This could not apply to the present case.  True it is that Barry has spent money on improvements to the homestead land; but there is nothing at all to show that he did so because he believed he had a life interest in the land.  On the contrary, Barry himself said in evidence that the suggestion that a life estate was what his father intended to leave to him was something that had emerged within the family only some six to eight months ago, after the decision given by the SSAT.  It is much more likely that in the past Barry spent money on the homestead land because he knew that he had become a tenant in common in the fee simple of land which he was continuing to occupy.  If his father had wished Barry to be a tenant for life of the land, it would have been easy for him so to have provided.  A solicitor helped him to prepare his will.

10.     The rules of law and equity are not ungenerous to a co-owner who occupies land held in common or who expends his own money in repairing or improving it.  Provided he does not actively exclude other tenants in common, a co‑owner is not liable to others for an occupation rent, and he cannot be sued for it.  See Henderson v Eason (1851) 17 QB 715; 117 ER 1451. There is an old statute (1705) of Queen Anne that compels a co-owner to account to the others for receiving more than his fair share of the rents and profits of the land. The statute or its modern equivalent is now to be found in s 43(1) of the Property Law Act 1974.  The decision in Henderson v Eason, supra, establishes that liability to account under the statutory provision arises only where something like money has been received, and that a co‑owner incurs no liability by merely occupying the land and using it to graze cattle or produce crops, but is entitled to keep the resulting benefit for himself.  See also Jones v Jones [1977] 1 WLR 438, where Henderson v Eason was applied.

11.     As for a co-owner’s outlays on repairs and improvement to the common property, the rule is that no allowance can be made to him for that expenditure unless and until the tenancy in common is liquidated and converted into money.  The improving co-owner can then claim out of the ensuing fund an allowance for his outlays; but, if he does so, he runs the risk of provoking a reciprocal cross-claim for an occupation rent against him.  The legal position is summarised in Luke v Luke (1936) 36 SR NSW 310, 313, where Long Innes CJ in Eq. said:

… a defendant tenant in common who has exercised his common law right to occupy the property the subject of the tenancy in common, which property is ordered to be sold by the Court, is [not] liable to be charged with an occupation rent in a case in which he has not excluded his co-tenants in common from the subject property and is making no claim for any allowance in respect of expenditure on his part in repairs or improvements to the property in question.

12.     The underlying rationale is that the other co-owner or co-owners should not take the benefit of the improving expenditure on the land held in common without compensating the co-owner for his having expended his own money on it:  Brickwood v Young (1905) 2 CLR 387, per Griffith CJ, at 395, applying Leigh v Dickeson (1884) 15 QBD 60, 67. Equally, a co-owner who claims compensation for his expenditure on repairs or improvements thereby exposes himself to claims for use and occupation for his having occupied the land. In McMahon v Public Curator [1952] St R Qd 197, 201-202, it was held that the compensation that may be claimed by the improving co-owner is limited to the lesser of: (1) the amount expended, and (2) the amount by which the value of the land has been increased by that expenditure.  There is a series of decisions, some unreported, in Sackville and Neave, Property Law:  Cases and Materials, 7^th ed, 661-664, which further refine the foregoing rules.  For the present, it is enough to say that none of them will impact on the value of the 20% share belonging to Mary or the other tenants in common unless and until the land is sold and steps are taken to distribute the proceeds of sale.  Until sale of the land takes place it is simply not possible to quantify with any accuracy the value of the claims and cross-claims that may arise on either side or, in consequence, to determine where the ultimate credit balance will lie.  Since none of the tenants in common can be compelled to apply for appointment of trustees for sale, the value of an undivided share in the homestead land is at present unascertainable; but is probably nil.  It is only if the shares in the land are liquidated by sale that a value can be placed upon them.

13.     The result is that we consider Mary’s 1/5^th interest as tenant in common in the homestead land, which is Lot 47 on Crown Plan M34673, Country of Merivale, Parish of Allora, as having a nil value, and we direct that the pension application be determined in that way.  This, it may be added, accords with the Centrelink Guide to Social Security Law para 4.6.7.50, which directs that a customer is unable to sell an asset if “the asset is owned as a tenant in common and the practical effect of this form of ownership is that the asset would be unsaleable”.  This is certainly true of Mary’s interest in the land in the present case.  In addition, the interest satisfies the paragraph in the Guide headed “Unreasonable to sell an asset”, by being a house occupied by a near relative (Mary’s brother Barry) who has lived in the house for more than 10 years since his father died in 1997.  It would be unreasonable to expect Mary to apply to Court for the appointment of trustees to sell the homestead land on which Barry has lived for the last 69 years.

I certify that the 13 preceding paragraphs are a true copy of the reasons for the decision herein of Honourable Dr B H McPherson CBE Deputy President and M J Carstairs, Senior Member

Signed: .......................[Sgd]......................................................
              Kate Slack, Research Associate

Date/s of Hearing  22 April 2010 

Date of Decision  11 May 2010
Solicitor for the Applicant          Bob Hamilton, departmental advocate  
The Respondent was assisted by Mr Robert Smith