For a variety of reasons, including getting into the property market sooner, some buyers choose to join together and pool their resources. This can be sensible, but it needs to be thought through. The plan to purchase, live in, rent out, or whatever you propose is best documented.
In this article, Halliwells explains how to buy a property through shared ownership. We also share our advice on how to simplify the process and avoid complications later on.
What is shared ownership?
Fundamentally there are two legal forms of real property ownership.
The first is “Joint Tenancy”, which is the preferred choice for domestic partners and some other family situations. Joint tenants own an undivided interest in the property which automatically passes to the surviving owner(s) upon the death of a joint owner.
The second option, “Tenants in Common” is when a property is purchased in shares. Often the percentage share of each purchaser is determined by their relative contribution to the total purchase cost. When one tenant in common dies, their share becomes part of their Estate and revolves according to the deceased’s will or as provided in the Administration Act if there is no will.
Given that a house purchase is a major financial decision, agreeing on a structure of ownership and management is important. The consequences of a relationship fallout or a change in circumstance can be complex. Establishing a formal and legally-recognised agreement isn’t an indication that you expect the relationship or arrangement to fail but an acknowledgement that the parties involved need protection should the unforeseen occur. A shared ownership agreement outlines the limitations, and requirements of each party. This can be a formal document (best practice) or an agreed email to get something in writing.
Considerations when buying a house with friends or family
When deciding how to share ownership, there are a few key considerations to make:
- How many people own the property?
- What happens if a co-owner dies?
- Will ownership be shared evenly?
- Is it an investment property or your primary residence?
- What happens if someone wants to sell their share or leave ownership?
What to do when entering into a property-sharing agreement
Sign a property-sharing agreement
Before entering into property ownership with one or more people, you should always sign a comprehensive agreement outlining the conditions. Your property-sharing agreement should be specific to your situation and should outline the following:
- Each party's contribution obligations to outgoings for the property.
- How to manage mortgage repayments?
- Who will live on the property?
- Property maintenance and development responsibilities.
- What will happen if one party wants to sell?
- How you will resolve disputes.
- What will happen if a co-owner dies?
Key considerations with a shared property
When setting up shared ownership with one or more people, you need to be open and realistic about the situation. We recommend taking the time to discuss and think about the following:
1. How will you resolve disputes?
Owning a property together is a major financial commitment so you need to think carefully about the relationship you have with your co-owners. There is always a chance the relationship could break down and make the ownership agreement more complicated. In these cases, you need to be confident you can fairly resolve the issues.
Failing to plan can be both costly and destructive so you might consider agreeing in advance to appoint a trusted agent or lawyer. If a party is unhappy and all owners cannot agree on a way forward, this third party will make necessary binding decisions.
2. Are you clear about your finances?
Co-owners need to be as transparent about their financial contributions as possible. You’ll each have a share in the property so it needs to be agreed on how this will be recorded on the property title. We also recommend executing a Will at the same time as buying the property. This will ensure your assets are protected if something should happen to you.
3. Are you aware of personal liability?
Be aware of the impacts shared ownership may have on you as an individual. For example, if one co-owner defaults on mortgage payments, the bank will call on all of you to pay the total debt. Banks will consider your half portion of the property as your asset but will recognise the entirety of the mortgage as shared debt.
4. What happens if one owner wants to sell?
If you have a property-sharing agreement, it will likely contain a clause requiring the seller to offer their share to the co-owners first. If the co-owner decides not to or isn’t able to buy the share, the share of the property can be listed for sale. If the sale is successful, the funds will be distributed in accordance with the selling shares. However, there is not a ready market for shares in real property.
5. What happens if only one party is living in the house?
If one party lives in the property, they would normally pay the other party(s) some form of rent. Usually, you will need to obtain a rental valuation to determine how much the rent payments will be. The co-owner who lives in the house will pay this regularly, minus their ownership share percentage.
6. What happens if one party contributes more to mortgage repayments or the deposit?
In some cases, co-owners will contribute different amounts to the mortgage or deposit. If this is not dealt with as part of the ownership shares, it will be repaid to the person who has paid more when the property is sold or earlier. Make sure you agree on this clearly from the outset.
How can LegalPath help?
LegalPath via Halliwells, Solicitors, enables you to complete the entire conveyancing process online for your new house purchase, regardless of your ownership type. Everything can be done from wherever you are online and the Halliwells expert team provides full-service support via phone and email.
Advantages of online conveyancing include:
- Efficiency
- Reliable expertise
- Frequent progress updates
- Convenience and accessibility
- Cost-effective
- Free, no-obligation quotes
With fewer overheads and streamlined workflows, Halliwells services are cost-effective and convenient. Request a free, no-obligation quote to find out your next steps. 
