Co-owning land with friends, brothers and sisters, parents or even a stranger can be a really good way to get into the property market. Whether that is as a first homeowner or even an investor. It may seem like a perfect arrangement, especially when you're sharing the costs and responsibilities with someone you trust. However, it's a decision that should not be taken lightly. Co-ownership agreements come with their own set of legal complexities and challenges. Here, we'll explore some of the potential legal risks associated with such arrangements and what you need to consider before entering into a co-ownership agreement.

4 Risks of Co-Owning a Property

1. Potential Disputes Over Use and Maintenance

One of the main challenges with co-ownership is managing disagreements over the use, maintenance, and improvement of the property. One party may want to make substantial changes to the property, while the other may not. Disagreements may also arise over who is responsible for maintenance costs and property taxes. To reduce this risk, you must have a comprehensive co-ownership agreement that clearly outlines the duties, rights, and obligations of each party. This is the best way for everyone to achieve a win-win.

2. Financial Risks

If one co-owner encounters financial difficulties, it could impact the other owner. For example, if one party fails to meet their mortgage payments, the bank may decide to foreclose on the property, affecting all co-owners. If a co-owner declares bankruptcy, their share of the property could be used to pay off their debts, potentially forcing a sale of the property. If another co-owner dies their family may want to sell the property to convert that share into cash.

3. Difficulty in Selling or Transferring Ownership

Selling or transferring ownership in a co-ownership arrangement can become complex. If one co-owner wants to sell their share but the other does not, it may lead to disputes. In some states and territories, a co-owner can force the sale of the property through a court or tribunal and this could cost enormous amounts of money in legal fees.

4. Death of a Co-Owner

The death of a co-owner can complicate matters, depending on the type of co-ownership agreement. If the property was held as joint tenants, the deceased owner's interest automatically passes to the surviving co-owner(s). However, if the property was held as tenants in common, the deceased's share will be transferred to their estate, potentially leading to disputes over inheritance.

How to Reduce Risks of Co-Ownership

Legal Structure

Decide on the most appropriate legal structure for your co-ownership. This could be joint tenancy, tenancy in common, or a more complex structure like a company or a trust.

Co-Ownership Agreement

A comprehensive co-ownership agreement is a must. It should detail the rights and responsibilities of each co-owner, how costs will be divided, how disputes will be resolved, and what happens if a co-owner wants to sell or dies.

Seek Legal Advice

Given the complexity of co-ownership, it is advisable you seek legal advice. A legal professional who knows the law in this area can provide guidance tailored to your specific situation and help ensure your interests are protected.

While co-ownership of land can offer many benefits, it's essential to understand the potential legal risks and take steps reduce them. With careful planning and legal advice, co-owners can enjoy their shared property while minimising potential disputes and complications.