Buying any significant investment with other people (even your spouse) can be difficult. Doing the upfront work is key. This means putting together the right documents with the right advice. This article will walk you through what to do, and when to do it so that you are protected.

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What happens when you buy a property with friends without a contract?

Buying a property with friends or family is a relatively new concept in New Zealand. And because it is a relatively new concept, the laws around it are not so clear. This is why its even more important to work with a lawyer that is familiar with drafting up a co-ownership agreement or work with Slice.

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Typically banks do not lend to those that don’t have a co-ownership agreement in place. Furthermore, going into debt with your friends can be incredibly risky without an agreement in place. These risks can include:

• being liable for the whole mortgage. If one person can’t keep up with their mortgage repayments, then the other owners need to cover the shortfall.
• as long as you have a mortgage together, your credit record will be linked with your co-owners. Any financial irresponsibility by one person can affect the whole group.
• co-ownership can impact your ability to buy further properties. A bank will only consider your portion of the house as your asset, but the whole of the mortgage as a liability.
• Risking your entire friendship.

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This is not to say that buying a property with others is a bad idea. If you are all on the same page, and have a co-ownership agreement in place, it will mean that you can:

• get into a house a lot faster
• share expenses of owning a home.
• leverage investment opportunities that you may have otherwise not been able to come across
• get closer to your friends.

As with any investment, it comes with risks. So getting both professional legal and financial advice is worth doing.

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Case study: Annie, Barnie and Corey decide that they want to buy a house together. They each have enough so that they can put down a deposit. They make an appointment with their bank but are ultimately told that they can’t buy a house together unless they have a co-ownership agreement.

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How to protect your relationship and property

It’s never nice to think of a time that you are buying a house with to be challenging. But it is important to ensure you do the paperwork upfront so everyone is aware of what they are signing up to.

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Not only does having an agreement in place ensure that everyone is aware of their roles and responsibilities, it should also detail what happens in lots of different situations.

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And while agreements may not specifically protect your relationship explicitly, it will keep everyone on the same page.

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Protecting your relationship when buying property means having the difficult conversations up front. This means talking about things like:

• In the case you are buying with your partner, what happens when the relationship doesn’t work out?
• Who will contribute what?
• How will the property be divided?
• How will non-tangible expenses be calculated?
• What will happen if someone stops contributing or wants to sell?

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These are just some of the questions that you can ask yourselves when buying property with your friends, family or partner.

What is a co-ownership agreement?

A co-ownership agreement is specifically for friends and family buying a house together. For those in relationships, they will need to consider a pre-nup agreement where they can contract out of the Property (Relationships) Act.

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A co-ownership agreement reduces a lot of the risks of buying a property with friends and family. It also gives your bank a lot more confidence to lend you money for a mortgage.

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A co-ownership agreement will help you to discuss the following:

• what type of property to buy.
• what areas to buy the property in.
• valuing the property if one person wants to exit.
• how are expenses and repairs conducted.
• if and how rainy day funds are managed.
• if one or more people want to live in the property, and how rent will be managed.
• rules around partners moving in.
• how sale proceeds and losses are distributed.
• situations in which the house will be sold.
• how you resolve disputes.
• condition of the house.

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To ensure a successful co-ownership agreement, you should start the conversation before you buy a house and you are sure you want to go down the route. To do this you should ensure you are clear with your communication, seek professional advice and ensure that everyone is on the same page in terms of buying a house together, deciding what to do with it, and then selling the house.

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Case study: After Annie, Barnie and Corey put together a co-ownership agreement, they now understand their roles and responsibilities in the ownership of the house, right down to what cleaning products they are going to use. They then approach their bank again and the bank offers them a pre-approval.

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What about when you split with your partner and own property without a contract in place?

Deciding on splitting from your partner is a big decision to make. And if you don’t have any prior agreements in place, the decision defaults to The Property (Relationships) Act.

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According to the Law Society, If you are married, in a civil union partnership or a de facto relationship (defined as living together as a couple but not married), even if you are a same sex couple, the decision on property without an agreement will come under the Act.

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The Act makes the assumption that each partner contributes equally to the relationship, even if it is in different ways — and especially so if children are involved.

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Property can be both tangible (house, car, furniture) or intangible (business interest, shares etc). From here, property can be split up into two categories: relationship property and separate property.

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Relationship property includes:

• the family home, even if it was acquired by one partner before the relationship began, or by inheritance, gift or trust
• family chattels such as fittings, household equipment and appliances, even if they are in one person’s name only
• common or jointly own property

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Separate property includes:

• inheritances and gifts
• heirlooms and taonga
• property acquired under a trust
• property that the partners declare as separate under an agreement contracting out of the Property (Relationships) Act
• Property acquired with the proceeds of separate property and not intended for the use or benefit for both partners.

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Separate property can become relationship property especially if a partner contributes to an increase in the value of separate property. This can be indirect as well such as caring for children while a partner works to increase the value of that property.

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According to the Law Society, the family home and family chattels are always relationship property no matter whose name they are in or how they were acquired, unless they are designated separate property by an agreement.

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All relationship property will be divided equally following the end of a relationship that has lasted more than three years, unless extraordinary circumstances make equal sharing repugnant to justice. In that case, property would be divided according to the contribution each partner had made to the relationship.

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Property transferred to a trust during the relationship can be taken into account if it is considered that the transfer has the effect of defeating the sharing of relationship property (even if it was not intended to have that effect).

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The only way to prevent the Property (Relationships) Act from applying to your property is for you and your partner to enter into a contracting-out agreement (also called a pre or postnup). This enables you to establish your own guidelines regarding the ownership of your property (including future property) and how it should be divided in case your relationship comes to an end.

How to put together a pre-nup in NZ

You can put together a pre- or post-nup (before and after marriage respectively) in New Zealand. It is a legal contract that allows you to contract out from the Property (Relationships) Act. In it, both partners define what is relationship property, separate property, and the property division in the event of a divorce, separation or death.

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You can get a pre or post nup agreement from your lawyer or look for a template. But for the agreement to be valid and legally binding it needs to be certified.

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To contract out, the following needs to apply:

• be in writing and signed by both people.
• each person has had the ability to get independent legal advice.
• each signature must be witnessed by a lawyer.

FAQs

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How do I find someone to help me with a co-ownership agreement?

Not all lawyers are well versed with co-ownership agreements. And this is why Slice exists. We have a team of lawyers and bankers that can help you get into your dream home with your friends and family. Just sign up and we will walk you through the whole process.

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What defines a de facto relationship?

A de facto relationship exists only when both parties are aged at least 18 and they are living together as a couple but are not married to each other or in a civil union. For property to be split under The Property (Relationships) Act, the de facto relationship needs to have lasted for three years for equal-sharing to apply. If children are involved or one partner has made a substantial contribution then the course will also qualify if that is fair. If it goes to court, the judges will consider:

• the length of your relationship
• extent wo which you shared a home
• the degree to which your finances were merged
• how your property was owned and used
• whether you had a sexual relationship
• who performed household duties
• whether others saw you as a couple
• your mutual commitment to a shared life
• how you cared for and supported any children either of you had.

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