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Co-owning a property

Think about having a property sharing agreement

For many, owning a property simply involves having your own name recorded on the title. There are some situations, however, where you might share property ownership with friends, family or business partners. This type of co-ownership seems to be rising in popularity. Amongst other things, the difficulty for a single purchaser to meet finance requirements has seen an increasing number of people sharing a roof. Lately, whole developments have been designed to accommodate this type of arrangement.[1] For others, co-ownership may come about through inheritance, for investment reasons or in situations where the property is only needed part-time, such as a shared holiday home.

Whatever the reason, co-ownership comes with many issues to consider. The greatest risk with co-ownership is making assumptions about how things will work, only to find out at crunch time that your fellow owners see things very differently.

Put it in writing

In this article, we focus on a common way of dealing with co-ownership – a property sharing agreement. Completing a written property sharing agreement before you first purchase the property allows all the co-owners to establish upfront how the co-ownership will work, rather than relying on assumptions and potentially ending up in a long legal dispute.

Some issues that you might want to consider include:

  • Recording ownership on the title: You can structure the title in a number of ways to reflect your agreements about the property such as setting out the particular shares that each owner has in the property. Bear in mind that whether you are listed as tenants-in-common or joint tenants will affect, for example, what happens to the property if one owner dies. You also should agree on who the owners will be – are you owning with another person or, for example, the trustees of a trust?
  • Funding the purchase: Co-ownership does not necessarily mean that you each contribute equally into the property. For example, one owner might be only involved to help you gain finance approval rather than contributing funds.
  • Meeting expenses: All properties have outgoings to be met such as mortgage payments, council rates, insurance costs, and repairs and maintenance. You should decide not only how these will be paid, but also what should happen if one owner fails to contribute as required and how you will decide when to incur expenses for things such as maintenance.

    Any agreement will sit alongside, not override, your agreements with your lender or other creditors. Usually, mortgage repayments come with joint liability and the lender can seek repayment of its loan from any of the borrowers regardless of what is stated in your property sharing agreement.
  • Use of the property: You should consider, for example, whether any of the owners may let the property to a third party or whether ownership is for personal use only. Think about how any income or capital gains will be shared.
  • Selling the property: There have been cases where people have found themselves co-owning a property that they no longer want to own.[2] To help avoid this situation, you may want one owner to be able to force the sale of the entire property where, for example, the other owners have failed to pay outgoings, an owner has died or where that owner simply wants their funds back. On the other hand, so that no one is unexpectedly required to sell, you could agree to allow the remaining owners the first option to buy the share of the owner who wants to leave.
  • Relationship property claim? To help limit the effects of relationship property claims by non-owners, you might agree that everyone with an interest in the property is obliged to enter into a relationship property agreement with their partner/spouse. If you are buying a property with a relationship partner and want to contract out of the default position under the Property (Relationships) Act 1976, a relationship property agreement is a must.
  • Resolving disputes: You can set out in your agreement the process for resolving any disputes. For example, you could agree that you must first try to resolve disputes through alternative dispute resolution methods, such as negotiation or mediation, before any court proceedings can be filed.

These are just some of the matters that you should think about before embarking on co-owning a property.

We can take you through these matters and many other issues, and help you prepare an agreement reflecting how you want your shared ownership to work.

If you are interested in other ways to structure a co-ownership model, please get in contact with us to discuss whether a trust or company structure would be more appropriate for your circumstances.

[1] For example, the Bremner Ridge development.

[2] Marks v Halse [2021] NZHC 1595.