We all dream of owning a home, but with skyrocketing property prices in New Zealand, that dream can feel out of reach for many. Fortunately, there’s a solution: buying property with others. Many Kiwis are turning to co-ownership – sharing property between two or more people or entities. These co-owners might be friends, family members, or business partners all looking to make homeownership possible.
If you’re considering buying a property with others, you’re making a smart financial move. But without proper planning, it can lead to serious complications down the road. Let’s explore co-ownership and the vital agreements that protect everyone involved.
What Is Co-Ownership and Why Consider It?
Co-ownership allows multiple people or entities to share ownership of a property. The advantages are compelling:
- Pooling resources: Combining your funds to contribute the initial deposit
- Greater borrowing power: Accessing better mortgage terms by joining financial forces
- Shared costs: Dividing the purchase expenses and ongoing property costs
- Split income: Sharing rental income in agreed proportions
- Better investment access: Opening doors to properties that would be out of reach individually
- Faster mortgage repayment: Multiple contributors can pay down debt quicker
For example, while a $900,000 home in Wellington might be unattainable for a single buyer, three friends contributing equally could each only need $60,000 for a 20% deposit, making homeownership suddenly accessible.
A mortgage broker can help you understand how combining incomes might significantly increase your borrowing capacity with first tier lenders like ANZ, BNZ, or Westpac, second tier lenders and that way potentially get you qualified for properties that would otherwise be out of reach.
Why You NEED a Co-Ownership Agreement
If you’re considering co-ownership, obtaining the best mortgage advice is essential to ensure your investment proceeds smoothly. Every co-ownership situation is unique, and recording the parties’ rights and intentions in writing is absolutely crucial.
A proper Co-Ownership Agreement sets out everyone’s legal rights and obligations and addresses foreseeable circumstances before they arise. Without this vital document, you’re essentially setting yourself up for a potential legal nightmare if relationships sour or circumstances change.
What Should Your Co-Ownership Agreement Cover?
Property Purchase and Payment Details
Your agreement should clearly specify:
- Purchase price and payment structure
- Each person’s percentage of ownership
- How the initial deposit was split
- Who contributed what to purchase costs (legal fees, building inspections, etc.)
- Financing arrangements including how much is being borrowed
For instance, if three parties are buying a property in Christchurch, your agreement might specify that John contributes 40% while Jason and Emma contribute 30% each, with ownership shares matching these contributions.
Purpose of the Property
The agreement should define how the property will be used:
- Pure investment (rented to tenants)
- Shared living arrangement (all co-owners residing there)
- Mixed use (some owners living there while others don’t)
- Holiday home with scheduled usage rights
This clarity is essential as purpose affects everything from tax treatment to maintenance responsibilities. A mortgage broker in Auckland can help structure a loan that aligns with your intended use, as banks may have different lending criteria for investment versus owner-occupied properties.
Management and Financial Responsibilities
When the bank approves a joint mortgage, remember that each borrower is typically “jointly and severally liable” – meaning if one person can’t pay, the others must cover the entire amount.
Your co-ownership agreement should address:
- Who pays what percentage of the mortgage
- How other expenses like rates, insurance, and maintenance are divided
- Management responsibilities (who deals with tenants, repairs, etc.)
- What happens if someone can’t make their payments
- How you’ll handle unexpected costs (like a new roof or emergency plumbing)
This section is critical for preventing future disputes. For example, if one co-owner is living in the property while others aren’t, you might agree they’ll pay slightly more toward utilities or cover lawn maintenance in lieu of additional rent.
Maintenance and Repairs
Keeping a property in good condition requires ongoing maintenance and occasional major repairs. Your agreement should specify:
- Who decides when maintenance is needed
- How costs are divided
- Who manages the work
- Standards that must be maintained
- Process for approving major repairs or improvements
Clear guidelines here prevent disputes any maintenance or repairs required.
Term of Co-Ownership
Setting expectations about how long the arrangement will last is vital. Your agreement should address:
- Minimum commitment period (e.g., ten years)
- Conditions under which early exit is permitted
- What happens when the term expires
- Process for extending the co-ownership term
For example, co-owners might agree to a five-year commitment period where no one can force a sale, providing stability for everyone involved.
Exit Strategies
This is perhaps the MOST important section of your agreement. Circumstances change – people get married, receive job offers in different cities, or simply want to invest elsewhere.
Your exit strategy should cover:
- First right of refusal for existing co-owners to buy out a departing owner
- How property valuation will be determined (e.g., by a licensed valuer)
- Timeframes for the buyout process
- What happens if remaining owners can’t afford to buy the departing owner’s share
- Conditions under which the entire property must be sold
Dispute Resolution
Even with the best intentions, disagreements can arise. Your agreement should include:
- Process for resolving minor disputes
- Mediation procedures for more significant disagreements
- Binding arbitration options to avoid court proceedings
- Clear steps to follow before anyone can take legal action
This creates a roadmap for working through conflicts without damaging relationships or the investment.
Understanding Co-Ownership Structures
New Zealand offers several ways to structure property co-ownership, and your agreement should clearly specify which you’re using:
Tenants in Common
Most co-ownership arrangements are structured as “tenants in common,” which means:
- Each owner has a specific share (which can be unequal)
- They can sell or pass on their share independently
- A co-owner’s share passes according to their will upon death
This differs from how a married couple might hold property as “joint tenants,” where a spouse’s share automatically passes to the other spouse on death.
More Complex Structures
For larger groups (more than 2-3 parties), you might consider:
- A limited company as trustee of a unit trust
- Several family trusts joining together
- Other legal structures depending on your specific needs
Getting Started with Co-Ownership
The process should follow these steps:
- Initial planning: Discuss with a mortgage broker
- Determine structure: Decide on ownership shares, holding term, and property type
- Legal advice: Consult a solicitor BEFORE signing any purchase contracts
- Agreement creation: Draft and sign the Co-Ownership Agreement
- Property purchase: Make your offer with the correct structure in place
IMPORTANT NOTE: It’s essential to obtain legal advice before signing any offer and acceptance contract. This avoids potential expenses (such as transfer duty) from revising shares or co-owner identities later. Ideally, your Co-Ownership Agreement is signed before making any offer on a property.
Ready to Explore Co-Ownership?
Buying property with others can be a brilliant way to enter the market sooner or invest in higher-value properties than you could afford alone. With proper planning and a comprehensive co-ownership agreement, you can avoid the pitfalls and focus on the benefits.
At Oliver Broomfield Mortgage & Insurance Advisers, we specialise in helping co-owners navigate the complexities of joint property purchases. Our team will:
- Help you understand different co-ownership structures
- Connect you with the right legal professionals for your agreement
- Find lenders who are co-ownership friendly (not all banks have the same policies!)
- Structure your mortgage to protect all parties
- Ensure you have the right insurance to safeguard each owner
Are you considering buying a property with friends, family, or business partners? Get in touch today, and let’s help you create a solid foundation for your shared property journey. With the right agreement and financial structure in place, co-ownership can be your ticket to property success in Aotearoa.
