In recent years it has become increasingly common for groups of friends, or parents and children to combine resources to purchase a property to live in. What is often overlooked is that the parties circumstances will change over the course of ownership
In recent years it has become increasingly common for groups of friends, or parents and children to combine resources to purchase a property to live in. What is often overlooked is that the parties circumstances will change over the course of ownership, which if not contemplated can result in unintended stress and costs for all involved. When entering into such arrangement a written property sharing agreement is an essential element to ensure that everyone understands the arrangement being entered into, and also set out a clear process when one or more of the parties need to relinquish their share in the property.
The recent case of Freeman v Dijksma illustrates the issues that can arise where no legal advice is sought on a property sharing arrangement, and one party’s circumstances change for the worse.
Mr Freeman and Mr Dijksma purchased a property in 2015. They combined their savings for the deposit with the balance of the purchase price financed by mortgage lending. They were friends, and they purchased the property as a means of entering the property market. . This worked well for a couple years until the defendant moved overseas in 2018 and began to miss his contributions towards mortgage payments. Crucially, Mr Freeman and Mr Dijksma did not enter into a property sharing agreement recording the terms of their joint venture. As a result the relationship between the two soured. Mr Dijksma refused to deal with Mr Freeman’s attempts to negotiate a settlement. This meant that Mr Freeman had to make an application to the High Court to purchase Mr Dijksma’s share of the property. Mr Freeman was successful in his application, and Mr Dijksma was ordered to pay him $10,376.97 in costs.
During the hearing Mr Freeman’s lawyer astutely described the situation as “an unintended or unforeseen stalemate or deadlock born perhaps of naïve enthusiasm to get on the property ladder without legal advice”. A written property sharing agreement would have ensured that the parties clearly understood the arrangement being entered into, and would have clearly set out the process we are either one party wishes to buy out the other, or where one party needs to sell their share.
We recently acted for a client who found himself in a situation similar to Mr Freeman. The key difference was that the parties had a written property sharing agreement. Our client and the other co-owner knew what had to be done, and the purchase of the co-owner’s share was affected with minimal stress and cost for both parties. Perhaps more importantly their friendship was maintained. We regularly act for parties purchasing property with friends or family, and would be happy to discuss how we can assist you through the process.