Put Aspects of Co-ownership in Writing

This week’s question posed to our panel of experts is from a reader who intends to purchase fixed property with a friend.

He wants to know how they can protect themselves by way of regulating their relationship in this transaction.

Lucille Geldenhuys from Lucille Geldenhuys Attorneys in Stellenbosch says there are various aspects to be considered by the two potential buyers.

“The relationship between them can be merely a partnership, which does not have to be reduced to writing to come into existence. However, as with most legal relationships, it is preferable that the aspects thereof are put on paper to avoid future confusion or misunderstandings.”

Geldenhuys says depending on the parties’ respective exposure to business risk and their intention with the property they wish to acquire, a partnership may be the simplest relationship to establish.

“Alternatively, they can formalise their relationship by setting up a legal entity such as a close corporation or company (as a trust functions differently, it will be left aside for the purposes of this article).”

This entity, says Geldenhuys, will become the sole purchaser of the land and the members’ relationship will be regulated internally, in other words, by virtue of their interest in the legal entity.

“The members must decide in which proportions they will own and pay for the land. Their member’s interest (in the case of a close corporation) or shareholding (company) will reflect their agreed proportions of ownership.”

In this case, says Schalk van der Merwe from Rawson Properties Helderberg, the seller of the land will be dealing with one purchaser, not with both parties. “Once the financing of the purchase price is determined, each party’s contribution can be recorded by means of a loan account.

“Should a bond have to be registered, further determinations must be made regarding the contribution to regular bond payments as well as other expenses such as property taxes and utilities.”

Van der Merwe says a written partnership, association (close corporation) or shareholders’ agreement (company) is of vital importance when one of the parties wishes to extract himself from the relationship.

“Typically the remaining party would like to have some control over who enters into the property ownership with him. It is therefore a common provision that the party wishing to sell his portion is obliged to offer it to the remaining ‘partner’ first.”

The co-owners should also make provision for dispute resolution, possibly by means of arbitration, to avoid a deadlock situation, according to Van der Merwe. “Think of the dispute that could arise if one person wishes to sell the property and the other wants to hold on to it.”