Purchasing your first property on your own can be a difficult task to achieve in today’s current market, there is much to learn and understand. Joint property ownership can make getting on the property ladder more achievable however there are a few things that need to be considered before doing so.
Legal Form of Ownership
When purchasing a property with someone else, you will need to decide what legal form of ownership works best for you in your circ*mstances.
There are two legal forms of joint ownership, either “joint tenants” or “tenants in common”.
If a property is owned as “joint tenants”, owners have equal rights in the property. In the event that one owner dies, their share automatically goes to the co-owner by survivorship.
If you want to purchase property jointly with a friend, partner or family member then should consider ownership as “tenants in common”.
This form of ownership allows property to be owned by parties in specific shares. Depending on the contributions of each party, you could be tenants in common in equal shares (i.e. 50/50) or tenants in common in unequal shares (e.g. 25/75). If the property is owned as tenants in common, the share of each owner will belong solely to that owner and would not automatically pass to the other owner by survivorship. If you own a property as tenants in common it is essential to have a Will that states what you wish to happen with your share on your death. This might include leaving a life interest in your share of the property to the co-owner(s).
Property Sharing Agreement
If you co-own a property, having a Property Sharing Agreement is a crucial step to avoid possible arguments and legal issues later down the track. Property Sharing Agreements do not only record the initial contributions made by each party towards the property, but they also cover the following issues:
- How the outgoings will be shared between the parties;
- Who will be responsible for maintenance and repairs;
- An exit strategy if one party wishes to sell their share;
- How the proceeds of sale will be divided when the house is sold; and
- Guidance for dealing with what will happen if one party wants out or is defaulting on their share of the outgoings.
Contracting Out Agreement
If you are married, in a civil union or qualifying de facto relationship your shares in the family home become equal regardless of who actually owns the property or the respective contributions that you and your partner initially made to the property. A Contracting Out Agreement (pursuant to section 21 of the Property (Relationships) Act 1976) will allow you to record what separate contributions were made towards the purchase and ensure that these contributions will remain separate in the event of separation or death.
If you would like more information around your property sharing arrangement contact Ruby Haddon, Solicitor (DDI 03 343 8586 / ruby@mmlaw.co.nz).
