Property Ownership Options – Which one is right for me?

There is an awful lot to consider when you are buying a home. Between negotiating and securing an agreement, investigating the property to make sure it is a wise investment, arranging finance, making KiwiSaver first home withdrawals and obtaining Homestart grants (if you are a first home buyer), settling and everything in between, there is a lot to deal with. This article will focus on one important aspect of home ownership and the buying process – your options for the way you own the property.

For this article, we will set aside family trusts or companies as ownership options, and focus on situations where you buy property in your personal name with someone else.

Joint Tenants

The key characteristic of this form of ownership is that if you pass away, the property is automatically transferred to the surviving joint tenant or tenants. This means that you don’t own a defined share in the property, rather you own the whole of the property jointly with the other person or the other people who buy it. This also means that your interest in the property isn’t dealt with under your Will – it passes to the surviving joint tenant or joint tenants regardless of what your Will says.

Take Jacinda and Bill, a couple who are first home buyers, for example. They each get a $5,000 Homestart Grant and $10,000 KiwiSaver withdrawal, and contribute joint savings to make up the rest of their deposit, and take out a joint loan with the bank. They buy the property as joint tenants, make equal payments towards the costs of the property, and remain a couple until Bill passes away at which time Jacinda becomes the sole owner of the property.

This form of ownership is very common and can be a good choice for people who contribute equally to the purchase of a property as Jacinda and Bill did, and want the survivor to get the whole of the property on their passing. However, it shouldn’t be seen as a “default” option. It is important to consider the individual circumstances of your purchase and the way you want the property to be dealt with in the different circumstances that can arise moving forward.

Tenants in Common

The key characteristic of this form of ownership is that you own a defined share in the property, and this share does not automatically go to the other owners of the property if you pass away – your Will dictates what happens to your share.

Using our previous couple as an example again, Jacinda and Bill buy a property as tenants in common in equal shares, and on Jacinda’s passing her share in the property is given to her children under her Will. Now, her children own her half share in the property and Bill still owns his half share.

This form of ownership can be a good choice in these common situations:

1. Where the people purchasing the property are making unequal contributions towards the purchase – each person’s share in the property can reflect and protect their contribution;
2. Where people who are in a relationship are purchasing the property together, to protect their respective shares in case one of them passes away, and the survivor enters into a new relationship; or
3. Where the property is being purchased by people who are not in a relationship, or for investment purposes (although first home buyers wanting to use their KiwiSaver and a Homestart Grant need to be mindful that they will not be able to do so if the property they are purchasing is an investment property that they won’t be living in).

Common things to consider when purchasing a property

Some examples of other common things that should be considered when you are purchasing a property are:

1. Finance – Whether any money is being given to go towards the purchase by someone other than a bank (mum and dad for example), and how this is documented, and the advance protected. For example, if Bill’s parents want to advance some money towards the purchase to help Bill and Jacinda out, but they don’t want the advance to become relationship property and to be split between Jacinda and Bill if their relationship comes to an end, this should be discussed, and the terms of the advance agreed and recorded between the parties;
2. Relationship property agreement – Where the people purchasing the property are in a relationship, whether they should also enter into a relationship property agreement to set out what will happen to the property they are buying, or its sale proceeds, if their relationship ends; and
3. Property sharing agreement – Whether the people buying the property should enter into a property sharing agreement – this agreement can set out how expenses for the property will be dealt with (this is particularly useful where the property is owned by tenants in common as to unequal shares) and what the parties agree will happen to the property in different situations – for example where one party wants to sell but the other doesn’t.Buying a home is an exciting and busy time, and it is important to ensure that you give some thought as to how you want to own your property. We can assist with your purchase from start to finish and will take the stress out of decisions around ownership by considering your individual situation, explaining your options, and making sure that you understand the way the law works so that you can tailor your ownership arrangement to your specific needs. If you think that your current ownership arrangement is not right, we can assist with correcting that as well – please just get in touch.
4. Article by Nick Feast, Solicitor, Commercial and Property Law Specialist, DTI Lawyers