Co-ownership of property, what could go wrong?
In order to enter the property market, it is becoming more and more common for friends and family members to combine their finances and acquire a property together.
This can be a very exciting time and you can easily get caught up in the celebrations of settlement without a second thought to the co-ownership arrangements. However what happens when the excitement fades away, tensions rise and the friendship becomes strained due to disagreements about the property?
What to think about first
Hopefully the parties have put in place an appropriate agreement setting out the terms of their co-ownership of the property.
It is also important to consider the manner of holding of the property and its implications, noting that you may hold the property as joint proprietors, tenants in common or alternatively use a separate entity to acquire the property.
If you would like clarity on any of these terms, please contact Julia Thermos for more information.
There are several different ways to structure the purchase of the property to ensure that the manner of holding and co-ownership agreement are suitable for the parties’ specific objectives.
Some examples of different arrangements are:
Siblings – Townhouse
Anna, Alex and Rosie are siblings that purchase a townhouse together as tenants in common in unequal shares (reflecting their financial contribution to the acquisition), with the intention that they shall all live in the property.
They can enter into a property partnership agreement that sets out the terms of how they will finance the acquisition and how they will make any decisions relating to the property. This includes:
- Payment of rates,
- Taxes and insurance,
- The process for sale or leasing of the property, and
- What will happen in the event that one of them defaults on their obligations under the agreement.
Friends – Block of Land
Lee and Kelly are friends that purchase a block of land together as tenants in common in equal shares with the intention of building two dwellings and then subdividing the land so that each of them ends up with a house on their own separate title.
They decide to enter into a partnership agreement to develop the property as well as a partition agreement so that following subdivision of the land they can transfer ownership of the properties between them. Subject to certain requirements being met and the drafting of the partition agreement there may be considerable stamp duty concessions/exemptions on the subsequent transfers between the two co-owners.
Siblings – Development
Brett, Adam and Josh are siblings that purchase a block of land with the intention of developing it into a five townhouse site that they will subsequently subdivide and sell to third parties.
They can create a new entity and unit trust to acquire the property. They can also enter into a unit holder agreement to set out the terms of carrying out the development and the subsequent sale of the townhouses.
These are some brief but common examples seen in co-ownership.
There are many different ways to structure your acquisition depending on your specific circumstances and requirements. This information is general in nature and we recommend that you obtain specific legal and financial advice tailored to your particular circumstances.