In times of economic uncertainty, it may seem like a brilliant idea to buy a property with a family member, friend, or partner in times of economic uncertainty. However, there are pitfalls to be aware of and avoid ending up with responsibility for the property’s full purchase price.
A prevalent tendency is parents buying apartments for kids while they study, friends purchasing a holiday home together and small communities purchasing smallholdings with several private lodgings.
However, contrary to what most believe, the primary issue with this type of transaction is not dividing shares in the property among the owners or joint agreements regarding maintenance and income from the property. The essential aspect to consider is third party interests such as municipalities and banks.
Regardless of whether each part-owner can be specified in the title deed registered at the Deeds Office, banks granting property loans will always require all owners to sign that they are “jointly and severally” accountable for the loan repayment.
Municipalities are also not interested in who owns what share of the property if rates, water and electricity bills aren’t paid. They will simply discontinue the services, which will be equally inconvenient for part-owners who’ve paid their fair share.
In other words, the bank has the right to recover the debt from all the debtors, per their shares or, when it becomes necessary, to recover the entire amount from only one owner. So, if one part-owner falls into financial hardship or any other circumstance that prevents them from paying their share, the other co-owners will be responsible for his/her share as well.
Should the other owners not be able to come up with the difference, and the loan falls into arrears, the bank is entitled to call up the debt and demand that owners jointly settle the total amount, failing which any one of the owners may be held liable together or individually.
The best course of action is to be exceedingly careful with whom you decide to buy a property. Keep in mind that you will be legally responsible for the entire property and not just your allotment.
The other essential element is undeniably the co-ownership agreement. It’s imperative to have a professional draft this agreement. Otherwise, the law presumes that the owners have equal shares, and the Deeds Office will register it as such.
The co-ownership agreement must spell out what happens if owners decide to end their property partnership. Problems that arise often are when one owner dies or decides to move.
It’s advisable to agree that the remaining partner has the first option to buy the other’s share, failing which the entire property could be sold, and the profits divided according to percentages.
You should also understand that buying, for example, 60% of a property doesn’t mean you own a larger part of the property or have more say in what happens there. It only means that you pay 60% of the purchase price and have a right to 60% of the profit when selling the property.
In a nutshell: it’s imperative to avoid impulsive decisions in this regard as the long-term financial implications could be severe.