Family Property Arrangements - Part III
Siblings and Other Relatives Purchasing Property Together
In our Autumn 2016 and Winter 2016 editions, we discussed some of the issues that arise in circumstances where parents lend money to their adult children to assist them with the purchase of a property and when elderly parents move in to live with their children.
In this article, we focus on other types of situations in which family members, such as siblings, purchase property together.
Ownership of the Property
It is becoming increasingly common for siblings to “go in” together in the purchase of a property in which either or both of them may chose to live, or which they may choose to rent out. Such arrangements tend to be on the basis that the parties will both take a share in the ownership of the property, as opposed to title being taken in the name of one of them with the other providing a financial contribution.
Where both parties are to take a share in the ownership of the property, it is important to give careful consideration to whether to own the property as “joint tenants” or as “tenants in common”. The distinction is particularly important because in a joint tenancy, when one of the joint owners dies, their share of the property passes automatically to the surviving owner and does not form part of the deceased owner’s estate. However, in the case of a tenancy in common, when one of the owners dies, their share of the property will be dealt with in accordance with the provisions of their Will or otherwise dealt with on the basis of an intestacy. Secondly, where property is owned as tenants in common, it can be owned in shares proportionate to the respective parties’ financial contributions to the property. For this reason, it is normally appropriate when the purchaser’s are siblings that they own the property as tenants in common, rather than as joint tenants.
More often than not, the parties will need to borrow from a bank or other financial institution in order to fund the purchase of the property. However, the parties may also need to consider how they share the ongoing expenses in relation to the property and also how any income derived from the property if it is rented out is to be divided.
Ending the Arrangement
It is trite to say that circumstances change and for one reason or another one or more of the parties may wish to bring the shared ownership arrangement to an end. The parties need to give consideration as to what is to occur in that event. The time for consideration of such matters is prior to the purchase of the property, not at the time one of the parties wants to realise their interest in the property. The parties need to enter such arrangements on the understanding that if the other party wants to bring the arrangement to an end, the property may have to be sold if one party is not in a position to buy out the other.
Property Sharing Agreement
In our view, it is essential that not only do the parties consider the above matters, but they also document their agreement in a formal Property Sharing Agreement. Furthermore, such an agreement needs to be concluded prior to the purchase of the property, so that all parties go into the arrangement with their eyes open. Parties who enter into shared property purchases without considering how the arrangement might work in practice or come to an end and documenting those arrangements greatly increase the risk that the arrangement will come to an unsatisfactory end.
A common theme amongst the various types of family property arrangements that we have discussed is the desirability of the parties giving very careful consideration as to how such arrangements are to work in practice, not just in relation to the initial purchase, but also in relation to ongoing ownership issues and what is to occur when one or other of the parties wants to sell the property. Furthermore, such arrangements should be agreed and documented in writing prior to the purchase of the property. If the parties leave consideration of such matters until such time as the issue is forced upon them, the likelihood of problems is greatly increased. Furthermore, in the event that such problems do arise, resolving the issues can be time consuming and expensive for the parties and does little to improve family relationships.A second common theme to all family property arrangements is the need for the parties to appreciate that their and the circumstances of the other parties to the arrangement can and do change, which may result in an arrangement that was once perfectly satisfactory no longer meeting the requirements of all parties. This in turn may result in the arrangement coming to an end and the property having to be sold in circumstances that do not particularly suit one or more of the joint owners. The best way of ensuring that all parties’ expectations match and minimising the scope for problems is for family members who are considering purchasing property together to ensure that the arrangements between them are documented in the form of a formal property sharing agreement at the time of the purchase. In that respect, shared property arrangements involving family members should be treated no differently and no less formally than such an arrangement between strangers.