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Co-ownership agreements

We highlight the basics of a co-ownership agreement so you can decide if it is a good fit for you.

A co-ownership is an agreement between two or more persons who each have financial shares in the property. Co-owners can be friends, family and business partners who all contribute financially to the purchase and maintenance of a property. With the rising cost of real estate in Australia, it can be difficult for first home buyers to enter the market or get a head start on their investment portfolio. For this reason, many Australians are choosing to achieve their property goals sooner through a co-ownership agreement. 

A co-ownership agreement is a written agreement that documents the rights and obligations of each joint owner of a property. If you are considering co-ownership, it is important to seek professional legal advice to ensure the investment process is smooth and all parties involved are at a mutual understanding. 

How does a co-ownership agreement work legally?

Tenancy in Common and Joint Ownership are the two main forms of a co-ownership agreement. 

Tenancy in Common is a property law principle in Australia that allows two or more entities to have a financial share of a property that transfer their interests independently. Tenancy in Common is a more flexible form of property ownership. The co-owners determine the exact terms of their interests and obligations and can own land in equal or unequal shares. 

Joint Tenancy is a common form amongst couples. These tenants own the entire interest in the property together, not as individuals. Joint Tenancy has the survivorship rights, which means if a tenant dies, the surviving joint tenant assumes ownership of the entire property. 

What are the risks?

The largest risk is understanding that all parties involved are responsible and liable for the property. It is common in human nature to disagree and have disputes due to different views and values, particularly when money is involved. 

One key point to know is that co-owners are liable for each other’s debts if they are using the co-owned property as security for their mortgage. This means if one co-owner defaults on their mortgage repayments and the other owner do not pay the due amount, every owner on the agreement will have their credit card rating negatively affected. 

Other risks that need to be considered and discussed within the co-ownership agreement include:

  • Bankruptcy,
  • Significant damage to property,
  • General change in circumstances,
  • Death, separation from a spouse or de facto, disability or incapacity of a co-owner.

Group financing

Co-owners often apply for a joint mortgage as it allows them to combine their incomes to qualify for a higher loan amount. Once a joint mortgage has been approved, all co-owners will be on the mortgage and title deed, which is another documentation cementing joint legal responsibility for the property. 

The Federal and State Government offers various grants and government assistance that co-owners are still eligible to apply for, including stamp duty concession, First Homeowners Grants and First Home Saver Accounts. The amount you will be eligible to save is circumstantial and will depend on each co-owner’s financial situation and property’s location. 

A co-ownership agreement is a great way to get your foot into the property market. The option to dramatically cut the cost of buying a home by sharing the financial obligations can help you purchase in a location that may otherwise have been out of your reach. We recommend seeking legal advice before documents are signed with several risks to be considered before going through with a co-ownership agreement.