Buying a property with your family or friends - how to protect yourself in a co-ownership arrangement

As property prices have flattened but the cost of living continues to trend upwards, we are seeing more purchasers than ever considering inter-generational living, buying with a sibling or friend, or being helped out by parents or grandparents.  

While these creative options for ownership are assisting people to enter the property market, there are a myriad of issues that can arise if the parties have not set out the terms of their arrangement at the beginning. We have set out examples of common disputes that we have seen arise, below:

1. Sisters, Aroha and Lucy purchase a property together 
   After some time, Lucy wants to sell her share in the property so that she can buy a property with her partner.  Aroha doesn’t want to sell the property, but she also doesn’t have the funds available to buy out Lucy.  
2. Friends, Jamie and Nikau purchase a property together
   The friends live together in the property for five years, after which they mutually decide to renovate the property and sell it.  Nikau is a builder and completes substantial renovations on the property prior to their putting the property on the market.  Nikau does not discuss with Jamie his expectations to be paid for the work he completes on the property and subsequently the friends fall out over monies received from the sale.
3. Couple, Mia and Sam and Sam’s mother purchase a property together
   Mia and her husband Sam are looking to buy their first home and have also just had their first child. Sam’s mother Kate is in deteriorating health.  Mia, Sam and Kate decide to pool their savings to buy a property together.  The parties have an expectation that the arrangement be mutually beneficial, as it will delay Kate’s transition into rest home care, with more assistance at home, and Kate’s contribution will bolster the deposit Mia and Sam are required to have to purchase their first home. Unfortunately, Kate passed away shortly after the settlement of the property.  There was no written agreement in place, and this resulted in delays for the administration of Kate’s estate while the executor ascertained exactly what Kate’s contribution was.  The delays further caused tension in Sam’s extended family. Sam and Mia could not retain the property as they did not have the funds to buy out Kate’s share from her estate.

In all of these scenarios, it would have been advisable for the purchasers to enter into a Property Sharing Agreement.  A Property Sharing Agreement sets out each parties’ intentions, rights and obligations in respect of the property.  These agreements generally include:

1. Who will own the property;
2. Arrangements for selling a party’s share in the property, including how you value that share;
3. Agreement regarding what happens if one party dies, enters into a relationship or separates;
4. How any improvements carried out by one party are dealt with.
5. Who pays the mortgage, outgoings, utilities and maintenance of the property.

The Agreement can be a vital investment that may well turn out to be very important to you in the future. All too often it is very difficult for parties to agree on what is fair further down the track, once a dispute has arisen.