We are seeing more and more Property Sharing Agreements as more people choose to go in with friends or family to buy property in today’s hot real estate market. A Property Sharing Agreement is an Agreement between different parties that sets out their rights and obligations in relation to property (the property usually being a house or piece of land). The Agreement is often between family members, couples or friends.
In our experience, it is extremely important to have a formal written agreement to avoid misunderstandings. Unless an Agreement is committed to paper and a clear formula is spelt out, the arrangement is very much dependent on people’s memories and presumptions that may not have been intended…
The Agreement usually sets out details of the property and how it is to be paid for or what financial contribution each party is making towards the purchase.
It is also likely to cover how liabilities are to be paid — for example, if there is a loan and mortgage over the property, the agreement will set out who will meet these payments and in what shares.
The Agreement will also cover what decisions can and cannot be made by the parties regarding the property, such as whether one party can make alterations to the property without consulting the other party.
The Agreement will also cover how the proceeds of the sale are to be dealt with if the property is sold, including the priority in which payments are to be made. Bank loans and costs relating to any sale will be repaid first before the net proceeds are paid out to the parties. The order in which the parties are to be paid out can be set out and can also set out the formula if the property has to be sold for less than it was purchased.
Occasionally, one party decides they want to sell their share in the property so it’s usual to include clauses that deal with an option to purchase so it can be offered to the other party before it is put on the open market. Along the same lines, an agreement will also usually include clauses that spell out what happens if one party dies (such as whether it is it to be offered to the surviving party and, if so, how is the value to be determined).
With a Property Sharing Agreement in place, the parties can be confident that their rights and obligations while owning the property are clear and that there is a workable formula and process to follow.