It is not unusual, real estate lawyers and brokers say, for people to consider pooling resources with friends or family members when buying property.
Dickinson Baker, an associate broker in East Hampton, N.Y. said that he had seen a number of cases in which groups of people who have been renting a vacation house decide to get together and buy instead of rent. But what seems like a good idea at first, Mr. Baker said, can get complicated as time passes.
Here are some things to consider when buying property with partners.
James Grossman, a Rochester lawyer who is a former chairman of the real estate section of the State Bar Association, said that the first consideration is how title will be held. When a husband and wife buy property, he said, the title typically is held as tenants by the entirety. With this form of joint ownership, if one spouse dies, the survivor automatically becomes the sole owner.
And while it is possible for unmarried partners to take title as joint tenants, it is more likely that friends or family members purchasing a house together will take title as tenants in common.
With that form of ownership, Mr. Grossman said, each owner has an equal right to possession of the property, and any owner can transfer his or her interest independent of the other owners.
Because of this, Mr. Grossman said, it is critical to determine upfront how future transfers of ownership interest will be handled.
You really should have a written agreement as to what is going to happen if one owner decides to sell, he said. It might make sense, for example, to provide remaining owners with a right of first refusal.
Another thing to consider, Mr. Grossman said, is that with a tenancy in common, when an owner dies, his interest will pass to heirs or beneficiaries. So you might want to put something in the agreement or even the deed itself that if an owner dies, the remaining owners have the right to buy out whoever inherits the property.
Christopher LaMonica, a real estate lawyer in Brick Township, N.J., said the partnership agreement should clearly spell out all financial obligations.
Normally, everyone on a mortgage will be jointly and severally liable, he said. That means that if one owner stops making his share of payments, the other owners are going to be liable for the full amount of the debt. So, he said, it might be worthwhile having something in the agreement that will require an owner who stops making payments to sell his share back to the other partners at an amount determined by an appraiser.
Douglas F. Wasser, a real estate lawyer, said the partnership agreement should address as many issues as possible, even those that might seem mundane and unnecessary at the beginning. For example, he said, the agreement should say who is responsible for maintenance of the property and whether money should be held in a fund for repairs.
It should also spell out how use of the property is going to be allocated: will all parties have an open-ended right to use it anytime they wish, or will use be allocated on a particular schedule?
Another issue to address is whether an owner can allow someone else, including grown children, to use the property and what, if anything, happens if a couple who are owners get a divorce. Issues related to things like pets, smoking and using the property for parties should also be addressed.
When there are multiple owners, each of these decisions can be based upon a unanimous vote, a majority vote or a vote by a specified number of the owners, Mr. Wasser said. And though you may think these things are not important, when a dispute arises, even little things can cause big problems.