For a variety of reasons – illness, instability, divorce or death - many retirees find themselves unexpectedly alone in their later years. The prospect of not having anyone to share and enjoy life with can affect health and has the potential to become overwhelming. Some retirees therefore consider sharing a home with a close friend or relative. Most of us have done that at one stage or another in life – but usually for financial reasons. It’s infinitely cheaper to live with other people and split living expenses such as food, utility bills and so on, as well as being just a little but more convivial than living alone.
Aside from the day to day expenses, being able to find a property you can afford to buy alone is a whole other challenge to be reckoned with. If you are short on capital and don’t feel confident in your capacity to get a mortgage that will match the property goals you have in mind, co-investing may be the perfect solution for you. When you’ve been friends with someone for a long time, it’s not unusual for them to feel like family. If you have someone like that in your life, then working out the logistics of both of your retirement plans together, to co-own and co-habit and ‘co-age’ could be the answer.
Laying Your Cards on the Table
The first step is for you both to put your cards on the table where finances are concerned. Be open and honest so that there is a cohesive outline of each individual’s financial status, that allows both of you to see what the shared picture might look like. Not only does it inform both of you about expenses, spending, savings and debts; it will also reveal something about you and your friend’s financial strengths and weaknesses. You may surprise each other when you learn exactly what each of you does with their money!
Developing the Shared Vision
If you’ve both reviewed the figures and you’re both still on board, the next step is to get clear on what you each have in mind, regarding the type of property you’ll buy and how you plan to spend your retirement! If one of you wants to travel all the time and the other wants to be a homebody with company, then someone might be unhappy. If one of you wants a low maintenance city apartment, while the other wants a house with a garden, there’s an obvious divide. Discussing the kind of property and location that would suit you both is important, as is getting a sense of each of your long-term care plans as you age and your heath deteriorates. Other things that might be worth discussing are family obligations – will there need to be spare rooms for visiting family? Is it likely that children or grandchildren may wish to move in unexpectedly in times of need? Is this something you would both accommodate? These are all the ins and outs of property co-ownership and – to some extent, formalising your relationship into the future.
Getting a Property Co-Ownership Agreement
Once the details are nutted out, it’s time to lock in some structure to protect you both. Each of you should get some independent legal advice and discuss with your families what aspects of this arrangement may affect them. For background information, you can find a range of free co-ownership templates online. These will help you refine the details you want to include in your agreement and prepare you with information and questions in advance, before you start giving your money away to lawyers and advisors. A co-ownership agreement should be drawn up by a professional and should only cost a few hundred dollars. It’s also important to understand that during the completion of the contract of sale of the property, a box will be ticked that confirms the co-ownership structure. This is NOT the co-ownership agreement; the agreement is a separate document that outlines the detail of what is agreed, based on the chosen structure.
Not only does the agreement need to address the financial and tax implications for both of you, it also outlines what actions will be taken in the event of one of your deaths – again, something your family should be aware of, if it’s going to affect them in some way. The components of a property co-ownership agreement include things such as:
• what type of ownership structure you have in place
• Who is entitled to live there (extended family and future partners may become relevant)
• what the financial details are (such as division of ownership, mortgage payments and expenses)
• how the property will be managed and maintained
• a dispute resolution mechanism in the event that there’s a disagreement, or one of you wants to move on, or dies.
Drawing this up will also help you refine details such as:
• the need for a joint bank account for expenses
• direct debits for mortgage and bill payments
• division of expenses (like cleaning and maintenance of the property, rates, utilities etc.)
• division of management tasks like co-ordination of tradesmen for repairs and equipment servicing
• attendance at body corporate meetings if relevant.
So, What Kind of Property Co-Ownership Agreement Do You Need?
The most important aspect of your agreement is how you’ll choose to structure the co-ownership. There are basically two options; a ‘Tenancy in Common’ or a ‘Joint Tenancy’.
Tenancy In Common
The ‘Tenancy in Common’ means that each of you as co-owners has a specific share of the property. This is a flexible arrangement as it means that you both have an established share of the property, and can decide what to do with your shares. In the event of one of your deaths for example, the deceased owner can bequeath the property to a beneficiary of their choosing - such as the other co-owner, or family members. It also means that neither of the individuals can sell their share of the property, without permission from the other co-owner.
Details like these would be useful to be included in the agreement for example, while things are amicable. If one person wants to sell and the other flatly refuses out of spite or stubbornness, this can be an issue, so get advice around what the options are, relevant to your situation. It also has a downside, in that if one co-owner dies and bequeaths the property to someone else, then they choose to sell, things can get complicated.
The ‘Joint Tenancy’ may make things less complex however, as you exist together but as one entity as owners. Neither of you owns a share or a proportion of the property, but if one of you dies, the property ownership is transmitted automatically to the surviving co-owner, who becomes the full owner. This is a much simpler and cleaner arrangement, but may not be appealing if family members are waiting in the wings for their inheritance.
In both instances it should be noted that each of you should have your individual wills updated to reflected what is included in the co-ownership agreement. Their consistency with each other will be crucial in the event that some aspect of an estate is challenged by external parties.