A recent news story on the front page of the stuff.co.nz website featured two Wellington couples who were selling their dream home after owning and living in it together for seven years.One comment suggested the story normalised the fact that “housing is now unaffordable for most Kiwis.” The story also normalised the fact that the current generation are more open to property sharing than in the past.One of the owners of the Wellington property said: “We were living with a friend who owned the house, and after he passed away, the estate needed to sell … We saw we had an opportunity to buy it, but didn't think we could quite afford it. Two of our other friends were also looking to buy and we came up with the idea of pooling our money, and having four names on the title.”
Who uses Property Sharing Agreements and why?
At Aspiring Law, we are helping more and more people with Property Sharing Agreements. Traditionally, Property Sharing Agreements were used by people in a relationship, but they can be used by family, friends or business partners considering buying a property together.
Typically, they are more popular with people in the 25–35 age group who are looking to buy their first home. The people who buy the property tend to live in it together and/or let rooms to their friends. Having a Property Sharing Agreement in place can help the owners avoid the aggravation and costs from potential disputes, particularly when it is time to sell the property.
What do you need to consider before setting up a Property Sharing Agreement?
Property Sharing Agreements are drawn up on a case-by-case basis but typically cover some or all of the following:
- How the property is going to be owned and how each party’s ownership share is recorded on the title. If people are contributing different amounts to the purchase price, it is important to include a clause in the property outlining what proportion is owned by each of the parties;
- How the property will be maintained including who is responsible for paying for rates, insurance, improvements to the property and any other costs;
- Who is responsible for managing the property including paying the bills, organising renovations and managing tenants if the property is rented;
- Details of how the mortgage is going to be paid. Sometimes, one party will earn more than the other so the mortgage can be structured to reflect that;
- What is the process if one of the parties defaults on their mortgage repayments?;
- What is the decision-making process? Different parties may have different views on the need to renovate or maintain the house;
- What happens if one of the parties decides they want to sell the property? This requires a clearly defined structure that states who owns what and who is entitled to what. A common clause included in most agreements is a right of first refusal so that instead of going direct to a third party or real estate agent, the parties involved in the agreement have first option.
Why are Property Sharing Agreements becoming more popular?
There haven't been any changes to the legislation recently, but Property Sharing Agreements are very topical given how expensive houses are at the moment. The housing market has been rising for the last number of years and it doesn't show any signs of slowing down, temporary blips in the market aside. People who are tired of waiting for a drop in prices are joining forces to buy houses with other people, so it is becoming more and more common.
What you need to know
If you are considering buying a property with someone, the chances are that you are close friends and can’t ever imagine falling out with them. But people change and relationships evolve, and if you don’t have something in writing that clearly states your rights and obligations, then sharing a property with another person can potentially get very messy.
People need to be aware of the importance of getting an agreement drawn up if you are considering buying a property with another person. It is a complex, costly decision to make, without the added complication of not having the appropriate legal structures in place.
If you, or anyone you know is considering buying a property with family or friends, please contact us to find out how we can help you with a Property Sharing Agreement.