For anyone wishing/hoping to buy property/get onto the property bandwagon, but who is unable to afford it on their own, joint ownership may be an option, as the costs and risks are shared in line with the agreement.
In agreements wherein purchasers have to take out a home loan, all purchasers are responsible for the monthly home loan repayments, rates and taxes, levies and insurance for the property, as well as maintenance costs. If one owner cannot continue with his or her repayments, the remaining owners may have to take over the payments to avoid a bad credit score profile or legal action against the entire group.
An important point is that from the onset, all owners must make provision for the possible exit of one or more co-owners or shareholders, and/or about what will happen in case of the death of a co-owner, according to Meyer de Waal, director at MDW INC Attorneys.
Understanding the types of ownership in terms of the law
De Waal says that people buying jointly or as a group need to know the different types of ownership and legal structure envisaged for the ownership of the property. A ‘stokvel’ per se, for example, is not usually regarded as a legal entity.
Once a decision has been made to buy jointly or as a group, individuals can choose to buy in their own name and form a partnership. It is advisable instead, to set up a company or a trust that can cater for joint or multiple ownership as a partnership structure may pose too many risks due to its nature. An example is that partners can be held responsible for the debt of a fellow partner outside the partnership agreement.
In all cases, individuals should ensure that the agreement between the parties is well documented in advance, and that every stakeholder is 100% in agreement of all obligations. These obligations could be financial and/or managerial duties and commitments. The three types of agreements should be handled as follows:
- If a partnership is envisaged/foreseen, then a formal partnership agreement must be prepared.
- If the decision is to form a company structure, then a formal shareholder’s agreement should be drawn up.
- If individuals choose a trust agreement, then a trust agreement must be prepared and signed by all the parties. In addition, the trust must be registered with the Master of the High Court and letters of appointment issued to the trustees to act upon.
Five questions to ask about joint ownership
As with any property purchase, it is important to research and understand the legal aspects and implications involved when buying property this way. The following are the five key questions to ask before signing on the dotted line:
- What will the structure of the ownership be – will individuals buy the property as a company or as a trust?
- What is the purpose of the purchase – is this a buy-to-let investment or to provide accommodation for one or more of the joint owners?
- How will the purchase price be funded – for example, will this be part cash and part loan, or will this be a 100% bank loan? If taking a home loan, the bank may require that each co-buyer stand surety towards the financial institution for the loan obligation.
- Who will contribute what in respect of financial contribution and management and administration? This also takes into account how the shareholding is split between parties. The agreement that individuals sign will have this information, as well as information on how profits are to be shared.
- What will be the exit clause if any co-buyer wants to opt out or sell their shareholding, or should they die? It is important to ask what taxes will need to be paid when a co-owner exits the property; in this case, transfer duty will be payable.
De Waal says that since there are benefits and risks associated with buying jointly or as a group, before making a final decision, individuals need to understand how various types co-ownership work, and should ensure that all agreements are in writing and signed by all parties.
Who is buying, and where are they buying?
Samuel Seeff, chairman of the Seeff Property Group, says that buying property jointly is fairly common, sometimes in the case of personal relationships, such as siblings or friends. These people often buy for investment purposes.
He explains that these buyers are often in their late-20s or early-30s. Some buy jointly and others are usually a small syndicate wanting to buy holiday homes or normal rental property
Buyers purchase property in all areas, and across various price bands depending on their budgets. So, they could be buying apartments, freestanding homes or holiday homes in coastal areas, where there would be a demand if bought as buy-to-let properties. Most of these buyers either pay cash for the purchases, or they apply jointly for a bank loan.
Seeff says that some people buying jointly for investment purposes might purchase property in a middle-class area that has a high demand for rentals, while others might buy in lifestyle resorts and game farms.
“A key benefit of buying with someone or as a group, is that you can invest in a property that you might not otherwise be able to afford on your own,” adds Seeff.
Edited by fellow-Safrean, Gudrun Kaiser.