Tread carefully with shared ownership
MAIN IMAGE: Melanie Coetzee, legal consultant
There are many reasons why people decide to buy property together with someone else: because they are married or are dating or because they are not able to afford the property on their own.
Function of the title deed
Most, if not all joint buyers assume that their joint shares in the property are reflected correctly in the title deed and that this offers enough comfort should the property be sold or should there be a fall out between the joint owners. What most joint owners do not know, however, is that the title deed makes no mention to the actual split in the investment. Title deeds merely record the two joint owners’ details and unless a specific percentage split is indicated, joint owners automatically own the property on an equal 50/50 basis.
When the partnership splits
As much as people go into joint property investments with the best of intentions and with the hope that the investment will be managed amicably by both owners, big trouble arises when the investment partnership goes sour and no other agreement exists between the owners with regards to possible dissolution.
In reality, it is very unlikely that joint owners contribute exactly 50/50 towards the investment and maintenance of the property. Despite both owners appearing jointly on the bond documents, it is usual for one of the owners to pay the monthly bond instalments whereas the other takes care of the running costs such as rates, water, electricity and other household expenses. In the owners’ minds, this works perfectly whilst things are good. When things go south, the mud slings are retrieved, and it is then exceedingly difficult to reach an agreement regarding “who paid what” during the ownership. As one would imagine, these underlying financial disputes disrupts the marketing of such a property and if the property is sold, trying to reach an agreement regarding the division of the proceeds is a nightmare.
We all know that the breakdown in a relationship leads to unmanageable emotions which in turn leads to anger and simple irrationality. Out the window go those hopes and reason and in creeps the injustice and resentment. When the relationship between the joint owners reaches an irretrievable breakdown, often payments on the bond is stopped out of spite. This affects both the joint owners as the banks hold both parties equally accountable for the payment of a bond in undivided shares and any internal arrangement between the owners are completely discounted.
Joint ownership agreement a must
If a joint ownership agreement does not exist between joint owners at the time that the relationship deteriorates or fails, and should the joint owners not be willing to compromise or negotiate an amicable settlement once the property is transferred, the matter could well end up in a court as unresolved disputes can only be settled by agreement or by a court. Everyone knows that no one wins in court and the costs associated with such a battle often far outweighs the profits made by each of the owners. Add into the mix the children, the possibility of an adverse credit record if bond instalments are missed and the huge degree of emotional turmoil which ensues, and it is rather difficult to believe that most joint owners do not enter into a joint ownership agreement as a matter of course.
- Agreement then transfer: As in any commercial relationship, it is advisable for joint owners to enter into a proper joint ownership agreement before taking transfer of the property and for record of each owners’ financial contributions to be kept annexed to the agreement for the duration of the ownership. This will minimise the scope for disputes and further fuel to the broken relationship since the parties agreed to terms whilst the relationship still flourished.
- Scope of agreement: This type of agreement is enforceable only between the two parties and cannot be waived at the bank or council for outstanding amounts not paid by one of the owners. However, this type of agreement allows for the eventualities and exactly what needs to be done in the event of a relationship failing or death or insolvency for that matter.
Agreeing on terms surrounding a possible future dissolution or breach is essential in any contractual sense and must be considered by every joint buyer to give comfort and confidence should things go south.
Editor’s Note: This article is part of a two-part series that Melanie Coetzee is writing for Property Professional on the topic of shared ownership. Next, she will take a look at the different detailed terms contained within a joint ownership agreement: what happens when the relationship fails and how the property is sold and proceeds divided.
About the author: Melanie Coetzee started her own legal consultancy in October 2021 after more than 20 years in corporate law firms. She specialises in property law and in particular foreign investors, exchange control and all elements compliance related, including FICAA, Privacy Laws and Covid 19.