Buying a property with friends can be an exciting and financially savvy decision, especially in today’s challenging housing market. As housing prices continue to rise, pooling resources with your trusted friends can make the dream of homeownership more attainable. However, before diving into this significant commitment, it’s crucial to understand the legal implications, potential benefits, and drawbacks of co-ownership.
This blog will explore the main types of ownership, the advantages and disadvantages of this arrangement, and the importance of legal agreements and estate planning.
Should friends buy as Joint Tenants or Tenants in Common?
When buying a property with a friend or as a group of friends, you must decide between two primary forms of co-ownership: Joint Tenants or Tenants in Common. As Joint Tenants, you and your friends will own the property in equal shares. If one of you passes away, their share automatically passes to the surviving owners. This arrangement is often favoured by couples or those wanting to ensure their share goes to the remaining owners.
On the other hand, as Tenants in Common, you and your friends can own unequal shares of the property, and you have the freedom to leave your share to anyone whom you choose in your will. This arrangement offers greater flexibility and is often preferred by friends with different financial contributions or those who want to maintain control over their share of the property.
It’s essential to carefully consider your circumstances, plans, and the nature of your relationship with your friends before deciding on the type of co-ownership that best suits your needs.
Advantages of buying a property with friends
Buying a property with friends can offer several advantages. Firstly, it can make homeownership more affordable, as you’ll be splitting the cost of the deposit, mortgage payments, and other expenses. This can be particularly beneficial in areas with high property prices, where individual buyers may struggle to enter the market.
Plus, co-ownership can provide a sense of community and shared responsibility. You’ll be able to live with people you trust and enjoy spending time with. You can share the duties of maintaining and improving the property. This can be especially appealing for those who value a social living environment or are moving to a new area and want to live with familiar faces.
Plus, buying with friends can also offer financial security. Suppose one of you experiences financial difficulties or unemployment. In that case, the others can help cover the mortgage payments until your situation improves. This safety net can provide peace of mind and help ensure you don’t risk losing your home due to temporary financial setbacks.
Disadvantages of buying a property with friends
While buying a property with friends has benefits, it’s essential to be aware of the potential drawbacks. One of the main challenges is navigating differing options and lifestyles. Living with friends can strain your relationship, particularly if you have conflicting habits, cleanliness standards, or expectations for shared spaces. It’s crucial to have open and honest discussions about your living preferences and to establish clear house rules before committing to co-ownership.
Another potential disadvantage is the financial risks involved. If one or more of your friends face financial difficulties and cannot contribute to the mortgage payments or other expenses, the burden will fall on the remaining owners. This can lead to resentment and economic strain, potentially damaging your friendship and risking your investment.
Additionally, co-ownership can limit your flexibility in selling or making changes to the property. All owners must agree on major decisions like renovations, repairs, or property sales. If your circumstances change and you want to sell your share or move out, you’ll need to find a buyer or negotiate with your friends to buy out your share, which can be complicated and time-consuming.
Should friends have a contract when buying a house together?
When buying a property with friends, it’s highly recommended that a legally binding contract be in place. This contract, often called a cohabitation agreement or a deed of trust, should outline the terms of your co-ownership, including each person’s financial contribution, ownership share, responsibilities, and exit strategies.
A well-drafted contract can help prevent misunderstandings and disputes by clearly defining each owner’s rights and obligations. It should cover topics such as how mortgage payments and other expenses will be divided, how decisions about the property will be made, and what happens if one owner wants to sell their share or if the relationship between the owners breaks down.
Having a contract in place can provide legal protection and peace of mind. It ensures that all owners are on the same page and that there is a straightforward process for resolving any issues. It’s advisable to seek guidance from a legally sound agreement.
Should you make a Will when buying a house with friends?
Making a will is essential when buying a property with friends, regardless of the type of co-ownership you choose. A will ensures that your wishes for your share of the property are fulfilled in the event of your death.
If you are a tenant in common, your share of the property forms part of your estate and can be left to anyone you choose in your will. Without a will, your share will be distributed according to the laws of intestacy, which may not align with your wishes and could cause complications for your friends and loved ones.
Even if you are a Joint tenant, having a will is essential. While your share will automatically pass to the surviving owners under this arrangement, a will can ensure that your other assets are distributed according to your wishes and can help minimise the risk of disputes or legal challenges.
When making a will, it’s advisable to consult with a solicitor who can provide guidance on the specific legal requirements and help ensure that the will is properly drafted and executed.
Can I give my shares to someone else while living with friends?
The ability to give your shares to someone else while living with friends depends on your co-ownership and the terms of your agreement.
If you are Tenants in Common, you have the right to sell, transfer, or gift your share of the property to another person, subject to any restrictions outlined in your co-ownership agreement. However, it’s crucial to consider the impact this may have on your friends and the dynamics of your living arrangement. Transferring your share to a third party may introduce a new owner into the property with whom your friends may not know or be comfortable living.
If you are a joint tenant, you cannot give your share to someone else directly. Under this arrangement, you and your friends own the property together, and your shares cannot be transferred independently. If you wish to give your share to someone else, you must first sever the joint tenancy and become Tenants in Common. This process requires the consent of all owners and may involve legal fees.
Before considering giving your shares to someone else, reviewing your co-ownership agreement and discussing your intentions with your friends is crucial. Open communication and a shared understanding of each owner’s plans and expectations can help maintain a harmonious living arrangement and prevent potential conflicts.
