What’s the deal when buying property with a friend?

Private Property South Africa
Martin Hatchuel

It was Calvin - the star of Bill Watterson's Calvin & Hobbes cartoons - who famously said that “Things are never quite as scary when you've got a best friend.”

But it’s probably safe to assume that he wasn’t considering buying a property with Hobbes - his tigery toy - when he said it. Because things can get very scary indeed when friends buy together.

“Friendship is a beautiful thing - but if you want to make a success of a joint property deal, you have to put the emotions aside for a while and focus on the cold, hard processes that will protect you both in the law,” said Charles van Greunen, general manager of the Sedgefield-based Ballan Group, which owns various law firms and property agencies (including Chas Everett International Properties’ Knysna franchise).

AGREEMENT

Rule Number One, said Charles, is that you have to write and sign a binding agreement. (As for Rule Numbers Two onwards: Refer to Rule Number One.)

“When you buy a property in partnership with somebody else, both of your names will be registered at the deeds office, and if you’re taking out a bond, you’ll both be legally liable for the debt - so your agreement must state all the terms under which you’re making your purchase,” he said.

“This would include what percentage of the property each of you will own; how you plan to divide your obligations to the debt over the property; how you’ll divide any expenses and earnings from the property; and how the property should be disposed of by your separate estates should you get divorced, or when you die.”

He said that these contracts can become involved and technical - so it’s always advisable to have them drawn up by attorneys who specialise in property law.

FORMAT

Charles said that the rules governing partnerships in South Africa are covered by common law.

“But,” he said, “while a correctly made and signed partnership contract can be legally binding, it’s really just a piece of paper. There’s no central registry where you can lodge partnership agreements, and under whose rules they can be enforced.”

For this reason, he said, it would probably make sense to create the partnership in the form of a limited company (abbreviated as (Pty) Ltd.) which - like all registered businesses in South Africa - would be subject to the Companies Act of 2008. (He also made the point that the old CC - or Close Corporation, under which many such partnerships operated in the past - is currently being phased out. Please see SouthAfrica.info for an overview of the different company structures currently available in this country.)

“Although the Pty (Ltd) is a better vehicle than a private partnership agreement, it does come with different obligations - including the fact that it needs a regulated set of documents, income and expenses, and annual audits.

“But since property is perpetual in nature, and shake-of-hands agreements are often impossible to enforce (when you decide to split, for example, or when you die), it really is the best way to go,” he said.

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