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Buying residential property jointly, tips for unmarried couples
It is in your best interest to know these basic principles in order to setup an agreement prior to buying a house or an apartment in South Africa if you are both unmarried.
Married couples, irrespective as to whether they are married in or out of community of property, have a framework of law, both statutory and common law, which underpins the acquisition and which provides for the ultimate protection of the Courts in the event of the relationship failing.
Unmarried couples, and for that matter all partners in shared or joint ownership of property, need to record and regulate the joint ownership in a written agreement which covers all scenarios and leaves nothing to chance. Without such an agreement a relationship break up can become a nightmare which ultimately ends up in partnership dissolution at the instance of a Court – much akin to a liquidation of a partnership and a forced disposal of the asset (the residential property).
These are the matters and scenarios that should be dealt with in the agreement BEFORE the Offer to Purchase is signed – even if the agreement consists of bullet points which cover all angles – a couple can always expand and formalise the document prior to registration of transfer:
1. Is the property being purchased in equal or unequal shares? If unequal the ratio must be stipulated in the Offer to Purchase i.e. John 2/5 undivided share and Jane 3/5 undivided share. If equal John and Jane are simply described as joint purchasers.
2. Who contributes what to the purchase price, costs and ultimately the consequences of ownership such as insurance, maintenance, bond instalments, rates, levies etc., etc. – there needs to be absolute clarity on these financial matters. A sound idea is to open a separate bank account for the property which receives the “partnership”
3. Provision should be made for any sale of the property insofar as to how the proceeds of any sale in the future will be apportioned – e.g. on sale the net proceeds after payment of any bond/s and any commission would be appropriated in the first instance to the parties in respect of any unequal contributions and the balance divided between them in terms of the ratio of ownership – or whatever alternate arrangement is agreed upon – what should be avoided at all costs is a debate around the distribution at the time of any sale without a record and without a rule or formula.
4. The following possible (and sometimes worst case) scenarios should be contemplated and provided for in the agreement:-
4.1 A sale of a party’s undivided share of the property must be prohibited or regulated – John would not want Jane to sell her ½ share to a third party not approved of by John, who would effectively become such third party’s partner!
4.2 If the property is bonded, the parties will be liable to the Bank under the Home Loan Agreement jointly and severally — this may not always accord with the agreed ratio of ownership by the parties and must be covered and provided for.
4.3 Other than a mutual agreement to sell what other events should be considered as triggering a sale either by one party to the other of the 1st party’s undivided share OR the sale by both parties (or all parties) into the market place? – e.g.
a) A breakdown of the relationship;
b) One party leaving the property; and/or
c) One party simply wanting to sell and the other party not wanting to do so– who’s wish prevails;
d) The death of a party (this cannot be left to a Last Will and Testament);
e) A breach by one party of the terms of the “partnership agreement” – e.g. one party fails to pay his or her contribution which the agreement requires to be paid;
f) One or both parties concluding that they are unable to sustain ownership for any reason.
The rules which govern each scenario must be clear – they can be simple but nevertheless clear. There must be no risk that a scenario develops which is not provided for and which requires the parties to come to some or other agreement – death or conflict inevitably guarantee that no solution or agreement can be reached.
The agreement itself should have a safety net which provides that if all else fails and agreement cannot be reached as a consequence of any scenario (or the scenario was not envisaged and provided for) a mediation or arbitration process is provided for , failing which the Courts are the forum of last resort – very expensive and easy to avoid.
The message is simple – before you and your partner (outside marriage) purchase a property in joint names, ensure you set the rules which apply to the acquisition, maintenance, use and disposal of the property and record those rules in writing. Remember that these guidelines and principles are of equal application in all forms of joint ownership outside marriage e.g. syndicated ownership of property where the additional provisions for usage of the jointly owned property must be incorporated in any agreement.
Our thanks to Roger Dixon, attorney and partner at the Chas Everitt Bedfordview franchise, for compiling the above article.