Are you buying a property with friends or family members? What you need to know about co-ownership.
May 23, 2016Rising house prices across Sydney have made it difficult for people trying to enter the property market. In response to this we are seeing more and more people buying property with friends or family members rather than trying to go it alone.
This can be a great solution because sharing the costs of buying and holding property puts owning property within reach for many who otherwise wouldn’t be able to afford the current property market.
But what happens if these friends have a falling out? What do you do when one of you wants to sell but the other doesn’t? Trying to resolve these kinds of situations can end up costly and time consuming for all parties.
So how do you avoid this and best protect yourself should things not work not the way you had hoped?
Put in in writing!
We cannot say this enough when it comes to entering into any kind of financial relationship with someone else. Having a written agreement in place from the outset will save plenty of headaches later. Whilst everyone may have every intention of harmoniously sharing property with others, things can happen and circumstances can change – which is when having a written agreement in place, addressing what happens in these instances, is invaluable.
Some of the main things to consider when purchasing property with other people are:
What proportion of the property will each person own?
If each person is contributing to the purchase costs equally then it’s common for the parties to own the property as tenants-in-common in equal shares (that is, 50/50). If one party contributes a larger amount than another though, then the parties’ shares in the property can reflect this difference. For example rather than owning the property equally, the parties may decide that an ownership of 60:40 is more appropriate given the parties’ contributions in purchasing the property.
How will the property be used or occupied?
If all parties will be living in the property then this is relatively straightforward. It becomes more complex however, if not all of the parties will be living in the property and things such as who will be responsible for the maintenance and upkeep of the property and the apportionment of rates will need to be considered.
What if one party can’t pay their share of the expenses?
Life can throw curveballs and it may be that at some point one of you may not be able to cover their share of the rates or the cost of unexpected repairs or maintenance. So what happens then? If another party pays it for them when and how will this be paid back? Will they be compensated? Will it be treated as a loan with interest be payable?
What if a party wants to sell their share?
The sale of an interest in a jointly owned property is usually not something that can be readily sold on the open market. Particularly if the joint owners live together, then the remaining owner would no doubt wish to have a significant say in who is able to purchase the outgoing owner’s interest – ideally, with a right of first refusal (that is, the right to purchase the outgoing owner’s interest) and then if the remaining owner does not wish to purchase the share, then the outgoing owner should have the right to force the sale of the entire property.
Whilst the above list is not exhaustive, it certainly is indicative of the types of issues that need to be discussed between the joint owners, and the agreement recorded in writing – ideally before the property is purchased.
Contact the Shire Legal team if you have any questions.
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