A property sharing agreement, also known as a co-ownership agreement, is crucial when purchasing a property with other co-owners. A property sharing agreement outlines the co-owners expectations on practical living situations will work once the property settlement is complete. The most common co-ownership structure is where a couple purchases a residential property with a third person; it may be parents buying in with a child, a couple and their friend, or another family arrangement.
Reasons for co-ownership can vary, but it is a common theme that each party will contribute different amounts towards the purchase price. Here are several reasons why such an agreement is important:
- Clarification of Ownership Shares: A property sharing agreement helps define the ownership shares of each co-owner. Where contributions to the purchase price differ, it ensures that the ownership percentages accurately reflect each individual’s investment. Shares can be held in Tenants in Common (1/3 each) or Joint Tenants (common for a couple).
- Financial Protection: The agreement can outline the financial obligations and responsibilities of each co-owner. It is likely that co-owners will have a mortgage. The agreement will specify how the mortgage payments will be split, as well as any ongoing expenses such as property rates, outgoings (power, internet), general maintenance, improvements, and repairs. This helps protect the interests of all co-owners, especially in case of disputes.
- Exit Strategy: Life circumstances can change (relationship breakdown), and co-owners may want to sell their share or exit the arrangement. The agreement can specify the process for selling or transferring ownership, including the right of first refusal for other co-owners. Without such provisions, disagreements and complications can arise when someone wants to leave.
- Decision-Making: The agreement can establish decision-making procedures for important matters related to the property, such as renovations, major repairs, or property management. It can also outline how decisions will be made if co-owners have differing opinions.
- Use of the Property: It can address how the property will be used. For example, if one co-owner wants to use it as a vacation home while the others want rental income, the agreement can provide guidelines for such situations.
- Dispute Resolution: In case disputes arise between co-owners, the agreement can stipulate a process for resolving conflicts, potentially avoiding costly legal battles.
- Estate Planning: In the absence of Wills, the agreement can address what happens to a co-owner’s share in the event of their death, including whether it can be inherited, distributed to other beneficiaries, or must be sold to the other co-owners.
- Legal Protection: Having a written agreement can provide legal protection for all co-owners by clearly outlining their rights and responsibilities. It can also help prevent misunderstandings and disputes.
In summary, a property sharing agreement is important to ensure that all co-owners have a clear understanding of their rights and responsibilities, and it helps protect their interests in the property. Without such an agreement, co-ownership can lead to conflicts and financial complications at the risk of losing the property.
Our solicitors have experience with drafting comprehensive and legally sound agreements, that address the unique circumstances of any co-ownership arrangement.