As a result of the current property market in Perth, we have seen a substantial rise in co-ownership arrangements for real property. These can come in many forms for example, parents providing children with substantial contributions to be able to obtain finance or to make cash offers on properties or elderly parents building granny flats on their children’s property in exchange for a life interest.
Written agreements
Prior to any action, parties wishing to embark on a co-ownership arrangement should consider which form of contract is the most appropriate to have in place. These can vary in nature, and the context of each can differ slightly, however, these arrangements can be governed by either a:
- Loan agreement;
- Contribution and Life Interest agreement; and/or
- Co-Ownership agreement.
It is through these agreements, that clear boundaries to the financial relationship between the parties are established. Further, depending on the nature of the arrangement, these agreements can give rise to security interests to the property subject to the transaction.
Contracts to a transaction are like rules to a game. If things are going smoothly, you don’t need them but if an issue arises, a good contract will clearly set out what the rules are, and this can avoid a dispute from arising.
Security
In these arrangements, there are two relevant forms of security interest that one can exercise. These are either the registration of a mortgage or a caveat over the property. It is important to remember, that these are two distinct legal instruments and do not have the same effect.
Mortgages
A mortgage is a financial agreement between a borrower and a lender, typically a bank or financial institution. In these circumstances, if a parent is providing their child with a significant amount of money to purchase a home (that is not to be considered a gift), then the parent would wear the shoes of the lender.
A lender can register a mortgage against the property title with Landgate, giving them a legal right to repossess the property if the borrower defaults on the loan payments. Once the loan is fully repaid, the mortgage is discharged, and the borrower gains clear ownership of the property.
Caveat
In circumstances where a mortgage is not available, then the registration of a caveat may be the next best option.
In Western Australia, a caveat is a legal document that can be lodged with Landgate to protect a caveatable interest in a property. It serves as a warning or notice to others that there is a claim or interest on the property. For example, if someone has provided funds for a property purchase but hasn’t received payment, they can lodge a caveat to prevent the property from being sold or transferred until the matter is resolved.
Conclusion
Protecting your financial interests when purchasing a property jointly with family members is paramount for several reasons. Firstly, clear and detailed legal agreements can prevent misunderstandings and conflicts down the line. Since emotions can run high in familial relationships, having a solid financial plan in place ensures that everyone’s contributions and expectations are transparent and respected. Additionally, life circumstances can change unexpectedly, and having a well-structured agreement can provide a framework for dealing with unforeseen events such as divorce, death, or financial hardships. Moreover, protecting your financial interests safeguards your investment and ensures that your financial stability is not compromised by the actions or decisions of other family members. By proactively addressing potential risks and establishing clear boundaries, you can mitigate future disputes and preserve both your family relationships and financial well-being.
If you, or someone you know is embarking on a co-ownership venture or assisting another with the purchase of a property, our commercial team at Lynn and Brown Lawyers will be able to assist you with:
- Reviewing the proposed arrangement and providing our advice as to any legal implications it may have;
- Preparing the appropriate documents to govern the agreement;
- Prepare and register various forms of security with PEXA and Landgate; and
- Advising on loan guarantees and executing solicitors’ certificates as required by lenders.
About the Authors: This article has been co-authored by Chanelle Kane and Steven Brown. Chanelle has been in the industry since 2013 and graduated with a Bachelor of Laws in 2020. Chanelle completed the Graduate Diploma of Legal Practice with the College of Law in 2020 and was awarded the 2020 PLT Professional Excellence Award for the cohort. Chanelle was admitted to practice in the Supreme Court of Western Australia in November 2020 and to the High Court of Australia in January 2021. Steven is a Perth lawyer and director, and has over 20 years’ experience in legal practice and practices in commercial law, dispute resolution and estate planning.
