In today’s competitive property market, many first-time home buyers are considering co-ownership arrangements with family members or friends to secure a property and step onto the property ladder. Co-ownership allows buyers to pool resources, meet equity margins for bank lending, and share the burden of servicing debt.

However, co-ownership also comes with potential for disputes. The case of Robertson v Robertson [2021] NZCA illustrates the risks of entering co-ownership without clear agreements. Here, two brothers found themselves unable to agree on handling a property they co-owned for over 40 years, highlighting the importance of having a solid co-ownership agreement.

Key Considerations in Co-Ownership Agreements

1. Contributions to Purchase Price and Outgoings:

– Clearly outline each co-owner’s cash contributions to the purchase price, reflected in their percentage ownership as tenants in common.

– Define the share of acquisition costs and apportion outgoings like rates, maintenance, and utilities. If one party is the sole occupant, consider an unequal division of certain expenses.

2. Debt and Liability:

– Address how bank lending will be handled, especially if one party borrows more than the other. Ensure the co-ownership agreement specifies that only the borrowing owner is responsible for servicing the debt.

– Include an indemnity clause to protect the non-borrowing owner from losses due to the other’s default.

– Prohibit increasing secured borrowing without mutual consent.

3. Disposal of Property:

– Specify how profits or losses from the sale will be shared, proportional to initial contributions.

– If one owner wishes to sell their share, offer the other owner the first right of purchase at an independently determined value. If declined, proceed with an open market sale.

4. Death of a Co-Owner:

– Plan for the unexpected death of a co-owner by giving the surviving owner the first right to purchase the deceased’s share. If declined, the property should be sold on the open market.

5. Dispute Resolution:

– Include mediation as a first step for resolving disputes, offering a preferable alternative to arbitration or litigation.

Learning from Robertson v Robertson

In the **Robertson v Robertson** case, the brothers co-owned a Northland property since the 1980s but disagreed on its management. The Court ordered the property to be sold at auction under the Property Law Act, as the brothers could not agree on a valuation. This decision underscores the necessity of having a co-ownership agreement to avoid costly litigation.

Creating a Co-Ownership Agreement

The above considerations form the foundation of a co-ownership agreement, helping prevent common issues. Given the typical sale and purchase agreement’s tight timeline (usually ten working days for finance approval or due diligence), potential co-owners should finalize their agreement before making an offer. This ensures a clear understanding and smooth transaction process, especially when bank lending is involved.

Seeking Legal Assistance

If you need help drafting a co-ownership agreement, our property solicitors are here to assist. Contact us today to ensure your co-ownership arrangement is robust and clear, preventing future disputes and protecting all parties involved.

By addressing these essential elements in your co-ownership agreement, you can enjoy the benefits of shared ownership while minimizing potential conflicts.