Purchasing a Property with Family or Friends
Purchasing a property with family or friends? Here are some things to consider
With the rise in house prices in New Zealand (according to REINZ median house prices across NZ rose by 24.3 % from March 2020 to March 2021) people are increasingly looking to purchase properties with people they are not in a marriage or de facto relationship with. This provides an opportunity for people to acquire property when they would not otherwise be able to, however, it is not without risks or complications.
In this situation it is advisable to enter into a “Property Ownership Agreement” (Agreement) to set out the terms of the shared ownership between the parties, and also, what is to happen in the event of a dispute arising.This Agreement may deal with the following variety of circumstances (among others):
- How much will each party contribute to the purchase, and what will each party’s resulting ownership percentage of the property be? For example, if parents are contributing $600,000.00 towards the purchase of a property worth $1,000,000.00, and a child is contributing $400,000.00, will the parents own a 60% share of the property and the child a 40% share of the property?
- Are the parties permitted to borrow further funds secured by a mortgage registered over the jointly-owned property? For example, if parents who own a property together with a child wish to borrow further funds to buy a holiday house, are they permitted to use the house owned together with their child as security for their new loan?
- How are the outgoings (for example rates, electricity and insurance) to be shared between the parties? For example, if parents own a property with child who lives in the house, is the child to pay all the outgoings or are these to be shared between the parents and the child
- Who is to pay the mortgage expenses in respect of the property? For example, if two friends purchase a property together and only one friend obtains a bank loan for their part of the purchase, are both friends liable in respect of the bank loan, or just one friend?
- What happens if one party wishes to sell their share of the property, and the other does not? For example, two friends own a property together. One friend wants to sell the property and the other does not. If the friend who does not want to sell the property is unable to buy out the other, is the property to be sold, or not? If the friend who does not want to sell the property is able to buy the other out, how is the property to be valued?
- Who is to pay for any repairs and maintenance costs in respect of the property?
For example, in the case of parents who own a 60% share of a property with a child who owns a 40% share, are repairs and maintenance costs to be shared 60:40, or equally?
Joint property ownership can provide a great way to get on the property ladder, however, it requires careful thought and planning.
Our Property and Projects Team regularly assists clients in this area. If you have any questions we would love to hear from you.