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Is property co-ownership a solution to rising house prices?

Property co-ownership is often mooted as a solution to housing affordability.

Under this approach, multiple parties pool their resources to cover the costs to acquire and maintain a property that they otherwise could not afford acting separately. They then share in the proceeds from the eventual sale of the property.

Although numbers in Australia are difficult to find, this strategy has become increasingly common. Data from Canada indicates a fourfold increase over the last twenty years in the number of households with at least three parties repaying the mortgage. The practice has even entered pop culture: channel 10 based an entire drama series – Five Bedrooms – on the concept.

You’re not friends – you’re co-owners

As always, this strategy is not without its pitfalls.

Property ownership requires considerable and ongoing expenditure. But what if one or more co-owners cannot meet their share of the expenses?

What if someone needs to sell their interest in the property?

Or more simply, having now lived together under the one roof, what if the co-owners just can’t stand the sight of each other any longer?

How to end co-ownership

Co-ownership becomes tricky when the owners have disagreements, or when some parties want to sell the house while others wish to maintain their investment.

Broadly, there are two solutions.

Firstly, parties can make an application for an order to sell or partition the house under the Property Law Act (VIC). In Victoria, the sale of the land is the preferred option. Obviously, this will be extremely disruptive for any party that wants to keep living on the property.

Secondly, the parties may resolve the dispute by agreement. This is made considerably easier if they had the foresight to make a Co-Ownership Agreement at the time that they first acquired the house.

What is a Co-Ownership Agreement?

A Co-Ownership Agreement governs the use and management of the subject property.

It sets out clear procedures regarding contributions to costs, resolution of disputes, and procedures to sell. Where the property is to be rented or developed, it governs how the parties determine commercial matters such as the minimum rent to be charged or the maximum costs to be incurred.

Most importantly, where a party breaches its obligations or simply wants to exit the arrangement, the agreement provides enforceable mechanisms to:

  • Forcibly buy-out defaulting co-owners;
  • Offer first rights of refusal to continuing owners; and
  • In either scenario, determine prices and other terms of sale, such as liability for transfer duty.

It is the mechanisms concerning the sale of an owner’s interest, including the sale price, that are particularly useful in avoiding costly legal disputes.

This is why a Co-Ownership Agreement is an essential legal document for anyone that co-owns a property with anyone else.

If you’re looking at joining a property co-ownership arrangement, Aintree Group Legal will be happy to discuss a Co-Ownership Agreement with you. Contact us today.