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Do you need a Property Agreement, a Binding Financial Agreement … or both?

With property prices so high, buying into the property market is unachievable for many people. It is becoming popular to buy with siblings, parents, partners or friends and for everyone to live in the home. When purchasing a property with someone else, it is important to consider how payments will be made; will the property be leased; who will occupy what parts of the property; and what will happen if the relationship turns sour or someone decides that they want to sell? Sometimes a Property Agreement will be needed to document this, and, in the case of couples, a Binding Financial Agreement (BFA) will be needed. In some scenarios, you may need both.

Take this scenario: Two sisters realise that if they combine their savings they can afford to buy a townhouse. The eldest sister, Olivia, has saved more money than her younger sister Jenny and can afford to put down more of a deposit. Olivia has a boyfriend, Roger, who has also saved some money. The three decide they should all buy the property as tenants in common in shares that represent their initial contributions and mortgage repayments. They also agree that Olivia and Roger will live in the property whilst Jenny stays living at home with mum and dad. They will contribute to the mortgage in the shares that they have agreed, share rates and strata levies, and Olivia and Roger will pay for water and electricity. They will also pay Jenny a proportionate fair market rent. Sounds pretty simple right? Surely, they can do all of that without a written agreement in place? The reality is that in many cases people can’t. Without having a Property Agreement in place to dictate exactly how things are to be dealt with, things can get messy.

The Property Agreement dictates how the property is to be dealt with between the three owners. But Olivia and Roger should also enter into a BFA. Pursuant to the Family Law Act 1975, after the breakdown of a de facto relationship, parties can apply to the Family Court for Orders altering their property interests. This means that the Court can make Orders altering the ownership of property, irrespective of whose interest is recorded on title and any agreements in place between the parties. The only way that parties to a de facto or married relationship can avoid the provisions of the Family Law Act, is to enter into a BFA beforehand. The Property Agreement between Jenny, Olivia and Roger will not guarantee the desired outcome between Olivia and Roger if they separate and an Application is made to the Family Court. It is possible for the Family Court to make orders varying the property interests between Roger and Olivia and to make orders that may affect Jenny. The principles set out in the Family Law Act will apply to the issues between Roger and Olivia, irrespective of what any Property Agreement says.

In another scenario, let’s consider mum (Merle) and son (Luke) buy a house together so that Luke can help look after Merle in her older age. At the time of purchase, Merle and Luke enter into a Property Agreement setting out the agreement between them as to which areas they will occupy, who will pay for renovations, and what their contributions will be to the outgoings, maintenance and repair costs. The Property Agreement also sets out the procedure to be followed if one of them wants to sell.

A few years later, Luke and his boyfriend Andrew decide that they want to live together. Merle agrees that they should all be able to live together and Andrew moves in. The Property Agreement between Merle and Luke remains in place but both Luke and Merle become concerned about what will happen if Luke and Andrew break up. Even though Andrew isn’t registered on title, if he and Luke are together for a sufficient time the court may determine that Andrew does have an interest in the property. This could result in Luke being forced to sell his interest in the property to be able to pay out Andrew. If Merle can’t afford to buy Luke’s share then they will be forced to sell the property. To protect Luke and Merle, Luke and Andrew should enter into a BFA. The BFA could state that Andrew is to have no, or limited, interest in the property. The BFA can also set out the details of the proposed financial arrangement between Andrew and Luke, such as contributions to weekly household expenses. In the end, the BFA ensures that everyone knows and understands their position and the risks that they face.

Both of these scenarios show that when buying property with other people, it is important to get the right advice up front and carefully document any arrangements. If arrangements or relationships change then it may be necessary to alter any current agreements or enter into new agreements. At Watkins Tapsell, our experienced Property and Family Law professionals can guide you through this process and help protect your interests.

For further information contact our Commercial Business & Property Team or the Family Law Team.