Buying with friends and family

Buying with friends and family is an increasingly popular option for many taking their first step on the property ladder. Coralie Phelan from Prince Evans Solicitors explores the legal aspects you should consider before deciding whether it is right for you

WHAT TO CONSIDER WHEN BUYING WITH A FRIEND OR FAMILY MEMBER

There are many things to consider when purchasing with friends and family, for example as follows: 9 What are my rights as a joint owner? 9 How do we protect our initial contributions? 9 How are future price increases shared? 9 Will the mortgage and outgoings be split equally? 9 What happens if we fall out? 9 What happens when you wish to sell and the other wants to remain? 9 What happens if someone dies?

YOUR RIGHTS AS JOINT OWNERS

Property ownership has two elements, a legal element and a beneficial element. It is easy to consider the two, by way of physical land and monetary shares. A property cannot be divided easily however, monetary shares can be divided. Legal ownership equates to ownership of the physical land and the beneficial interest is your monetary interest.

Your conveyancer will ask you to consider whether you want to own the property equally or whether you want distinct shares. It is very important to consider this and have it recorded to avoid disputes in the future. The document used to record this is a Declaration of Trust.

WHAT IS A DECLARATION OF TRUST?

This is a deed which records your monetary or beneficial interests. Your conveyancer or legal adviser can draft this for you. The key points of a Declaration of Trust are as follows: 9 The deed will record how much you would expect to receive when the property is sold 9 You can record your monetary interests

by way of percentage split or by way of lump sum or a mixture of both 9 It can be used to ensure you benefit from any uplift in value by recording your monetary interests with reference to a percentage 9 It is flexible and can be drafted to suit your individual circumstances 9 It can also deal with the timeframes for sale if one party wants to bring the trust to an end and leave 9 It is essential for avoiding disputes as to how much each party owns.

PROTECTING YOUR INITIAL CONTRIBUTIONS

In order to protect your contributions your conveyancer will ask you to confirm how much you are both contributing towards the purchase price. You will then be asked to confirm whether you wish to hold the property either as joint tenants or tenants in common.

WHICH OPTION IS RIGHT FOR US – JOINT TENANTS OR TENANTS IN COMMON?

Joint tenants own the property equally without distinct shares and the property automatically passes to the survivor on death. You cannot leave your share to someone else in a Will.

Tenants in common have distinct shares and a Declaration of Trust will record these shares. You can leave your share to someone else in your Will. If you are contributing unequally to the purchase price or receiving a gifted deposit, you should consider electing to hold as tenants in common and consider a Declaration of Trust.

For example, if you are contributing £30,000 towards the deposit and your fellow buyer has contributed nothing, you may want your £30,000 returned when the property is sold and then the proceeds of sale split equally. This can be recorded in a Declaration of Trust.

WHAT HAPPENS IF WE FALL OUT?

It can be very difficult to consider a scenario where relationships break down, but living closely together can put pressure on relationships. It is important to ensure that you consider how matters will be dealt with if you fall out and wish to sell the property.

It is always wise to resolve any dispute amicably. Legal action can be avoided if you instruct your conveyancer to draft a Declaration of Trust at the point of purchase, which sets out not only how the proceeds of sale will be divided but also the timeframe for sale.

WHAT HAPPENS IF ONE PARTY WANTS TO SELL AND THE OTHER TO REMAIN?

If it is not possible to resolve a dispute or one party simply wishes to leave, then you will need to consider whether one party can afford to live in the property on their own. This would also include a financial assessment by any existing mortgage lender. If it is affordable, one party can effectively buy the shares of the outgoing party and remain. If not, the property would need to be sold. If you have a Declaration of Trust, it will set out: 9 How you can bring the trust to an end and sell the property 9 A timeframe for one party to give notice to the other party of their intention to sell 9 Will allow the remaining party an opportunity to buy out the other 9 Will allow a time frame for sale of the property if both parties agree to leave.

It is important to address these issues at the outset to make it easier to deal with the sale of the property when perhaps one party wishes to leave and the other remain.

WILL THE MORTGAGE AND OUTGOINGS BE SPLIT EQUALLY?

You will also need to consider your day-today living arrangements such as: 9 Who will reside at the property 9 Who will pay for the outgoings and expenses 9 How will you divide household maintenance?

A Living Together Agreement can help with this.

WHAT IS A LIVING TOGETHER AGREEMENT?

The agreement records your intentions in respect of matters such as who owns the furniture, how the bills will be divided up and who will pay for household maintenance. Your conveyancer or legal adviser can draft this agreement for you and it can be tailored to your particular needs.

You should bear in mind that in most cases, you will be equally responsible for mortgage payments and even if one party stops paying the mortgage, for whatever reason, the remaining party is still responsible for mortgage payments. You could lose your home if you fail to make mortgage payments even if one party has left. This is called joint and several responsibilities for mortgage payments.

WHAT HAPPENS IN THE EVENT THAT SOMEONE DIES?

It does seem morbid, but it is a very important consideration. Whether you hold as joint tenants or tenants in common it is wise to consider instructing a solicitor to draft Wills. If you elect to be joint tenants, the property passes to the survivor of the two of you automatically. If you choose tenants in common and you have Wills then your bequest will be followed. If you die intestate or without a Will, the rules of intestacy apply and generally your share passes to your closest living blood relative. A Will would ensure that you decide who inherits your share in the property – but only if you opt for tenants in common.

In summary, there is a lot to consider when purchasing with friends and family. You should discuss your position with your conveyancer and they will be able to guide you through the process and assist you in making an informed decision in relation to joint ownership. Purchasing with friends and family is a very good option for first time buyers and can give you the opportunity to achieve your dream of owning your own home.

Prince Evans specialise in all aspects of conveyancing. Please contact Prince Evans for all your conveyancing needs and for a friendly no obligation quote on 020 8567 3477 or nbh@prince-evans.co.uk