Supply and demand, the Auckland property market continues upwards with ever increasing house prices and little sign of any fundamental changes, apart from a possible move towards apartments and smaller houses or, perhaps, more people grouping together to buy a
Commitment to a weekly rental, coupled with some developing intergenerational angst directed at the baby boomer generation, has prompted a second look at ways renters, with a job, can aspire to home ownership as owner/ occupiers with others, rather than
as a single owner. Leaving aside property investment (which raises important offer and
tax issues under the financial markets and income tax legislation), some collective structures don’t work that well for the owner/ occupier.
For example, while the club flavour of the Incorporated Societies Act 1908 has the required collective ownership ‘feel’, an incorporated society requires a minimum number of members, none of whom can take a personal benefit in the society’s assets. Therefore, a member could not personally access any increase in property value.
A company is a possibility. They have been used over the years for flat or apartment ownership. The upside is that company rules are well trodden via the Companies Act 1993.
The downside is that a shareholder in a company (which owns the underlying property) may feel distanced by the corporate vehicle from that property ownership.
Any future buyer may be put off or confused by the purchase of a company share rather than a direct property interest.
Partnerships under the Partnership Act 1908 are the most obvious collective vehicle. Unlimited joint and several liability is the usual objection to them. But that is, in fact, a false problem because, if the group borrows from a bank, personal guarantees will undoubtedly be
The problem is more fundamental. To be a partnership the group must be carrying on a business in common with a view to profit. This is not the case for an owner-occupier who will
nonetheless be exposed to the two year, Brightline test.
A variation on a general partnership is a limited partnership under the Limited Partnerships Act 2008. Under a limited partnership, a general partner has unlimited liability (usually a company) while the limited partners’ liabilities are limited to their ownership shares, with any profit or losses passed through to them personally.
This company-partnership combo also has a business focus, some additional compliance costs and is not easy to understand or administer for the ordinary owner. Therefore
as with the general partnership structure, this is not a good fit for a group of owner occupiers.
That leaves us with the simply reflecting collective ownership on the land title registration itself so that Jack and Angel, Rangi and Mary are noted as tenants in common in 25%
Unlike a joint tenancy, each interest can be dealt with as separate property. Therein lies the rub as the mere notation of an ownership interest will not deal with the collective treatment of common outgoings such as insurance, rates, utilities, maintenance as well as day to day operational issues (are visitors allowed) and major ones such as what happens to the separate interests when some, or all, want to exit the property ownership.
None of these issues are insurmountable. They can be deal with in a properly drafted, property sharing agreement. However, there is no standard or common accepted form and this might be something to review.
If there was an industry accepted form potential co-owners and lenders would have a clearer template for their ownership and lending activities and current co-renters might have
a clearer route to becoming owner occupiers.
One last caveat – younger owner occupiers may still require contributions and guarantees from parents and relatives. Conflicts of interest and real risks for all parties rapidly arise.
They should be worked through rationally, without emotion, and with independent legal advice.
Supplied by Wynyard Wood consultant, RICHARD OSBORNE, whose specialties include commercial law and intellectual property law, writes on issues concerning the business community