Buying a property with another person is an effective way to share the costs, risks, and excitement of homeownership. Couples often purchase real estate together to build a home or establish an investment portfolio. Similarly, friends, family members, and business partners frequently pool their savings to increase borrowing power and enter the property market sooner.
However, co-owning property can introduce legal and financial challenges. Considering these issues early helps protect every party involved. This guide explains how co-ownership works under New South Wales law and how to safeguard your investment before you exchange contracts.
This article provides general legal context only. You should always seek advice from a qualified conveyancing solicitor regarding your specific purchase.
Joint Tenants or Tenants in Common?
One fundamental decision co-buyers must make is selecting the legal structure for their title. During the purchase, buyers must instruct their conveyancer whether to register ownership as “joint tenants” or “tenants in common.” Take time to understand this choice, as it directly impacts your property rights and estate planning.
Understanding Joint Tenancy
Joint tenancy is the most common form of co-ownership, particularly for married or de facto couples purchasing a family home. Under a joint tenancy, both individuals own the entire property together as a single entity rather than holding distinct, individual shares. Consequently, neither owner can sell or transfer a portion of the property to a third party independently.
A key feature of joint tenancy is the right of survivorship. If one owner passes away, their interest automatically transfers to the surviving owner. As a result, a joint tenant cannot leave their share of the property to someone else in their Will. While this arrangement suits many couples, it may not align with blended families where a parent wishes to reserve their property wealth for children from a prior relationship.
Understanding Tenants in Common
In contrast, registering as tenants in common means each owner holds a distinct, defined share in the property. Unlike joint tenancy, a tenant in common can bequeath their specific share through a Will to any chosen beneficiary. An owner can also mortgage or sell their share, subject to any existing co-ownership agreements.
Tenancy in common also allows for unequal ownership percentages. For example, if three siblings purchase an investment unit, they can split ownership equally at 33.3% each. Alternatively, if one sibling contributes the entire deposit, the title can reflect a 50% share for that sibling and 25% each for the remaining two siblings who contribute to ongoing mortgage repayments.
Mixing Ownership Structures on Title
New South Wales title registration also allows for a hybrid approach. For instance, if a couple buys real estate with a friend, the couple can hold their combined portion as joint tenants between themselves, while holding that interest as tenants in common relative to the friend. If one partner passes away, their share passes to their surviving spouse, while the friend’s ownership share remains unchanged.
Potential Risks of Buying Property Together
Even well-planned property arrangements can encounter unforeseen challenges. Personal relationships can break down, owners may pass away, or an individual might face legal claims or bankruptcy. Each of these events complicates shared property ownership.
Relationship Breakdown and Severing Joint Tenancy
While joint tenancy simplifies asset transfer upon death through the NSW Land Registry Services, it can complicate property management after a relationship breakup. Joint tenants must make all legal decisions together, forcing separated partners to cooperate when selling or renting the property.
After a separation, co-owners must formally resolve the property. This process may involve refinancing into one name, selling the asset, or lodging a application under section 97 of the Real Property Act 1900 (NSW) to sever the joint tenancy into a tenancy in common.
Bankruptcy and Legal Claims
Co-owners sometimes assume holding title as joint tenants protects property from creditors if one owner faces lawsuit or bankruptcy. However, this is incorrect. A court can order the severance of a joint tenancy, divide the ownership interest, and sell the debtor’s portion to satisfy claims. In fact, tenancy in common often provides clearer financial boundaries if a co-owner owns less than 50% of the asset.
Benefits of a Formal Co-Ownership Agreement
Regardless of whether you register as joint tenants or tenants in common, establishing a formal co-ownership agreement provides vital security. A co-ownership agreement is a legally binding contract between buyers that outlines clear rules for managing the property.
A comprehensive agreement details each owner’s ongoing financial duties, mortgage obligations, maintenance commitments, and procedures for exiting the investment. It also establishes clear processes if one party wants to sell or refinance their interest. Setting out these terms early helps prevent disputes and provides a roadmap for resolution if disagreements occur.
Get Legal Guidance for Your Property Purchase
This information serves as a general legal outline only. If you are planning to purchase property with a partner, family member, or business associate, our team can help you select the right legal structure and draft a tailored co-ownership agreement.
To discuss your property matter or schedule a consultation, please contact our legal team on 02 9792 8413 or email [email protected].