What happens if the relationship breaks down?
Another area where a relationship can break down is where Granny spends money on her son's or daughter's house for building improvements usually for the erection of a granny flat for her to live.
We shall discuss these two areas of possible conflict and suggest ways of preventing the conflict.
If two people own property together in undivided shares it is advisable to enter into an agreement which will regulate their rights and obligations if they should decide to go their own separate ways.
This applies to unmarried couples, couples married out of community of property and to other joint owners such as partners in a property joint venture or the joint owners of a holiday home.
What should the agreement contain?
If the contributions towards the purchase price or costs of transfer were unequal, this should be mentioned and provision should be made for the inequality when sharing the proceeds should the property be sold.
The responsibility for payment of bond installments, rates, electricity, water, improvements and maintenance should be regulated.
A very important consideration is the sale of the property or the sale of a share of one of the joint owners, especially if a relationship breaks down.
The owners may agree that if one of them wants to sell his or her share, the whole property must be sold and the proceeds shared, or the agreement may provide that the owner wishing to sell must give the other owner a pre-emptive right to buy.
The agreement should provide what takes place on the death of one of the owners. Must the whole property be sold or does the survivor have the right to buy the deceased's share?
Finally, the agreement must state how the proceeds of a sale of the property must be shared after repayment of the bond and after payment of agent's commission and any other expenses
Contributions to the improvement of another's property
This is a difficult situation especially as our law states that any building or improvement on a property forms part of that property. Granny therefore can not become the owner of the granny flat unless the flat and the main building are sectionalised as sectional title units. This is usually not an option because of the costs involved.
Another difficulty is that one party may see the contribution as a loan and the other sees it as a donation because they failed to clarify the arrangement.
An unambiguous agreement signed beforehand will go a long way towards avoiding conflicts.
Contents of agreement
The contract should include the right to occupy the flat with or without payment of rental.
Other areas to be covered are
1. If the property is sold, is the contribution repaid taking into consideration the enhancement to the value of the property and the increase in property values generally?
2. Can the owner increase the mortgage on the property without the consent of the contributor?
3. Can the property be sold without the consent of the contributor?
4. Will the contributor pay for electricity and water consumption and pay a pro rata share of rates?
5. Who is responsible for maintaining the buildings?
6. What happens on the death of one of the parties? If the owner dies before the contributor, will the contributor still have the right of occupation? The property may have to be sold if the owner predeceases the contributor.
In both instances illustrated above, we suggest that the joint owners and the contributor and the owner enter into a suitable contract which takes the particular circumstances into consideration.
By having a suitable agreement in place, conflict and misunderstanding can be minimised or even avoided.