Process Detail

From Peoplebrokers

What is shared home ownership

By 1988 a housing survey taken by the Australian Bureau of Statistics revealed that 30% of Australian households were occupied by single people. In July 1991 it was claimed that 45 percent of Australian households were single and in 15 years it is expected that 75 percent of households are likely to be childless. The nuclear family is fading into the past, successful marriages are the exception rather than the rule. In fact in some Melbourne suburbs 1 in 3 homes are occupied by a single person - this impacts not only on personal security but neighbourhood security as well.

In the light of Government concern for urban sprawl in the early 1990s and their medium density housing plans it became clear that a very viable solution is for compatible people to join forces in shared home ownership agreements. Single people, and even couples, of all ages have been sharing houses for years. Shared home ownership is a similar arrangement except that each occupant of house owns a share of it. The rent they used to pay is now paying off their mortgage.

The equivalent government initiative, the Shared Home Ownership plan, helps people to buy their own home. The co-owner in this case is the Ministry of Housing. The plan allows people to seek their own mortgage on a percentage of the property and pay rent to the Ministry on the remainder. Certainly people get together and purchase a holiday house or a ski lodge. Another similar concept is Time Share holiday apartments. 

Some single people have already grouped together and bought a property in which they happily live together. If one of the co-owners chooses to live elsewhere it doesn't mean you have to sell up. Those remaining can get someone in to share and cover that absent co-owners payments. In this event there may be possible implications if a mortgage is involved however one leading bank indicated that they would assess each case individually and if the majority of household members were owners the interest rate would probably remain the same. 

The official legal term for shared home ownership is tenants in common, a term that began when married couples or siblings chose to own separate shares in their home. On the death of one party their share automatically passed to the other. Shared home ownership among unrelated people is best conducted by this same agreement which can be designed to cover any and every facet of the arrangement. Single property unit trusts or forming a company is both complicated and costly.

Groups of people combining their resources and buying a home together will be quite common in the future. They can afford a better property than if they were sole owners and the combined value of their income will facilitate a larger loan. It represents less risk for the bank to have several mortgagees responsible for the loan. An added bonus is sharing the purchase fees - stamp duty, government taxes and legal fees. 

Not only that, sharing a larger house with compatible people can be a lot of fun and the commitment to make the arrangement work is good for the soul. Until the building industry designs houses for single adults to share, the ultimate plan should be to buy a property and renovate it to give adequate personal space and several living areas. However, if the compatibility wears thin, it is an easy matter for one of the owners to live elsewhere and have someone move into their room and pay rent to cover the expenses and they still retain their property investment. Independent professional advice should be sought regarding possible income tax and capital gains tax implications if this situation arises.

Equally, if one of the co-owners wishes to sell their share (according to the agreement) the prospective buyer can move in for awhile and 'try it out'. It is rare that anyone ever has the opportunity to live in house before they buy it. This will also help all the parties assess their compatibility. 

Certainly it is possible for someone who presently owns their home alone to agree for another person to buy into it. They could share for awhile to make sure they are making the right decision. Or a homeowner may wish to upgrade and the financial input from someone else could mean buying the ideal home.

Shared home ownership could also be attractive to childless couples who would enjoy a more homely/family environment by sharing with another compatible couple. This may seem to be a dramatic change in social attitudes and expectations but it is not uncommon now for couples to have their own bedrooms to maintain a degree of independence by having some personal space of their own - they will say that it keeps the relationship interesting. Even two families may co-own and live in the same home to benefit both adults and children. 

Many people think the motivation to enter into a contract with others to buy a home is purely financial. If you really think about it you will realise that the pattern of social change is pointing to the need for the right companionship rather than isolation. By getting together with others that you really like results in a comfortable home and a 'family' atmosphere which offers the physical security that living alone cannot. 

Shared home ownership could have a dramatic effect on the housing market. If 50% of those living alone decided to share this would free up half a million dwellings (census 1986). The impact on building and architecture would mean fewer 1 bedroom flats (which are becoming very unpopular) and more appropriately designed homes where two or more unrelated people can live in harmony. Among the many examples are three professionals in their thirties who bought a house together and renovated it so that each had their own bathroom, study and bedroom. 

Shared home ownership presents us with a dichotomy:

• ownership — synonymous with independence, maturity, possession and control as well as commitment.
• sharing — synonymous with dependence, youth, compromise and being carefree. 

Yet with the right combination of people these two opposites can merge very successfully. The benefits in terms of quality of life and physical security, not only for individuals but also the community at large, are probably immeasurable.

Several areas the shared home ownership will impact dramatically is: care of the elderly - as our single population ages they can continue sharing a home and make arrangements between them to accommodate a nurse.

Cross generation sharing where for example a young adult or student, a single parent and an older couple live communally in suitably designed accommodation, each being able to care for the other in different ways. Such accommodation could comprise of satellite units (bedroom, sitting room, maybe ensuite) around a central community facility with kitchen, large living areas, laundry, hobby area etc.

Choosing who to buy with

The choice of co-owner is crucial. Many of us who have shared houses for years know that it is not always wise to live with your best friend - especially if you want to keep that friendship. The basis for a good house sharing relationship is to live an independent life yet be like-minded enough to enjoy each other's company when you are home together. Of course when you become co-owners of a home similar standards and values will be essential when you need to make decisions about the running of the household.

It can be a good idea to share a rented place for a time to see how well you live together. Experience tells us that it is one thing to like someone but quite another to live with them. What must be kept in mind is that there is always give and take in any relationship. It is people's flexibility (ability to negotiate and compromise) that makes them good to live with. 

In the majority of house sharing relationships one person has the control - either because they own the home or the hold the lease. Shared home ownership changes this relationship totally where each co-owner has equal footing. It is advisable to nominate a third party to arbitrate in any unresolvable issues and all agree to adhere to that person's decision. However, if you are a mature and responsible person and you choose your co-owners wisely it should be unlikely that you will need to use this person.

The final consequence for unresolved disputes is the sale of the property which could jeopardise everyone's well-being.

When you have chosen who to buy with but find you still have doubts you can have a an independent person or a psychologist assess your compatibility.

Selecting and purchasing a property

The first step is to sit down and make plans about how to select properties to inspect. It will speed the process up if you each go off in different directions and when you see something that appeals arrange for the other/s to see it. Keep a log book of what you have seen and what you like and dislike about it.

If you haven't purchased a property before you may choose to attend a home buying seminar. There are many good ones available. 

When deciding on the type of property you have to take into account that most houses are designed for family living. This means bedrooms of differing sizes, often only one living area and the loo is in the bathroom. The ultimate would be to build a specially designed place but a good solution is to look for a place that can be renovated economically.

There are many services you can utilise to ensure that you buy the best property at the best price. A building advisor to assess the soundness of the building and its renovation prospects. A buying advisor to make sure that you do not pay too much for the property. Home buying advisors to help you during the process and so on.  If one of you attends an auction and finds yourself the successful bidder you can sign the sale documents yourself and add the words "and/or nominee". The cooling off period will give you a few days grace.

Contracts

Before you see your solicitor you should make a decision about all of the following points. This will reduce the time you spend with your solicitor and thereby reduce the cost of preparing the contract. It will be to your advantage to use a solicitor who is very experienced in shared home ownership contracts. They will be well informed of all the necessary facets to cover and will be able to prepare your documents more efficiently and cost effectively.

A private contract between the co-owners as tenants in common is the best form of agreement. Forming a company or a unit trust is expensive and complex. Regardless of how well you know your co-owner remember that buying a home together is effectively a business deal and should be dealt with accordingly.

It is not necessary that each person owns an equal share of the property. By agreement, the shares are allocated according to the amount of equity invested.

Each co-owner may contribute to the purchase price differently. One person may have the full purchase price for their share, another may have a sizeable deposit with limited income to make mortgage repayments. Another may have no deposit but able to make large repayments. Each of these people will then be contributing to the purchase price in equal but differing ways.

If you plan to finance the purchase with a mortgage there are three things to consider:

• Will all the co-owners be liable for the mortgage repayments?
• If not what proportion of the repayments will each co-owner be liable for?
• Arrangements to take out insurance between the co-owners for cross indemnity ... mortgage instalments and other money paid by one co-owner on behalf of another who may be unable to pay because of unemployment or the like.
• The right of co-owners to rent part of the property (for short, long or indefinite) periods of time. This will cover incompatibility, marriage of a co-owner, work transfer or an investor co-owner.
• Management of household expenses and contributions paid by co-owners.
• Responsibility of co-owners and/or other occupants for insurance, rates, utilities (water, telephone, gas & electricity), gardeners and housekeepers.
• Financial arrangements for maintenance and repairs on the property.

An important consideration in the contract is to agree on the process of selling an interest in the property There should be a minimum time to retain the property so that the costs (legals and stamp duty) are recouped by the rise in value of the property.

•  Conditions for an earlier sale by consent.
• Conditions for sale of one co-owners share after that time.
• Staggering the periods of notice of intent to sell by co-owners.

There should be a clause stating that the other co-owners have the first right of refusal when a share of the property is offered for sale. It would also be wise to agree that the remaining co-owners choose who buys that share without disadvantaging the sale in any way (i.e. the time it takes to sell, the price of the share). This could be regarded as restrictive by some if they are the one who wants to sell. But equally, they may be the one who has to live with the new co-owner. Process of evaluating a co-owners share of the property.

Deemed notice of sale in the event of:

• breach of the principal term of the agreement, or
• failure to rectify a breach of any other term of the agreement.
• marriage of co-owners
• death of a co-owner
• bankruptcy of co-owner
• any other contingencies such as children, pets etc.

Dispute resolution:

• Nominating an independent person or body to approach with the unresolved matter.
• Agreement to adhere to that parties decision regarding the matter.
• Guidelines for contributing extra funds to:
• renovations and improvements
• reduction of mortgage loan
• redevelopment of the property i.e. dual occupancy dwellings.
• any other issues including major repairs.

Loans and financial arrangements

Loans

Regardless of how many co-owners only one mortgage is required. Each owner has an agreed share of the whole property. The bank is not really interested in the percentage share of each co-owner. There are many different ways people approach their contribution to the purchase. One person may contribute the deposit and the other may agree to make the repayments. If all contribute to the deposit each co-owner may contribute varying amounts and the repayments may vary between each co-owner as well.

If one of the co-owners is unable to contribute to the repayment at any time the others must pay on their behalf. The contract should contain details of cross indemnity to recover this amount at a later stage. Each owner is liable for loan repayments separately or jointly, the cross indemnity clause provides the means of recovering the money paid on another co-owners behalf.

How is the Loan affected if one of the co-owners moves out temporarily or sells their share?

Because shared home ownership is a new concept it is unlikely that the banks have any firm policy on home loans for these ventures. Their current housing loan policies will apply. The major concern is the effect on the loan rate if all the owners are not using the house as their principal place of residence. The are two types of situations involved: One co-owner wishes to live somewhere else temporarily. They may still use the co-owned home as their registered address and providing the home is occupied by the other owner/s the loan should not be affected. If they decide to use the rental earned to negatively gear their investment or attract any other taxation advantages they will need to seek professional advice. The same applies if the person wishes to leave the home permanently and retain their investment (according to point 4 of the agreement).

Financial considerations

When deciding on the amount of money you can invest in the property you can consider allocating your funds in various ways:

Every purchase involves expenses for tax, duty and legal fees as well as pre-purchase advisors if you decide to use them. purchase price only - deposit and mortgage repayments purchase price including improvements and renovations Land tax and water rates

Insurance

Protecting yourself against default by co-owner ....

In the event of the death of a co-owner they may will their share to a relative. It would be better to have a life insurance policy making the other co-owners beneficiaries. That money can then be used to pay the relatives for the deceased share.

Selling your share

In the agreement you will have decided on a minimum time to keep the property. This will allow for an increase in the value of the property to at least recover your purchasing costs. Two years is considered an average time for this to occur. The end of that 2 year period may be a good time to sit down and discuss how the sharing arrangement has gone and what future plans any of the co-owners have.

You may then agree to continue on as you are for another two-year period, or you may agree that any of the co-owners can give notice of intention to sell (according to the agreement). Any new decisions made at this point which differs from the original agreement should then by written into the agreement by amendment.

Your agreement may state that the other co-owner/s have the first right of refusal. If they decline that option then you will have to seek out interested parties. You can advertise just as people advertise shares in ski lodges or you can go to an agency which specialises in matching people for house sharing and shared home ownership.

When a co-owner decides to sell their share to an outside person, two months should be an adequate time to find a new co-owner and there may be a settlement period of 30 days. Or you may agree to have that proposed co-owner move in and try it out for a month or two. A new agreement (or perhaps an amendment) should then be drawn up between the new co-owners.

Hopefully you will have agreed that the remaining co-owners can choose who will take your place. This should be done in a co-operative manner with the remaining co-owners doing everything they can to speed the process up. It shouldn't take any longer than it does to sell any other type of home. With shared home ownership becoming quite common in the nineties and beyond there will be a plentiful supply of buyers. Perhaps you could agree that if the process is drawn out that at a certain point the house should be dissolved and put on the market as a whole house rather than a share of it.