Picture: Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa; Shaun Dubois, franchisee Just Property Pietermaritzburg; Sandra van der Linde, Tomlinson Mnguni James Attorneys
More families are looking at buying a home together as a way to save costs and provide care for elderly parents, but things can go wrong. There are several legal considerations your clients should know about.
Many new trends have emerged within the real estate sector as a result of the national lockdown, one of which is the increase in multi-generational living. No longer able to afford the costs of living alone, many have combined households to share the living expenses.
According to Adrian Goslett, regional director and CEO of RE/MAX of Southern Africa, this increase in multi-generational living can be seen across the country. “What this means for the property market is that demand for stand-alone rental properties is shrinking and the demand for properties with semi-detached flatlets is on the rise,” he explains.
According to Lightstone more than 2 million people lost their jobs as a result of the lockdown. Consequently, more homeowners have been forced to downscale or consider moving in with family members. Shaun Dubois, franchisee Just Property Pietermaritzburg, says he is seeing more and more multi-generational living arrangements: “This was always common in certain cultures but in most cases it’s a financial decision rather than a preference,” he says. “An economy shedding jobs has resulted in breadwinners losing their income and turning to family solutions. It’s a fairly even split between parents moving in with their children and children moving back in with their parents.”
If your clients are considering at such an arrangement, there are legal considerations that they need to be made aware of. Sandra van der Linde, conveyancer of Tomlinson Mnguni James Attorneys, warns that there are several risks around the legal conventions that apply to joint property purchases in cases where no prior co-ownership agreement exists.
“These risks are often associated with the fact that no prior co-ownership agreement has been entered into by the parties,” says Van der Linde. “If ownership is given to one or more purchasers, without stipulating in what shares they acquire the property, it is legally presumed that they acquired the property in equal shares, regardless of the individual financial contributions of each party.”
“Unfortunately, joint owners that have not concluded a co-ownership agreement, or have not made provision for all eventualities, often get caught up in legal action between themselves when the relationship breaks down. There can be issues, too, in the event of the death of one of the parties or if the other party sells its share of the property.”
Clearly a co-ownership agreement is the place to start.
What to include in a co-ownership agreement?
It is important to specify the percentage ownership of each joint owner in the sale agreement and more specifically in the new Deed of Transfer of the property, which is registered in the Deed Office.
“The Deeds office will then register the property in the specified percentage of ownership of each owner,” says Van der Linde. “So, for example if one owner is going to pay 60% of the costs, and the other owner 40%, the respective ownership recorded in the Deed of Transfer should reflect this share split specifically.”
“Should one of the parties contribute movable property, such as furniture rather than a cash investment or mortgage bond, a fair value should be established for such furniture or other movable property, and this would serve as an indicator as to the share value in the property allocated to that party,” adds Van der Linde.
They will need to discuss what will happen in the case of the death or disability, if the relationship breaks down or if one of the parties wants to sell their share of the property, and include these decisions in the co-ownership agreement. (The options are that the property can be sold to a third party, or the parties can agree that one of them can purchase the share of the other and note in the agreement how the value of such a share will be determined.)
The co-ownership agreement should also stipulate how the property is to be used, how the costs of maintenance are to be divided, who would be responsible for the maintenance and who can occupy the property etc.
“If one of the co-owners acquires the use of the property, the property will need to be valued and a market related monthly rental to be established,” Van der Linde advises. The co-owners then decide on whether the party who has use of the property pays rent in accordance with the percentage of the shareholding of the other owners, or they make another payment arrangement, she says.
“If the co-owners decide that the party that has use of the property should pay a rental amount for the use of the property, then a valid Lease Agreement should be concluded between the owners of the property,” Dubois advises.
Acknowledgement of debt
Along with their co-ownership agreement, owners must also sign an Acknowledgement of Debt for their share of the mortgage bond in favour of the other owner: “In this way each owner has recourse against the other should the bank recover one owner’s mortgage bond non-payments from the other owner.”
“Co-owners who acquired a mortgage bond to purchase a property together are equally responsible for the repayment of such mortgage bond to the bank,” says Van der Linde. “The bank holds the co-owners jointly and severally liable to repay the loan. This means the bank can recover the full amount from either of the co-owners, regardless of the split in ownership.”
So, if one of the co-owners stops contributing to the monthly mortgage bond repayment, the bank has the right to collect the outstanding amount from the other owner in full.
Where family members share a rental property, the same conditions exist, says Dubois: “Tenants will be ‘severally and jointly liable’ in terms of the lease. What this means in simple terms is that each tenant is 100% liable for the full rental, not only their share.”
Advise co-owners to take out life insurance that would be ceded to the other party in the event of their death, in order to pay off the share of any joint mortgage bond.
An income protection policy should also be in place for both parties that would pay out in the event of a disability.
Co-ownership with elderly parents
Where elderly parents jointly own a home with one of their adult children, the “family arrangements” can be complex and vary on a case by case basis, says Van der Linde. So, she recommends that people who are considering this option seek legal advice and guidance from an attorney who specialises in this field of law. Such advice would ensure the intention of the parties is properly recorded in the parents’ wills, and that on the death of the last surviving parent, all the children are left feeling that they benefited equally and fairly from their parents’ estate, averting potential family feuds.
Goslett predicts that this trend in multi-generational living will continue for some time. “It will take a while for the economy to recover to a point where individuals can afford to live on their own once more. I predict that homes with flatlets will continue to be in high demand,” Goslett concludes.