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NEWS - PLANNING
Friends buying homes together
2/3/2003
With home ownership near impossible without a joint income in many capital cities, and increasingly difficult in other metropolitan areas, young singles - tired of paying a small fortune in yearly rents while waiting for their knights in shining armour to appear - are buying property with friends, family and co-workers.
A partner with Gadens Lawyers practising in property, Roslyn Forrest, says communal ownership of property is becoming more common. "I did one recently for a couple. They were friends but it was very businesslike. Marriages fall out all the time so it's really no more risky."
Friends who buy property together normally do so as tenants in common, which means each person gets a separate certificate of title and holds a specific share of the property.
"There's no restriction on how you split it up; you can have 10 people owning one-tenth each if you want. It's all noted on the title deed and you're a joint registered owner of the land - that's the easy bit," Forrest says.
"After that, each person can legally sell their share to anyone they like if they want to get out, although typically there's not much of a market for someone with say, half a property.
"In addition, the person left does not want just anybody to move in. So you need a clear understanding of what happens if something goes wrong.
"The main risk is that as the bank will have a mortgage over the whole property, if one person defaults you are jointly and separately liable for the whole debt, so even if it's not your fault the bank can pursue the deepest pocket."
That's why it's crucial for each person's rights, responsibilities and the exit strategy to be set down in an agreement, which should cover what happens if one or all parties want out of the deal, how repairs and upgrades will be financed and long-term goals for the property.
Forrest says agreements will generally state that the person who wants to exit must offer their share to the remaining owners or introduce a new buyer acceptable to all parties. "You can't have a veto over someone's right to sell either so the remaining party has to act reasonably. And you get a real estate agent or valuer to set the price."
It's also advisable to sort out what happens when you have to replace the roof, for example, but one person doesn't have the money. "Usually the others can lend the money to that person at a specified interest rate and at the end of the day when the property is sold, you get the loan back plus interest before you split the profit."
There may also be a "sunset date" by which the parties must agree about long-term plans. "Usually if one person wants to bail earlier, a default provision will state that if you can't find another owner or the other person can't buy you out, we put the property on the market."
Still, a written agreement is no guarantee the friendship will survive. "If somebody wants to act like a complete prick there's nothing much you can do, there still has to be a good deal of trust.
"If it all ended up in a terrible dogfight, a lawyer or court would sort it all out; having a record of what you intend to do saves on the legal fees."
A spokeswoman for Westpac, Julia Quinn, says anecdotal evidence suggested it was becoming more common for younger people, particularly women, to buy property as tenants in common, and she says lending policies do not favour any particular arrangement.
"Applications of this type have their own strengths and weaknesses when compared to single family purchases. We have not seen any material difference from a risk/performance perspective.
"Applicants can split the repayments in any way they choose. This is an agreement made solely between the applicants. From the bank's point of view, the application is assessed on the applicants' combined ability to service the new loan. The mortgage signed by the applicants assigns joint and several liability to each applicant. In the event the loan falls into arrears each applicant is individually responsible for bringing it back into order."
However, if applicants have unequal shares in the property, the bank would generally require each applicant to own at least 20 per cent. "Applicants with less than 20 per cent share are considered minority holders and will be assessed on an exception basis."
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