Legal Agreement for joint owners - protects more than just money!
When owning a property with someone else, whether friend, family member or a flat mate, you should have a legal agreement drawn up to protect your interests - especially if you own the property in unequal shares. The legal agreement should cover if:
- You fall out;
- Someone dies or disappears;
- You get repossessed (your share of anything left once the mortgage is repaid);
- Someone becomes bankrupt (Read about Joint Owners in Bankruptcy);
- You leave, how much you benefit from any increase in the property's value.
Here's an example of owning a property as tenants in common (unequal shares)
When you buy a property in a group as tenants in common (unequal shares) you choose a bedroom for yourself and the rest of the property is shared. The share of the initial financial investment is based on how much you have contributed to the purchase.
Example of an unequal deposit
Jane, Michael & Michelle are buying a £250,000 house with a 10% deposit. The stamp duty is £2,500, solicitor fees £529 and Land Registration is £135. The total cost is £28,164. This is how their unequal shares are set out:
|
|
Invested
|
Share
|
|
Jane
|
£10,000
|
35.5%
|
|
Michael
|
£5,000
|
17.7%
|
|
Michelle
|
£13,164
|
46.8%
|
In Michael’s case, he will own a share of 17.7% and if the property increases by £25,000 then his share will be £4,425 plus his original deposit of £5,000; totalling £9,425. This doesn't factor in any repayment of the mortgage which would also be split.
Is buying unequal shares in a property with someone else a good idea?
Yes it can be especially if it is the only way you can afford to buy a property. By joining forces with a partner, friend, flat mate or family member you can pool your resources to make your financial position stronger; either a greater combined salary for the mortgage multiples or a larger sized deposit. Additionally, there are other advantages to owning a property as tenants in common and in unequal shares - you can use it, for example, to make your tax planning more efficient as a married couple.
One thing that is clear is that when owning a property jointly with someone else as tenants in common (unequal shares) you need a robust joint ownership agreement between you to protect your individual share of the property. We use our Deed of Trust as a legal document to protect people when buying together as it clearly sets out the ownership between each of the parties involved regardless of how this is divided.
