Buying a family holiday home: joint ownership

Many families dream of jointly buying a holiday home at the coast that they can share for more cost-effective vacations. It is a good idea and has worked for many families. However, you need to tread carefully if you don't want to see family arguments. The co-ownership contract doesn’t include clear provisions on how it will work.

Sometimes a detailed contract isn’t enough

Most joint buyers will get an attorney on board to draw up a detailed co-ownership contract before they apply for a home loan. But what many of them don't realise is that no matter how you split up the shares in the property, or what you decide in terms of maintenance, occupation or income, that contract has absolutely no weight when it comes to third parties like banks and municipalities.

Each family member is 'jointly and severally' liable

Although the share of the property each purchaser owns can be stipulated in the title deed, and then registered at the Deeds Office, the banks will always want all parties to sign that they will be 'jointly and severally' liable to repay that loan. It's a collective commitment.

This entitles the bank to recover the debt from all the debtors, in proportion to their share. Or, if necessary, the bank can recover the whole amount from any one of the signatories. So, if one co-owner falls on hard times and stops paying for some reason, the others will have to make up the shortfall.

And if the remaining owners don't bridge the gap and the loan then falls into arrears, the bank can 'call up' the debt. They can demand that all, or just one of them, settle the debt, at the risk of the bank repossessing the property.

It's no different with municipalities

If the rates, water and electricity accounts are in arrears because one of your family members didn't pay their share, the local authority has no interest in who owns what percentage of the property. They will simply sue all the owners for the debt. In the meantime, will probably cut off the power and water supply.

Proceed with caution

Remember that the share you own will be an 'undivided' share. This means that you have a responsibility to the whole property, and not just the particular portion you occupy. That doesn't mean that a professionally drafted contract is a total waste of time. On the contrary, if you don't have one, it will automatically be presumed in law that each signatory has an equal share to the property, which might not be the case. But that's how the Deeds Office registers the title deed.

Having said that, buyers should know that if you have a 60% share of a jointly-owned property, it doesn't mean you actually own a larger piece of the property. But it does mean that you'll pay 60% of the purchase price and running costs of the property. You get 60% of any income or profit from rentals or the resale of the property.

Always prepare for the worst

It's vital that the co-ownership contract spells out what will happen if the owners decide to go their separate ways. Problems can and do occur if one family member wants to sell but the others don't. Or if, sadly, a family member dies. There should be some type of opt-out clause in the contract so that if someone wants or needs to sell their share, the remaining family members will have first option to buy. The contract should also include the option not to buy out a family member’s share, but should stipulate that you sell the whole property and divide the proceeds according to the original shareholdings.

Buying a property with family should never be an impulsive decision. If you haven't thought it through, you may have your 'share' of trouble ahead.