Buying property with family can be a solution on a multitude of fronts – the elderly are cared for, costs are shared … But things can go wrong, and when they do they can ruin your most precious relationships. So, what are the “dos and don’ts”?
Shaun Dubois of Just Property, says he is seeing more and more multi-generational living arrangements: “This was always common in certain cultures but in most cases it’s a financial decision rather than a preference,” he says. “An economy shedding jobs has resulted in breadwinners losing their income and turning to family solutions. It’s a fairly even split between parents moving in with their children and children moving back in with their parents.”
If you’re considering such an arrangement, forewarned is forearmed, so let’s look at the legal considerations. There are several risks around the legal conventions that apply to joint property purchases in cases where no prior co-ownership agreement exists.
These risks are often associated with the fact that no prior co-ownership agreement has been entered into by the parties. If ownership is given to one or more purchasers, without stipulating in what shares they acquire the property, it is legally presumed that they acquired the property in equal shares, regardless of the individual financial contributions of each party.
Unfortunately, joint owners that have not concluded a co-ownership agreement, or have not made provision for all eventualities, often get caught up in legal action between themselves when the relationship breaks down. There can be issues, too, in the event of the death of one of the parties or if the other party sells its share of the property.
Clearly a co-ownership agreement is the place to start.
What to include in a co-ownership agreement
Specify the percentage ownership of each joint owner in the sale agreement and more specifically in the new Deed of Transfer of the property, which is registered in the Deed Office.
The Deeds office will then register the property in the specified percentage of ownership of each owner. So, for example if one owner is going to pay 60% of the costs, and the other owner 40%, the respective ownership recorded in the Deed of Transfer should reflect this share split specifically.
Should one of the parties contribute movable property, such as furniture rather than a cash investment or mortgage bond, a fair value should be established for such furniture or other movable property, and this would serve as an indicator as to the share value in the property allocated to that party.
Discuss what will happen in the case of the death or disability, if the relationship breaks down or if one of the parties wants to sell their share of the property, and include these decisions in the co-ownership agreement. (The options are that the property can be sold to a third party, or the parties can agree that one of them can purchase the share of the other and note in the agreement how the value of such a share will be determined.)
The co-ownership agreement should also stipulate how the property is to be used, how the costs of maintenance are to be divided, who would be responsible for the maintenance and who can occupy the property etc.
If one of the co-owners acquires the use of the property, the property will need to be valued and a market-related monthly rental to be established. The co-owners then decide on whether the party who has use of the property pays rent in accordance with the percentage of the shareholding of the other owners, or they make another payment arrangement.
If the co-owners decide that the party that has use of the property should pay a rental amount for the use of the property, then a valid lease agreement should be concluded between the owners of the property.
Acknowledgement of Debt
Along with their co-ownership agreement, owners must also sign an Acknowledgement of Debt for their share of the mortgage bond in favour of the other owner: In this way each owner has recourse against the other should the bank recover one owner’s mortgage bond non-payments from the other owner.
Co-owners who acquired a mortgage bond to purchase a property together are equally responsible for the repayment of such mortgage bond to the bank. The bank holds the co-owners jointly and severally liable to repay the loan. This means the bank can recover the full amount from either of the co-owners, regardless of the split in ownership.
So if one of the co-owners stops contributing to the monthly mortgage bond repayment, the bank has the right to collect the outstanding amount from the other owner in full.
Where family members share a rental property, the same conditions exist. Tenants will be ‘severally and jointly liable’ in terms of the lease. What this means in simple terms is that each tenant is 100% liable for the full rental, not only their share.
Co-owners are advised to take out life insurance that would be ceded to the other party in the event of their death, in order to pay off the share of any joint mortgage bond.
An income protection policy should also be in place for both parties that would pay out in the event of a disability.
Co-ownership with elderly parents
Where elderly parents jointly own a home with one of their adult children, the “family arrangements” can be complex and vary on a case by case basis.
It is highly recommended that you seek the advice and guidance of an attorney who specialises in this field of law. Such advice would ensure the intention of the parties is properly recorded in the parents’ wills, and that on the death of the last surviving parent, all the children are left feeling that they benefited equally and fairly from their parents’ estate, averting potential family feuds.