They said a TIC agreement can also assist the trustee in maintaining compliance with superannuation legislation and formulating an appropriate exit strategy for a co-owner.

Potential pitfalls for trustees without a TIC agreement

Mr Butler and Mr Backhaus warned that many things can happen to a person, company or trustee of a trust (or the persons controlling such an entity) that could cause problems for other co-owners.

As examples, that could include the co-owner or their controllers:

• in the case of an individual, this includes getting divorced, experiencing other familial or personal issues, dying or losing capacity;
• becoming bankrupt, insolvent or being placed under administration;
• defaulting under an agreement that secures their interest in the real estate (noting that an SMSF cannot secure or charge its assets);
• being sued or otherwise caught up in litigation; or
• simply wanting to sell their interest in the real estate.

“Investments with other co-owners often commence with parties communicating and agreeing on the above issues. However, the sort of events outlined above may arise when different persons or entities hold an interest in the property compared to the original investment,” Mr Butler and Mr Backhaus said.

“Accordingly, a dispute may arise between the parties, and without a TIC agreement, there would be no agreed way to resolve disputes.”

Issues that can be addressed in a TIC agreement

According to Mr Butler and Mr Backhaus, a TIC agreement could address some of the following issues or provide the following mechanisms: