Buying a property with someone else is a common way to share costs, increase borrowing power, and enter the property market sooner. For example, couples, friends, family members, and business partners often choose to buy together.
However, while co-ownership can be beneficial, it also creates legal and financial risks. Therefore, it is important to choose the right ownership structure and put proper agreements in place early. In addition, this forms an important part of broader estate planning and conveyancing advice.
Co-Ownership in Australia: The Two Main Structures
In Australia, co-owned property is generally held in one of two ways: joint tenants or tenants in common. Importantly, this choice affects what happens if an owner dies, sells, or experiences financial difficulty.
Joint Tenants
Joint tenancy means all owners hold the property together as one legal interest. As a result, no owner can sell their share independently.
In addition, if one owner dies, their interest automatically transfers to the surviving owner. This is known as the right of survivorship.
For this reason, joint tenancy is commonly used by couples purchasing a family home. However, it may not suit blended families or situations where owners want to leave their share to someone else in a will.
Tenants in Common
Tenants in common means each owner holds a separate legal share in the property. Therefore, each person can control their own share independently.
In addition, each share can differ in size depending on financial contributions. For example, one owner may hold 50%, while two others hold 25% each.
Furthermore, each owner can sell, transfer, or leave their share in a will. As a result, this structure is often used for investment properties or unequal contributions.
Key Differences Between Joint Tenants and Tenants in Common
| Feature | Joint Tenants | Tenants in Common |
|---|---|---|
| Ownership structure | Equal shared ownership | Separate defined shares |
| Right of survivorship | Yes | No |
| Ability to leave share in will | No | Yes |
| Sale of interest | Requires agreement of all owners | Can sell individual share |
Risks of Buying Property with Someone Else
Although co-ownership can work well, circumstances can change. For example, relationships may break down, financial issues may arise, or legal claims may occur. As a result, complications can develop quickly.
Relationship Breakdown
Joint tenants must act together when making decisions about the property. Therefore, disputes can arise when a relationship ends.
In many cases, owners must either sell the property, refinance it into one name, or sever the joint tenancy before moving forward. As a result, legal advice is often required to resolve the situation.
Bankruptcy and Creditors
Importantly, co-ownership does not protect property from creditors. For example, a court can sever a joint tenancy and force the sale of a debtor’s share.
Furthermore, tenants in common may provide more flexibility in some cases, particularly where ownership shares are unequal. However, outcomes depend on the specific circumstances.
Why You Should Have a Co-Ownership Agreement
A co-ownership agreement is a legally binding contract between property owners. In addition, it sets out how owners will manage the property and what happens if disputes arise.
Importantly, you should put this agreement in place regardless of whether owners are joint tenants or tenants in common.
What a Co-Ownership Agreement Can Cover
For example, a well-drafted agreement may include the following:
- Ownership percentages and financial contributions
- Mortgage repayments and ongoing expenses
- Rules for selling or refinancing the property
- What happens if an owner wants to exit
- Dispute resolution processes
When Should You Get Legal Advice?
Importantly, you should obtain legal advice before signing any contract for sale or choosing an ownership structure. This helps you understand the long-term legal and financial consequences.
In addition, a solicitor can ensure your ownership structure aligns with your broader wills and estates planning.
Frequently Asked Questions
Can joint tenants change to tenants in common?
Yes. In most cases, owners can sever a joint tenancy and convert it into tenants in common. For example, this may occur when ownership needs or estate plans change.
What happens if one co-owner wants to sell?
The outcome depends on the ownership structure and any co-ownership agreement. Therefore, legal advice is usually required to resolve buyout or sale arrangements.
Do I need a co-ownership agreement?
Yes. A co-ownership agreement helps prevent disputes and clearly defines each party’s rights and obligations.
Conclusion
Overall, buying property with another person can be beneficial, but it also carries legal risks. Therefore, you should choose the ownership structure carefully and plan ahead.
In addition, getting legal advice early and preparing a co-ownership agreement can help protect your interests and reduce future disputes.
If you or someone you know needs advice about co-ownership, conveyancing, or property disputes, please contact us on 02 9949 4022 or email [email protected].