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Family helping family to buy property - how will it end?

31 March 2018

Parents (or family members) often assist children (or other family members) to buy property. These arrangements should be documented to make it clear what will happen when the property is sold or there is a relationship break up.

Couple help brother and his partner

A couple agreed to help their brother and his partner buy a property because the brother had a bad credit rating. The couple and the partner were the borrowers from the bank and were each registered as a one third share owner of the property. The brother and his partner lived in the property and paid the mortgage. There was no agreement signed recording how the arrangement would work.

The brother and his partner separated. The partner couldn’t keep up the mortgage repayments so the property was sold. The couple claimed they were entitled to most of the sale proceeds – being a two thirds share plus some adjustments - because they had made a commercial “investment” in the property.

Rebuttal of presumption in favour of title interests

The law presumes that the owners of the property are entitled to share in the proceeds of sale in accordance with their shares shown on the title. However, for five reasons the judge found the presumption was rebutted in this case and the brother and his partner were the beneficial owners of the property:

1. The couple had only become owners to assist the brother and his partner
2. They had no responsibility to pay the mortgage
3. They took no steps to protect their “investment” when the partner couldn’t pay the mortgage
4. There was no signed agreement which would have been expected if this had been a commercial arrangement
5. The judge did not believe the couple would have claimed if the brother had not separated.

As a result the judge held that the partner was entitled to the sale proceeds, the couple were entitled to a small payment for the adjustments and the brother could claim for a share of the sale proceeds under the Property (Relationships) Act 1976. In the light of everyone’s intentions at the start, it is a pity what the partner had to go through to get to the right result.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott