Before buying property with family or friends carefully consider the potential risks as well as the benefits to avoid future heartaches.

With the price of homes and other property soaring, it is becoming more common for potential property owners to seek another person to join with them to buy a property. This may be two or three friends getting together to buy a house or business partners buying their business premises.

Typically all goes well initially, however there are many traps for the unwary. Problems may be avoided or minimised by the parties entering into a prior written agreement at the time of acquiring the property. This can be simple in form as long as all the relevant issues are covered.

Parties intending to enter into co-ownership arrangements should agree how they intend to deal with the various situations that may arise and record their intentions and agreement in writing and this should be signed by all parties.  Preferably each party should take independent legal advice that the agreement is fair.

The lender(s) may also require all owners to enter into an agreement with the lender(s) to give reassurance to the lender(s) that the mortgage security may be enforced in the event of any default by any or all of the owners.

The types of issues that should be considered and agreed upon include but are not limited to:

  • How is the property to be owned?  For example, if one party contributes 80% and another party 20% then they may wish to own the property in those proportions.
  • If the parties own the property in different proportions, should there be any limit on liability to pay the mortgage in accord with those proportions? If this is not the case, the courts may determine the ownership to be more equal due to the equal liability of the parties to the mortgagee.
  • What is to happen if one co-owner wishes to sell?
  • Do the other co-owners wish a first right of refusal?
  • What is the price at which a co-owner may purchase the interest of the other owner?
  • Who is to pay for ongoing expenses such as council rates, water rates and repairs?
  • Who is to ascertain whether repairs are required or not?
  • What happens if one party fails to pay their contribution or their mortgage?
  • Is one or more of the parties to be entitled to exclusive occupation of the property?
  • If so, what happens to any rental they receive from letting out rooms?
  • What happens if one co-owner moves out leaving the other to live in the property?
  • What rental is to be paid for exclusive occupation, if any?
  • Who is responsible for maintaining gardens, cleanliness etc?
  • What happens if the responsible party fails to keep the property clean or maintained?

These are just some of the issues that may arise in a co-ownership arrangement.

Persons considering co-ownership should not be deterred by the potential for dispute as with a little foresight, these arrangements can work well and benefit all parties without destroying their relationship.