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The recent decision of the NSW Court of Appeal in Szeto v Situ highlights the need for individuals who contribute to the purchase of a property to keep accurate accounting records and to clearly define the nature of their agreement regarding who is to have an interest in the property.
Rising property prices and slow economic and wage growth in recent times has led to younger or less affluent purchasers are being “locked out” of the property market. Increasingly, families are pooling their resources to provide family members with adequate resources to purchase a property, whether it be to live in or as an investment in their future.
It is vital to ensure that your interest in the property is recorded on title or a document which can be referred to if or when the trouble starts, whether it be through the use of:
Likewise, you should also keep strict accounting records relating to all expenditure for the property.
The parties in Szeto v Situ  NSWCA 136 failed to clearly define the terms of their agreement and did not keep accurate financial records. As a result, the Court found it difficult to ascertain who had an interest in a property the parties had purchased. The brief facts of the matter are:
The difficulty for the Supreme Court in the original proceedings was that the agreement had not been recorded anywhere in writing which meant that the Court had to rely on the verbal evidence given by the parties (both of whom were described as having a ‘rudimentary’ grasp of English). Additionally, both parties had failed to accurately record their expenditure on the property and they regularly used cash for their business transactions made it difficult to clearly identify which payments and withdrawals from bank accounts could be properly applied to the loan and the purchase of the property. Payments which the parties alleged were made towards the purchase or the loan were either for differing amounts, comprised partly of cash or unable to be clearly described.
The Court noted in its decision that there was insufficient evidence of the nature of the agreement. While there was evidence of large transactions involving Ms Szeto’s account around the time of the settlement of the purchase according to her bank statements, the primary judge stated that there was also evidence that cash was commonly used in the dealings of the parties and the amounts withdrawn were not the precise amounts required for settlement which resulted in the court giving less weight to the claims by one of the parties that the monies were paid towards the purchase of the property.
In overturning the original decision, the Court of Appeal noted that the primary judge erred by not properly taking into account the apparently reliable documentary evidence, in the form of bank statements, of the funds provided by Ms Szeto which were used for the purchase. In reaching its decision, the Court of Appeal stated that the failure by the primary judge to properly consider the evidence of payments made by Ms Szeto meant that the appeal had to be allowed and the matter was sent back for a new trial. Interestingly, the Court of Appeal stated that the original decision may have been upheld if there had been evidence of the proper consideration of Ms Szeto’s evidence by the primary judge.
All of this could have been avoided if the parties had entered into a formal written agreement prior to the purchase of the property and kept strict accounting records.