Buying property with friends or family is becoming increasingly popular, especially among first home buyers trying to break into the market. With house prices continuously on the rise, it’s no surprise that more people are pooling their resources to get onto the property ladder.
While co-buying can make home ownership more affordable and achievable, it also brings legal and financial complexities that many don’t expect. If you’re considering this path, it’s essential to understand the risks and how a conveyancer can help protect you (and everyone else) involved.
Here are three considerations before signing on the dotted line:
1. Choose the type of ownership structure
There are two main ways to own property jointly, whether it be with a friend or family member.
Option 1: Joint tenancy (also known as ‘joint proprietors).
This means that all owners have equal ownership and interests in the property. Although it seems the obvious answer for many, all parties involved must be okay with the right of survivorship. That is, if one owner passes away, the property is automatically passed on to the surviving owner/s, which means it cannot be passed onto another person in the deceased person’s Will.
Option 2: Tenants in common
This means that all owners can have different shares of the property (for example, one person may own 60% and the other 40%), and the right of survivorship doesn’t apply (meaning their share can be left to a beneficiary in their Will).
To learn more about the two options, read our blog here. However, before locking in a final decision, we highly recommend you speak with our conveyancer to ensure the chosen structure reflects your financial contribution and long-term intentions.
2. Create a robust co-ownership agreement that covers best- and worst-case scenarios
Verbal agreements, even among close friends or family, can easily go sour if circumstances change. A co-ownership agreement is a legally binding document that sets out everyone’s rights and responsibilities. Beyond the type of ownership, it also documents how much each person is contributing upfront, who pays ongoing expenses (such as mortgage, rates, maintenance, etc.), who can live in the property and how disputes will be resolved.
It’s also important that your co-ownership agreement outlines what happens if you or your co-owner’s situation changes, whether that be through marriage, moving away, having kids or changing financial goals.
Ask yourselves:
- What happens if one of you wants to sell? Can the others afford to buy them out?
- Do you all agree on whether the property is an investment or a long-term home?
- If someone wants to renovate, who pays?
- Will each person have equal use or access? If so, what happens if one person wants to move out?
- What happens if someone loses their job?
Thinking through these possibilities early and having clear rules within your co-ownership agreement can help avoid major disputes. Taking the time to put everything in writing now can prevent serious conflict (and hefty legal fees) later on.
3. Understand your liability (and its impact)
No matter the ownership structure, each co-owner is typically liable for the full loan if it’s taken out together. This means that the lender can pursue anyone listed on the loan if one person stops paying their share, even if you only own 20% of the property.
Not only could this place an increased financial burden on you, but it can also negatively impact your credit score if you can’t cover the full repayment on your own (as well as strain your relationship).
Do I still need to use a conveyancer?
Yes! Even if you trust your co-buyers completely, you still need a highly experienced conveyancer to handle the legal side of the property purchase. This includes:
- The preparation of legal documents to ensure they comply with the regulations in your state or territory.
- Ensure everything is as good as it seems by checking you are not inheriting any debt or negative interest on the property.
- Advise on reports to be conducted, such as pest checks and boundary reports.
- Handle queries from the other party’s conveyancer.
- Ensure a smooth settlement of the property.
Learn more about the role of a conveyancer here.
How can Waters Lawyers help?
Buying with friends or family can be a smart way to enter the market, but it’s not something to rush into. Talking to a conveyancer in the consideration period to ensure everyone is on the same page (emotionally, legally and financially) can make all the difference in the long run.
If you’re planning to buy property with others and want clear, local advice, get in touch with our team on (03) 5996 1600.
