Purchasing property with friends and family – The benefits of a co-ownership agreement

by Zaneta Aislabie & Jamie Nunns - Morrison Kent

With the housing market rises over the last few years, we have once again seen an increase in the number of people looking to purchase property with friends or family as a way of entering the housing market, or for investment purposes.
This mode of ownership carries significant risk. There are many factors to consider when deciding whether this is right for you, it is an important decision that should be carefully thought out.
Entering into what is known as a ‘co-ownership agreement’ in these situations is usually necessary for several reasons. The first reason is that it results in discussions between the potential co-owners around expectations, which often flushes out potential issues.
The other main reason is that a good lawyer will help the parties to identify and consider issues that aren’t always in mind when considering entering into ownership in this way.
Something to watch out for with a co-ownership agreement is that it has the same major weakness as any other legal contract. The most dangerous thing about it isn’t what the lawyer includes in the agreement, but rather the things that are not thought of, or missed.

While not a complete list, as circumstances will vary from one collection of co-owners to another, some of the more common issues which might be included in a co-ownership agreement may include:
  1. Who the parties are. This might seem obvious, but there are lots of possibilities. Couples, family members, friends, businesses, trusts etc, in all sorts of combinations. Each type of owner has different considerations.

  2. The amount that each party might be contributing to purchase the property. If people are contributing unequal amounts, you might want to think about structuring the ownership to reflect that, but also consider ongoing contributions too.
  3. Who is responsible for managing the different aspects of the property. Such as paying the outgoings, doing work on the property including maintenance, dealing with tenants if it is rented etc.

  4. What happens if someone defaults on their share of the payments? Is the agreement that if one of the owners has to step in and pay for a default, does the ownership structure change to reflect that? Also, does the lending make all parties jointly liable for the whole debt?

  5. How is decision making dealt with? For example, what happens if one party wants to renovate the property? Or, if there is disagreement about what sort of maintenance standard to keep the property to?

  6. Consideration where the property is not being rented needs to be given to who will live at the property. What would happen if a co-owner living at the property wanted to move their partner in, or had them there a large amount of the time? Also, what about if one co-owner had a claim from a relationship against their share?

  7. What happens if one person wants to sell the property, or their share? Is there a buy-out mechanism, or do all parties need to agree?
  8. If the property is sold, how will any gains or losses be divided?
  9. Are there insurance requirements, such as life insurance to repay a share of a mortgage in case one of the parties dies, or income protection insurance in case someone loses their job?

  10. What happens if there is a dispute? A good co-ownership agreement should provide a method for dispute resolution, which is aimed at positive resolution utilising cost reducing techniques. 

Consideration will also need to be given to how the ownership of the property might be structured, and the relative risk profiles of each party will be a key consideration in determining this.

As demonstrated, the idea of purchasing a property with others is something that requires careful consideration, planning and good advice. Getting on the property ladder in this way can be a great experience, but like most things is won and lost in the preparation. 

If you would like any further information or advice please contact either of the article authors: Zaneta Aislabie  or Jamie Nunns  or the Morrison Kent Wellington office (04) 472-0020.

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