The perks and perils of joint ownership: how to buy half a house without paying for the whole!
There are a host of good reasons to go into joint ownership of a property, but you need to tread carefully if you don't want to end up paying for more than your share.
While there isn't a huge trend right now towards joint ownership — you don't see hordes of young people clubbing together to buy a property! — we do still see parents joining forces to buy apartments for their kids to live in while at university, investors pooling their purchasing power to add lettable properties to their portfolio, family friends getting together to splash out on a shared holiday home, and extended family members forking out for a smallholding with separate dwellings.
Usually, 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.
Although the share of the property that is owned by each purchaser can be stipulated in the title deed, and then registered at the Deeds Office, the banks will always want both or all parties to sign that they will be 'jointly and severally' liable to repay that loan. In their eyes, it's a collective commitment.
This means the bank is entitled 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 and demand that all, or just one, of them settle the debt, at the risk of having the property repossessed!
And it's no different with municipalities: if the rates, water and electricity accounts are in arrears because one of the owners didn't pay their share, the local authority is not interested in who owns what percentage of the property. It will simply sue all the owners for the debt and, in the meantime, will probably cut off the power and water supply — not much fun for the owners who did pay their share or for those who live on the property.
So, you need to proceed with caution. Remember that the share you own will be an 'undivided' share, which 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 title deed will be registered at the Deeds Office.
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 — and get 60% of any income or profit from rentals or the resale of the property.
Says BetterBond CEO, Carl Coetzee, 'It's also 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 co-owner wants to sell but the others don't, or if, sadly, a co-owner dies. There should be some sort of opt-out clause in the contract so that if someone wants or needs to sell their share, the remaining co-owners will have first option to buy.' The contract should also include the option not to buy out a partner's share, but should stipulate that the whole property has to be sold and the proceeds divided according to the original shareholdings.
Whether you decide to fly solo or go communal, buying a property with someone else should never be an impulsive decision — because, if you haven't thought it through, you may have your 'share' of trouble ahead.