Co-Ownership: What You Need to Know When Buying Property with a Partner, Friend, or Family Member

Purchasing a property is a significant financial commitment, and for many buyers, entering into co-ownership with a partner, friend, or family member can be an attractive option. Co-ownership can make it easier to enter the property market by splitting costs and responsibilities, but it’s essential to understand the different types of co-ownership available in Western Australia (WA) and the potential benefits and drawbacks.

In WA, there are two main types of co-ownership: joint tenancy and tenancy in common. Each has distinct legal implications, so it’s crucial to consider which one is best suited to your circumstances.

1. Joint Tenancy

Joint tenancy is a common co-ownership arrangement, particularly for couples. In this type of ownership, all parties own the property equally and jointly. Each person has an equal interest, regardless of how much each individual contributes financially. One of the key features of joint tenancy is the “right of survivorship.”

Key Features of Joint Tenancy:

• Equal ownership: Each co-owner holds an equal share of the property.
• Right of survivorship: If one owner passes away, their share automatically passes to the surviving co-owner(s).
• Unified interest: Co-owners cannot sell or transfer their share without the consent of the other parties.

Pros of Joint Tenancy:

• Simplified inheritance: The right of survivorship means that the property automatically passes to the surviving co-owner(s), avoiding probate and other legal complications.
• Ideal for couples: Joint tenancy is often favoured by married or de facto couples, as it reflects a shared, unified ownership of the home.
• Less paperwork: The property is treated as a single entity, which simplifies the management of legal and financial matters.

Cons of Joint Tenancy:

• Lack of flexibility: Each co-owner must agree before making decisions about the sale or transfer of the property.
• No independent will: You cannot bequeath your share to someone else in your will. The right of survivorship overrides any testamentary intentions.
• Equal liability: Co-owners are equally liable for the mortgage and any debts related to the property, regardless of individual contributions.

2. Tenancy in Common

Tenancy in common offers more flexibility than joint tenancy, making it a popular choice for friends, business partners, or family members who want to co-own a property but maintain control over their individual share. Under this arrangement, each co-owner holds a specific share of the property, which can be unequal depending on each person’s contribution.

Key Features of Tenancy in Common:

• Unequal ownership: Co-owners can hold unequal shares of the property based on their financial contributions or other agreements.
• No right of survivorship: When one co-owner passes away, their share does not automatically transfer to the other owners. Instead, it forms part of their estate and is distributed according to their will.
• Independent interest: Each co-owner can sell or transfer their share without the consent of the others, although this may lead to practical complications.

Pros of Tenancy in Common:

• Flexibility: Each co-owner can decide how much of the property they want to own, allowing for unequal financial contributions.
• Independence in estate planning: Co-owners can bequeath their share to whomever they choose in their will, providing greater control over their assets.
• Exit options: A co-owner can sell or transfer their share without needing permission from the other owners (though in practice, this can be complicated).

Cons of Tenancy in Common:

• No automatic inheritance: The lack of a right of survivorship means that the surviving co-owners may find themselves in a situation where the deceased’s share is passed on to someone else, potentially complicating ownership.
• Potential conflicts: Since each co-owner can transfer their share independently, there’s the risk of disputes arising if one owner wants to sell while others do not.
• Shared financial responsibility: Even if ownership shares are unequal, all co-owners are generally liable for the mortgage and upkeep of the property.

3. Co-Ownership Agreements

Regardless of the type of ownership chosen, it’s wise for co-owners to formalise their arrangement with a co-ownership agreement. This legal document outlines the responsibilities of each party, how decisions will be made, and what happens if one party wants to sell or is unable to continue making payments.

A co-ownership agreement typically covers:

• Ownership shares: Clearly defining how much of the property each person owns.
• Financial contributions: Detailing who is responsible for mortgage payments, maintenance costs, and other expenses.
• Exit strategies: Outlining the process if one party wants to sell or exit the arrangement.
• Dispute resolution: Establishing a method for resolving disagreements, such as through mediation or arbitration.

4. Tax and Legal Considerations

Co-ownership can have tax implications, particularly regarding capital gains tax (CGT) and stamp duty. For example, when one co-owner sells their share or passes away, their portion of the property may be subject to CGT. Similarly, if one co-owner buys out another, stamp duty may apply to the transaction. It’s essential to seek advice from a tax professional or legal advisor to fully understand these obligations.

5. The Role of a Skilled Real Estate Agent

Navigating the complexities of co-ownership can be challenging, which is why working with a knowledgeable real estate agent is invaluable. Here’s how an agent can assist in the process:

• Expert advice: A skilled agent can help you determine the best type of co-ownership based on your financial situation and long-term goals.
• Property searches: If you’re co-purchasing with a partner, friend, or family member, an agent can help you find properties that suit your shared needs and budget.
• Negotiation: A real estate agent can negotiate with the seller on behalf of all co-owners, ensuring that the purchase is beneficial for everyone involved.
• Connections to legal professionals: Agents often have a network of trusted solicitors and conveyancers who can help draft co-ownership agreements and manage legal matters.

Conclusion

Co-ownership offers a way to make property ownership more affordable and accessible, whether you’re buying with a partner, friend, or family member. However, it’s essential to understand the different types of co-ownership – joint tenancy and tenancy in common – and consider the pros and cons of each. By formalising your arrangement with a co-ownership agreement and seeking professional advice, you can avoid potential disputes and ensure a smooth ownership experience.

If you’re considering co-ownership, contact one of our skilled real estate agents to guide you through the process and help you make informed decisions. Co-ownership can be a fantastic opportunity, but having the right advice is key to making it a success.