How does co-ownership of property work?
The great Australian dream of owning a property. While it is not completely unattainable for young adults, we are seeing that more and more people are looking to co-purchase a property with a friend or family member; someone that they trust and care for, whom they can then share the risk and expense with.
However, this mutual and informal relationship means that many people overlook the importance of having formal agreements in place which can assist them down the track if the relationship changes in and disputes arise.
What are the types of property co-ownership?
There are two types of co-ownership: tenant in common and joint tenancy.
What is Tenant in Common?
Tenant in common means that two or more people co-own a property with defined shares that they can dispose of in any way they wish. In this instance, the individual interests in the property may be unequal. If one owner passes away, their Will would likely dictate where the interest in the property is transferred to, if it is not automatically given to the other co-owner.
What is Joint Tenancy?
Unlike tenants in common, joint tenant co-ownership is when the property is owned equally by all parties and following the death of one person, their interest is passed onto the other surviving co-owner (for example, commonly a husband and wife situation).
How do you sell a co-owned property?
If this can be done independent of the courts, it is advisable to resolve and settle via mediation or negotiation. If a mutual agreement to sell cannot be reached, one co-owner can make an application to the courts to sell the property.
Once this application is lodged to the courts, it will involve the appointment of a statutory trustee. This arrangement will mean that the property is managed by the trustee until it is sold, and once sold, the proceeds of the sale will need to cover the trustee’s fees, real estate agents fees, auctioneers fees (if applicable), legal fees and mortgage before then splitting the remaining funds between the co-owners in line with each co-owners’ share in the property.
As well as this, any change will need to be properly documented and include registering that change at the title’s office. Changes in the respective shares between the owners will usually attract duty and taxes as well.
Considerations before co-owning a property
When entering into a co-ownership or joint property purchase with someone, it is important you put in place a simple partnership agreement to clarify terms. This agreement may also be very helpful when resolving issues if any disputes arises. A partnership agreement would also typically outline the rights and obligations of each of the owners including upkeep, renting and selling the property.
Other important considerations you should consider include:
- Payment of outgoings;
- Whether you will be joint tenants or tenants in common;
- What will happen if circumstances change (if you need to sell your share of the property but the co-owner does not want to);
- Options relating to dividing profits or losses;
- Living agreements; and
- Dispute resolution arrangements.
This information is for general information only and reflects the position of the author at the date of publication. It does not constitute legal advice and should not be treated as such.