Cheaper by the dozen: What to know about buying property with multiple people

It's not uncommon for two people to buy a property together. In fact, it is often the only way first-time buyers can get onto the property ladder. And while spouses or partners, or a couple of friends, buying together is par for the course, there is also the option to make the circle bigger, significantly so. 

FNB, for example, has a product called Collective Buying whereby up to 12 people can apply for a home loan together. That's a literal dozen and while the benefits, particularly in terms of bond repayments, may be obvious, there are a couple of factors to consider before diving into this agreement. 

"There's no doubt that property co-ownership allows more people to own property, which is great not only for the individuals in question but indeed for the whole property sector. Two co-owners is certainly the norm but it needn't be. As long as one approaches the deal and the partnership transparently and with the right paperwork in place, co-owning a property with 11 other people certainly can work," says Michelle Cohen, Principal at Leapfrog Johannesburg North East. 

She says, first and foremost, to view property co-ownership as a business transaction. "Whether you're the co-owner of a property with one other person or eight other people, make sure you have an agreement in place that governs how the property will be managed - in good times and bad."

Split the difference 

The assumption would be that the bond repayment would be split equally between the various co-owners but it is up to the owners to make a decision about this. "Nothing dictates that all owners are equally responsible for the bond. It may be the four out five owners who pay 60% of the bond and the other one the remaining 40%. It can be split in whichever way the owners decide but we also recommend very highly that this allocation is clearly documented in writing and signed by all relevant parties," Cohen says. 

Do note though that while the purchasers decide on their respective share of the property, and which will be recorded as such in the title deeds and registered at the Deeds Office, the institution that grants the loan will expect that all parties sign to be "jointly and severally" liable for the repayment of the loan. This means that the mortgagee is entitled to recover the whole amount from any one of the co-owners if there is a default on the regular payments. 

The bond repayment is however not the only cost associated with owning a property. To this end it is a good idea to decide upfront how expenses like property maintenance, rates and taxes, and levies will be split between the owners. 

When the road forks 

A property is a long-term commitment but that doesn't mean the whole crew will be along for the ride until the end (or when the bond is paid up). It's thus important to decide upfront what happens when one of the owners wants to sell their share of the property. 

"Typically in cases where one owner wants to sell, the other owners have first right of refusal. Often it is a lot 'tidier' if the remaining owners buy up the share that's for sale but property co-owners should be prepared for other eventualities too," Cohen says. 

Should an "outsider" buy into an existing co-ownership agreement it is best practice to revise all contracts and agreements to reflect the new structure. 

As with any business transaction, or indeed any relationship, conflicts and disputes do arise. "When you're in the 'honeymoon' phase of purchasing property it can be hard to imagine that you'll ever have issues with your co-owners, but it happens and it's best to be prepared for any eventuality, which is why a co-ownership is worth its weight in gold... or property!" Cohen says. 

While a lawyer needs to draw up the contract, a trusted property advisor can guide and advise you on how to structure the agreement to protect and promote the interest of all parties involved. 

The extent of the clauses and provisions in the agreement can be determined by the property but do make sure it is drawn up by a lawyer to ensure it stands up to legal scrutiny. Also consider speaking to a property professional who give be able to give useful insights and valuable guidance of considerations to factor in. 

As a minimum, the agreement should address the following concerns: 

• Will any of the owners occupy the property? What are the implications for those who don't?

• What happens in the case of death of one of the co-owners

• What happens if one of the co-owners is unable to continue contributing financially, whether to the bond repayment or the other expenses? 

• What happens if one of the co-owners wants to sell their share on the property? Do the other owners immediately have the first right of refusal?

• Should the property be sold, how will the potential profits or losses be divided?

• What happens if not all co-owners are able to contribute to a deposit? 

• How is the responsibility of property maintenance to be divided?

• Are any of the co-owners allowed to use the property as collateral for another loan, or permitted to draw from the access loan? 

"This approach of 'the more the merrier' is a good way to get onto the property ladder and as long as all parties agree to the terms and conditions in writing, and commit to transparency in as far as matters of the property is concerned, there is no reason to not go this route," Cohen believes.