Are you purchasing property with family?

High house prices are a common headline in the media, so it is not surprising that family members are purchasing property together. When purchasing property with family it may feel awkward to raise questions as to how to manage the legal arrangements; however it's an important question to ask.

Family members are entering into shared property arrangements for any number of reasons and while some arrangements run smoothly, many do not. Whether you are loaning money to your child for a deposit; providing a guarantee; purchasing a new property with family members; or investing in an existing family home to facilitate multi-generational living, it is important to consider your legal position at the outset. All too often what was initially an amicable and seemingly fair informal agreement can turn sour down the track and you may be left with little legal recourse.  Most importantly, agreeing terms up front removes the possibility of a dispute further down the track. 

We have put together a few suggestions to help.


1.  Consider the arrangement, future contingencies and strategies

All parties to the arrangement, and probably all of the family, need to have frank discussions as to how they see the property arrangement operating. Who will reside in the property?  Who will meet the mortgage obligations?  Who is responsible for improvements to the property or required maintenance?  What if one family member wants out of the arrangement? Will you buy them out, or will the property have to be sold? What if a party to the agreement gets divorced, dies or, in a multi-generational situation, needs money from the home to pay for residential care? We believe it is important to have these types of discussions well before the day the Agreement for Sale and Purchase is signed.


2.  Remove the emotion; be informed of legal options

Before you enter into any family property arrangement you should be informed of different legal ownership arrangements, and formal agreements that could be put in place to protect the rights of all family members. You need to ensure any arrangement or agreement:

(a)   addresses the interests of each party;

(b)   is well-documented;

(c)   sets out all of the key information including contributions and exit strategies if future contingencies arise; and

(d)   is in a legally recognised form.


3.  Formally secure your investment

If you are investing a large sum of money, rather just having an informal understanding that the money will be paid back in a few years; it is not unreasonable to require a share in the legal ownership of the property. That is, you may wish to have your share in the property recorded on the title.  Alternatively, if you are loaning your child a large deposit you should look to record this by way of Deed of Acknowledgement of Debt, supported by an Agreement to Mortgage if appropriate. Otherwise the money could be deemed to be a gift and you may not ever get it back.  This is highly relevant when you are lending money to a child who is in a de facto relationship with someone.  If they separate, the former partner will have the benefit of your monetary contribution. 

By having these legal mechanisms in place, you have a formal foundation for recouping your money in the future if there comes a time when you need it.

When purchasing property with family, it is important to be realistic, to note that things can go wrong, and if they do, to be happy that you were informed of, and comfortable with, the likely outcome for you.  It is far better to have this discussion at the outset when things are positive than when there is a potential disagreement looming. 

At Simpson Western, we have an experienced team of property specialists that can assist with your property purchase, and provide you with expert on your side advice for your situation.  Contact us today.