Buying or leasing property with friends or lovers – what should I do?
It is so tempting these days, especially with the high cost of housing, to partner with a friend or lover to buy a home or lease a property. Please look before you leap into that 30 year mortgage contract. The average length of home ownership in the US is about 7 years. People change, people grow, people move, people become ill or are injured, people die, lifelong friendships evolve and the average length of a marriage in the US is just short of 7 years. Not all friendships or relationships end on good terms. Contemplating co-ownership or co-tenancy calls for having a good real estate lawyer on your team.
The best thing you can do if you really want to buy real estate with a friend or lover is to plan for the eventual sale in a well written cohabitation agreement. If you begin with the end (the sale) in mind you have the opportunity to negotiate the deal while your relationship is the strongest it might be. Would you rather negotiate with a friend or an ex-friend?
Here are key points that your co-ownership contract should consider:
- How the mortgage, taxes, maintenance and other ownership costs will be divided.
- How the property be used. Could one party lease out or resell their share?
- Will either party have the right to encumber the property with other debt or obligations?
- How any tax benefits of ownership will be handled.
- Who can decide to sell? What if one party wants or needs to sell and the other doesn’t? You just got a dream job in another city but you need your equity out of the property to buy a new one and you certainly can’t pay your share of the mortgage and rent. This is where a lawyer can help you draft language that allows for a sale under this circumstance. You can even agree to sell to one another at the new appraised price. Options: Give a defined period of time to come up with the cash. Offer a ‘right of first refusal’ on a sale but recognize that may get in the way of an easy sale.
- What if one party runs into financial problems? They lose their job or run up big debt. You need language to protect your interest if their creditors come after the joint property. If both partners sign loan documents, an apartment lease, or a contract with a utility company, both are legally responsible for payments—even if one partner moves out.
- What happens if the property loses value or a quick sale means a loss? How will the loss be shared? What if there is no equity? Again, a lawyer can be your best friend during the preparation of a contract.
- The form of ownership is important. Will it be joint tenancy with right of survivorship? Will you be equal owners with undifferentiated rights? Or will the deed be in one name with a contractual agreement to share in the obligations and benefits of the property? Note that, without an additional contract, a lone individual on the deed can do what they want with the property. What are the tax implications? These are complex issues that a good attorney can help you navigate with ease.
You will need to consult a real estate attorney in your state who is familiar with the specific your state laws pertaining to the ownership of property. A good real estate attorney can help you avoid issues that might block the timely sale or cost you extra fees and taxes.
Please remember that you are in control of your life. None of this information should ever be considered a substitute for medical, financial or legal advice.