How Can Co-Owners Protect Their Interests?

Source : The Straits Times, Sunday, 12 Aug 2007

Q MY FRIEND and I have jointly purchased a private property. What should be documented during and after the purchase? We have a joint bank account and individual mortgage insurance. What should we do to protect each other’s interests?

A CO-OWNERS hold property as either ‘joint tenants’ or ‘tenants in common’. This is called the ‘manner of holding’ in legal terms. With a joint tenancy, when one party dies, the surviving party will be entitled to the whole share of the property.

As you are friends, it is likely you would want to hold the property as tenants in common and apportion the shares in a predetermined manner. For instance, one of you can hold 30 per cent and the other 70 per cent. If one of you dies, the deceased’s share will be given to his or her beneficiaries in accordance with the Intestate Succession Act or under the terms of his or her will.

If you purchased the private property from individuals on the open resale market, you would have been granted an option to purchase by the sellers.

You should contact your lawyers before paying the option fee, which is usually 1 per cent of the purchase price, and before obtaining the option from the sellers.

The lawyers can ensure that the terms of the option are not unfavourable to you. They can also check the title. A search can ensure that the seller has not granted options to other parties.

In addition, the lawyers can run a bankruptcy search on the sellers, to ensure that the sellers are not bankrupt.

Under the usual terms, you are required to pay the option fee - 1 per cent of the purchase price - to obtain the option signed by the seller. Generally, you are required to exercise the option within two weeks from the date of the option. This involves sending a cheque for the balance of the deposit: 4 per cent or sometimes 9 per cent of the price.

The signed and witnessed acceptance copy of the option is then sent to the seller’s solicitors.

When signing the acceptance copy of the option, add a clause to say whether you are holding the property as joint tenants or tenants in common.

If you do not do so, you should sign a manner-of-holding form at your lawyers’ office.

If you do not instruct your lawyers as to the manner of holding, the presumption will be that you are holding the property as joint tenants.

After you pay the 1 per cent booking fee and have obtained the option, you must see a lawyer to work out your financing, exercise the option on your behalf and enable legal documentation for completion to be drawn up.

Payment of the balance of the deposit is usually made in the name of the seller’s law firm as it would hold this balance as stakeholders.

If you and your friend hold the property as joint tenants and you happen to die at the same time, the legal presumption is that the younger person survives the older person. In other words, if your friend is younger than you are, the property would pass to your friend’s beneficiaries.

It is advisable to make a will in case you do die simultaneously. You can choose who your assets go to and name your executor.

Joint bank account

Instruct your bank that withdrawals from your current account need two signatories and that the account should not be linked to ATM cards.

Individual loan insurance

It would be advisable to take up mortgage loan insurance as well that would cover the event where one of you dies and that would enable the whole loan to be repaid.

Kim Cheong King Ying Partner Low Yeap Toh & Goon

*Advice provided in this column is not meant as a substitute for comprehensive professional advice.