Key Post Buying a house with a friend - draft agreement

If you are buying a house jointly with a partner, you must put down in writing beforehand what you are agreeing to. It may not be very romantic, but relationships and friendships break down, and it is much easier to sort things out if you have an agreement done beforehand. Here are some examples of people who didn't have an agreement:

Ex is claiming half the equity, but contributed very little

My ex wants me off the mortgage

Ex refusing to pay his share of the mortgage

Split with boyfriend - he won't move out or pay the mortgage



Jugments against my Ex registered on the house

Key Post: Buying a house with a friend - draft agreement

A few posters have asked about an agreement between two friends buying a house together. I am not a solicitor, so this is written in layman's English. The two parties should first agree which parts of this agreement they like and give the final document to their legal advisor for a more appropriate wording

I note that [broken link removed] charges a fixed fee of €300 (€250 + VAT) for drawing one up. I don't know this firm, but it seems like good value.

If you don't think that this is necessary as you get on so well, read some of the posts on Askboutmoney where people are looking for advice after things have gone wrong, such as love is blind or this

The purpose of this agreement is to clarify the agreement between A and B and to provide guidance for the amicable resolution of disputes. It is not provided so that A can find a loophole to take advantage of B. Both parties should observe the spirit of the agreement and if something unforeseen happens, they should make maximum effort to help the other person out.

In the event of a dispute, C will be appointed arbitrator and her decision will be binding on both parties.

OWNERSHIP ACCOUNT

Cost of house €200 ( to include stamp duty, FTB's grant, initial furnishing etc.)
Deposit supplied by A 40
Deposit supplied by B 0
Mortgage 160

Each person will own 50% of the house. A will have 60/160ths of the mortgage while B will have 100/160ths of the mortgage. Consequently A will pay 37.5% of the mortgage repayments while B will contribute 62.5% of the repayments.

Alternative
Cost of house 200
Ownership of house A : 70% or 140
……………………. B : 30% or 60

In this case A would be responsible for 100/160ths of the mortgage.

Joint purchase of furniture and equipment
All furniture and equipment will be paid for in proportion to the overall ownership of the house.(usually 50/50).

Ongoing expenses, such as repairs, electricity, maintenance shall be split on a 50/50 basis irrespective of the ownership proportions.

If one can't pay the mortgage

Both parties must make every effort to contribute their share of the mortgage repayments. If B has to make repayments on behalf of A, B will charge A interest at the mortgage rate + 2%.

If A is in arrears on the mortgage for more than 6 months, A has the option of treating it as notice by B of their intention to terminate the agreement.

If one dies
If A dies, B's share of the house will transfer to A.
…….or
If A dies, B will have the option of buying the house from the estate at current market value.

A may of course take out life cover on B.

If one wants to leave after 3 years
Both parties agree that they will make every effort to maintain this agreement for at least 3 years. If A wants to leave after 3 years, he can give 3 months notice of terminating the agreement.

B has the option of buying A's share of the house at the market price as determined by xyz ltd, valuers.
If B does not want to buy the house from A, then it shall be put on the open market. If A is happy to accept the best offer and B is not, B may reject that offer for one month only. After that, A will decide what price the house is sold for.

If one wants to leave before 3 years
It must be stressed that if circumstances change and A wants to leave, B should facilitate A. However, A should not be out of pocket as a result.

If A wants to leave before 3 years, B will make an offer to buy A out. Such offer should be the market value of the house less any legal costs or other costs incurred by B in buying A out.

If A does not accept that offer or if B is unable to afford to buy B out, then A will give 12 months notice of the intention to terminate the agreement. A will pay B the sum of €10,000 to cover B's costs of stamp duty, loss of first time buyers grant, transaction costs etc. This sum is payable out of the proceeds of the sale of the house.

Alternatively, B can try to find a buyer of A's share in the house.


If A wants to retain ownership of the house but move out
If A wants to move out of the house and retain ownership, he must find a tenant acceptable to B. B has the right to veto such tenant. If A has a tenant or tenants for more than 12 months in total, then B has the right to buy the house at current market value.

If both parties can no longer live together and both want the house

C will try to find an amicable resolution of the problem. If a solution can't be found, A will make an offer to B. If B does not accept that offer, B can match the offer and A must accept it. Or B can insist on an open market valuation.


Minor issues

Neither party can insist on bringing in a paying tenant. If they do agree to bringing in a tenant, they shall share the rent in proportion to their ownership of the house. Either party can insist on the termination of the tenancy.

Neither party is allowed to share the house with their partner or non-paying tenant without the approval of the other party.

Well done.
It works fine as is - the hardest part of problems that arise is the fact that the parties did not consider in advance what they would do if either wanted to get out, sell or go. Also, people tend to use emotional arguments only when things go wrong and forget that it is also a commercial ( as well as an emotional) issue - if they at least consider ( and hopefully agree) in advance how to handle issues, it can take a lot of the heat out.

mf

My experience

Having gone through this myself, I found Brendan's ideas very comprehensive.

There was only one aspect where our legal agreement was different - in that if A wants out, B has first call to buy out A. If B cannot raise finance, B can look for another partner.

In terms of A or B dying, we favoured the share in the property passing to the estate - with the surviving partner allowed to buy out the estate. This would be facilitated by a joint mortgage protection plan.

Warning: same sex partnershop raise eyebrows with some underwriters. For example, an AIDS test may be required. Outrageous, but there you go.

Fred

Along the same lines

What happens in the following situation

A and B buying a house together 50:50
A already has a house but B is a first time buyer.

Question
If it is a joint mortgage cab B claim first time buyers grant?
What about stamp duty? Is it payable on a new property or not.

Bewildered

Re: Along the same lines

Hi bob,

This question has been answered

Indo mention of Draft Agreement

"You should draw up a simple agreement outlining what happens if one party cannot meet repayments, for example, or wants to opt out and go it alone.
(The excellent website askaboutmoney.com contains a very useful guide to this area.)"

So said Bill Tyson in the very informative, newly expanded Your Money section of yesterday's Indo.

I like it

The point about giving B first right to buy out A (an vice versa is excellent.

If A wants to b bought out (or vice versa) B should have 2 months to organise it from date of formal notification

Otherwise the overall agreement should be determined by liquidation

Just my 2c

Lawbones.

link gone

---------
What happens in the following situation

A and B buying a house together 50:50
A already has a house but B is a first time buyer.

Question
If it is a joint mortgage cab B claim first time buyers grant?
What about stamp duty? Is it payable on a new property or not.
-------------

endowed,
the link supplying the answer to this has vanished. Do you think you could reply again?

would there be any recompense for losing the FTB status in the agreement?

also, what about the appliances etc that were bought mutually? How do you fix a value on them when buying the partner out?

link gone

> A and B buying a house together 50:50
> A already has a house but B is a first time buyer.

If either party to the purchase of a property is not a FTB then they are jointly considered not to be FTBs. The only way to avoid this is to have only the FTB's name on the deeds even if both individuals are paying the mortgage. However this represents a potential risk for the person not named on the deeds as only the other person strictly has legal beneficial ownership of the property. There could also be tax implications in this situation - I'm not sure.

If the FTB and non FTB are buying a PPR jointly then they are jointly classed non FTBs and this has implications for stamp duty (unless it is a new property that is exempt_ and mortgage interest relief (higher rates of relief for FTBs don't apply). If the non FTB is retaining his/her original PPR as an investment property then the normal investment property issues arise (e.g. SD clawback if applicable, taxation of rental income, CGT on partial resale proceeds etc.);



If they are buying the new property jointly as an investment property and plan to live in the original non FTB's PPR then the same issues in the topic above apply except to the new property.

> If it is a joint mortgage cab B claim first time buyers grant?

The FTB grant was abolished a few years back and only people who signed contracts before some cut off point in late 2002 (?) are still eligible to collect it.

> would there be any recompense for losing the FTB status in the agreement?

Do you mean that the non FTB partner would undertake to compensate the FTB partner for the loss of their FTB status? I guess that this is up for negotiation between the two partners.

Re: >> Buying a house with a friend - draft agreement

Some useful articles on joint ownership of property in [broken link removed]

Archive not yet available at time of posting, but should appear in a few days. Use [broken link removed] in the meantime.

Re: >> Buying a house with a friend

Still think this is very unfair that a seperating married couple will be treated a FTB wheras two friends buying a house together (out of financial necessity, rather than choice) will lose FTB status; expecially if one of them lost FTB status by buying with somebody who was buying a secnod house. That person will then never be an FTB. Any views on the fairness or otherwise of this regualtion?

Re: >> Buying a house with a friend

In a situation where one person is a FTB and the second is not and you decide to go with only having the FTB name on the deeds - could there be a a separate legal agreement that any profits from renting or selling the property will be split 50/50 between the two individuals?

Re: Key Post: Buying a house with a friend - draft agreement

I am buying with a friend - cost £290k, her deposit is £25k mine £5k mortgage £260k... can anyone let me know if they have been in this situation and how they agreed the split.... She feels she is putting a lot more in than me and so should get more out... but the % split (if we share the mortgage 50/50) is 53%/47%... any ideas gratefully recieved!

Re: Key Post: Buying a house with a friend - draft agreement

Use Karl Jeacle's mortgage calculator to see your respective shares of the overall costs assuming the mortgage runs full term at that 53%/47% split. For example what proportion of the overall capital and interest each partner will contribute. Whatever you agree is between the two of you but long term the chances are that the 53% contributor should be getting more of a share.

Re: Key Post: Buying a house with a friend - draft agreement

I was in same boat when I bought, where I was putting in a good bit more. I was able to rationalise it that each half of the mortgage was part of the investment, and this would still be taken out at the end in a 50:50 share.

By my reckoning
You puts up 135
She puts up 155
53.45:46.55 split in her favour

If the house goes up by 100k tomorrow with out the mortgage going down (still 130 each), you'll each get after paying off the mortgage:
78.44k and 51.55k from your initial investments on 25 and 5 respectively. You could argue that you get a 10 times return and she's getting only about 3 times, but I don't see any fairer way of working it out? I'd be interested to hear if anyone else does?

Re: Key Post: Buying a house with a friend - draft agreement

beecee said:

I was in same boat when I bought, where I was putting in a good bit more. I was able to rationalise it that each half of the mortgage was part of the investment, and this would still be taken out at the end in a 50:50 share.

Click to expand...

True - if any eventual capital gain (assuming there is one!) is split in the same proportions then that would also be relevant alright.

Re: Key Post: Buying a house with a friend - draft agreement

Hi, me and my girlfriend are in a similar situation. Initially we are contributing more or less the same to the new house. So it will be split 50/50. She has her old house on the market and when that is sold she will reduce our mortgage by a chunk of the equity in that. Our Solicitor tells us that we can change the Agreement when that happens. Our solicitor also tells us that at that stage we can change the deeds with a "deed of Variation" ...anyone heard of that? Are there any tax implications with making a change to the deeds at this stage? Does it cost much to do that?

My other question is....the Deeds themselves must reflect the ownership per centage? Then the "agreement" between the buying parties is a separate matter?

Thanks!

Can & does an ownership agreement similar to the draft agreement in this key post apply to Joint Tenancy or does it only apply to Co-Ownership?

My partner & I are currently buying a house together, we intend getting married in the near future & have chosen Joint Tenancy as our ownership type & instructed our solicitor accordingly. We see value & practicality in having an ownership agreement in place also. Any advice or experiences welcome.

My advice? Get married now. EUR 200, one afternoon, two wittnesses. Saves a lot of paperwork. Then if you feel like it, have a big wedding down the line.