When you purchase a property together, particularly with your partner or spouse, people commonly register the title in both names – especially if they’re going to live in the property. But other ownership arrangements are available to cater for different situations. For example, if friends or siblings wish to purchase a property together to speed or facilitate their entry into the market, they may wish to adopt an ownership structure which reflects their individual contributions to the purchase or share of any debt.

So what are the key points to consider when purchasing a property with others?

Forms of ownership

There are two main types of joint-ownership arrangements in Australia:

• Joint tenants - own the whole property together. If one dies, ownership passes to the surviving tenant or tenants and tenancy in common.

• Tenants in common - own individual shares in a property, and those shares do not have to be equal.

Joint tenancy is the most common arrangement when a couple owns a family home. You cannot sell or transfer your ‘share’ in a joint tenancy.

Shares in a common tenancy can be transferred to someone else. When a tenant dies, their share becomes part of their estate and so ownership does not necessarily transfer to the surviving co-owners.

Tenancy in common is a useful arrangement when a group of people want to buy property together. Each tenant can own a share proportionate to how much money they’ve contributed, and can sell or otherwise dispose of their share as they wish (unless the tenants have entered into a prior agreement which prohibits this).

Tenants in common can sometimes take out individual loans to finance the purchase of their share of a property, with each tenant repaying their own loan. However, tenants in common are “jointly and severally” responsible for all the loans – if one tenant falls behind in their payments, the other tenants are responsible for those payments. You should also be aware that a lender could force the sale of the property to recover money owed by one tenant.

Sole Ownership

Management of the property and the debt

There are several other factors to consider when purchasing a property with others:

1. Exit strategy

When you are purchasing a property with one or more partners, by definition you are wanting to purchase at the same time as them. However, in many cases, one party will wish to sell before their ownership partners. You should discuss this potential situation with your co-purchasers before entering a joint purchase. The decision by one party to exit could precipitate the forced sale of the property if the remaining party or parties cannot afford to purchase the other share and/or cannot qualify for a loan to refinance the property in the remaining name(s).

2. Co-owner’s contribution

You should also consider the situation where one owner loses their income, becomes ill, or simply becomes unreliable in meeting their share of the property’s expenses or mortgage repayments. A situation like this could put the remaining owners into financial stress, or even affect all owners’ credit ratings.

Your Future Plans

If you wish to borrow funds for another purchase in the future, most lenders will take into account your share of the income from the property and the whole of the debt against the property (not just your share) when assessing how much they can lend you. This can significantly decrease your borrowing capacity in these situations.

So before you enter into a joint ownership arrangement with siblings or friends, it is important to look at the above issues in advance, and agree how the ownership partners will manage potentially difficult situations. Do not blithely assume that everything will run smoothly all the time, or that you will find it easy to agree on every issue. You may even wish to obtain legal advice and have a formal contract between you.

Tax legislation and other Australian laws governing property ownership and investment are complex, so seek proper legal, financial and taxation advice before entering into any joint ownership arrangement.

Social Sharing