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Is co-ownership a good way to buy property?
So you want to buy a property, but your limited financial resources leads you to think that co-ownership may enable you to get into the property market, with less risk and less cost.

But before you enter into a ‘property marriage’ with other people, you need to be sure of just what co-ownership means, what your entitlements are and what your risks are – and then assess if it’s the right move for you.

What is co-ownership?

Property co-ownership (or shared ownership) is a financial and legally binding arrangement whereby two or more people (or entities) share the ownership of a property.

By working with other people, or ‘co-owners’, you will create a stronger combined borrowing capacity. The fact that you and the other co-owners will have different, separate incomes and probably also a pool of additional assets, will combine to help secure the loan – potentially a higher loan amount than you could have secured on a single income.

Working with others can generally give you increased borrowing power which means that you can maximise or ‘over pay’ your repayments. In this sense, co-ownership can not only reduce the cost of home ownership substantially, it could also enable you to own the home outright in a much shorter timeframe that you would be faced with if purchasing alone. In addition to the purchase cost, other ongoing costs, such as maintenance and rates etc, are also shared.

 
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What legal agreements do you need when considering co-ownership?

If you’re looking to enter into a co-ownership arrangement for the purchase of property, then it’s a very wise idea to be legally covered. There are two common types of legal property ownership that you are classified as co-ownership - tenants in common and joint tenants.

‘Tenants in Common’ is the term used to refer to a situation when two or more people agree to hold a property in equal or unequal shares.

While the share structure in a Tenants in Common undertaking doesn’t have to directly reflect each party’s financial contribution, it is preferable if it does. This makes it more straightforward in the event of any future property disputes, should any occur.

Under a ‘Tenants in Common’ agreement, each of the tenants in common has the right to deal with their share of the property as they so choose. They can decide to sell or mortgage their share or separate from the other tenants in common.

A ‘Tenants in Common’ agreement also enables any of the parties involved to bequeath his or her share of the property to anyone of their choosing as part of their will.

It is a good idea to ensure that the co-owners’ rights and obligations are covered by a co-ownership agreement which ensures that all parties understand and agree on the terms of the co-purchase (we explain co-ownership agreements below).

A Joint Tenant arrangement is an arrangement whereby the owners jointly own the entire interest in the property in equal shares. This means that all parties are entitled to equal shares of all profits and are equally liable for all of the outgoings and expenses for the property.

However, unlike Tenants in Common, if one of the owners of the property dies, then his / her share is automatically transmitted to the remaining owner(s).

Under a joint tenancy, an owner cannot bequeath his or her share of the property ownership in a will – it is automatically transferred, in equal shares, to the remaining or surviving owners.

What’s a co-ownership agreement and why should I have one?

When undertaking a co-ownership property arrangement, it is advisable that the owners enter into a co-ownership agreement. You should also seek independent legal advice to assist you with this process.

A co-ownership agreement is a separate legal document that clearly outlines the rights and obligations of each of the parties that hold a share in the property.

The co-ownership agreement can also stipulate the ways in which the co-owners have agreed to deal with any issues related to the property. If any disputes do occur at any stage, the result of which impact the relationship between the co-owners, it could be very costly for the co-owners to come to a resolution if there is not a co-ownership agreement in place. A co-ownership agreement leaves no ‘wriggle room’ or ‘he said, she said’ opportunities and ensures that the relationship between each of the owners remains legal and sound.

As such, it is advisable that you have a co-ownership agreement drawn up before entering into any co-ownership property purchase as this agreement (and its stated understanding) should prevail over any legal issues that arise at any stage.