Buying a property can often make or break a relationship, regardless of whether it’s with friends, family or acquaintances. Given there are limited laws as well as different ways to structure the arrangement it is all too easy for co-ownership arrangements to turn sour.
Whether you buy as ‘tenants in common’ or ‘joint tenants’ it is crucial that you know the key areas that can get you into trouble and put in place the necessary measures to come out with both your finances and relationship intact.
As the law surrounding co-ownership agreements can be rather vague to ensure your interests are protected co-owners should draw up a co-ownership agreement.
Michael Mammen, senior associate of Macpherson + Kelley Lawyers, recommends co-parties include the following rights and obligations in their co-ownership agreement.
Costs and expenses
- who is responsible for acquisition costs, capital expenditure, maintenance costs and outgoings
- required to pay liabilities on time
- acting in good faith when dealing with other co-owners
- providing information relating to the property to other co- owners for their inspection and review
Restrictions on use of the property
- doing nothing to endanger the property
- not using the property as security without other co-owners' consent
- not selling your share of a property except as stated in the agreement
- not using the property for any purpose except as agreed
Transfer/sale of shares
- granting a first right of refusal to other co-owners if you want to sell your share, with the price based on an independent valuation
- only selling your share if other co-owners do not want to exercise their first right of refusal
- agreeing to sell the whole property if one person wants to sell, co-owners don't want to buy, and the person cannot sell their part interest
Default/death of co-owner
- granting an option to purchase your share to co-owners if you default
Dispute resolution provisions
- compulsory mediation/arbitration process to avoid costly litigation and messy disputes
- that the co-ownership is not a partnership or a joint venture or an employment relationship
- avoid potential for significant taxation and other financial consequences