The pitfalls of part ownership of shares in property

The practice of owning a share in property is common between spouses, friends and business colleagues. Forms of ownership will vary from registration in the individual's name or by shares held in a private company or close corporation.

There are many reasons for wanting to share in a property which are all, no doubt, justifiable from the time the deal originated through to closure.

Original home owners have traditionally been motivated by a need to contain the asset within the family structure. Several generations later, it is not unusual to find title deeds containing 1/77th shares held by grandchildren and great grandchildren. But do the original parties ever stop to consider how complicated their legacy may become?

Succession aside, it is most common, even today, for married couples to create equal shares in their primary residence. This may satisfy prenuptial agreements and demonstrate an expression of commitment to a relationship. But do their advisers ever stop to consider the difficulty in measuring the value of the shares?

Practically - "What can I get on the open market for my wife's halfshare in our house?" Or, "Are the shares tied up jointly and severally under mortgage such that they cannot be sold separately?" If not, then where are all the willing buyers for those shares?

Why do we, as married couples, persist with the charade of halfshares just to satisfy prenuptial agreements? Have you ever gone to an agent with a mandate to hold an open day for the half share you own in your house? What rights are you offering? Can the buyer of your half share take up residence with you?

No professional valuer can, with conviction, certify the value of a half share as being 50 percent of the whole. The share is locked into a closed market, with the only potential buyers being the other shareholder or heirs. Worse is the case where unmarried couples have shared in a home and there is a breakup. Disposal of the whole property may satisfy accrual calculations but until then, there can be little security by shareholders or third parties in half or other shares held.

At a business level (formal syndications aside), owning the business premises in which you operate through an "arms-length" lease, and sharing the property with your business partners may also be fraught with succession difficulties. Conflicts of interest; non-market lease terms and the limits imposed on incoming shareholders may often frustrate the growth and success of the business in occupation.

Private shareholders are advised to consider carefully the merits of part ownership and to devise a well conceived exit formula for the valuation of property shares - whether domestic or business.

(The Mercury)

  Comment on this Article

  Please login to post comments

Post to my facebook wall
Characters remaining

    Latest Property News
    • 21 Feb 2018
      Given the hand they were dealt, government has performed a delicate balancing act which it is hoped will serve to reignite confidence in investment in South Africa, regain our global credibility and satisfy the credit ratings agencies, says Dr Andrew Golding, chief executive of the Pam Golding Property group.
    • 21 Feb 2018
      The real estate mantra, ‘location, location, location’ remains a strong market influence regardless of the prevailing economy, with suburbs like Rondebosch enjoying the buffering benefit of being ideally situated.
    • 21 Feb 2018
      These days most buyers are using online property portals like Private Property when house hunting due to the convenience, up to date information and variety on offer. “The property portals have revolutionised the way buyers shop, but they do need to be cautious – viewing photos online is no replacement for viewing the property in person,” says Bruce Swain, CEO of Leapfrog Property Group.
    • 20 Feb 2018
      Owning a home is a milestone that most South Africans aspire to. Becoming a homeowner is a step towards growing personal wealth and owning an asset that appreciates in value over time, provided of course that the correct principles are applied during the buying stage of the process, says Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa.
    • 20 Feb 2018
      The suburb of Greenstone in Johannesburg east came to be over the last two decades. “In the beginning, it was literally just a hill with not so much as a shopping centre,” says Michael Levy, Property Consultant at Jawitz Properties Bedfordview. Today it has plenty shopping facilities and is fully built, boasting high-density, upmarket housing and residential estates, though still has a few pockets poised for commercial development.
    • 20 Feb 2018
      A major shift in the ageing paradigm has precipitated an equally dramatic transformation in the retirement sector, with modern accommodation options worlds away from the conventional model.
    • 19 Feb 2018
      Possibly one of the biggest sources of contention between landlords and tenants surrounds the rental deposit. “Most tenants rely on getting their rental deposits back when moving, so that they can use it to pay a deposit on their new home. Having it withheld or even having large amounts deducted can lead to a lot of distress,” explains Bruce Swain, CEO of Leapfrog Property Group.
    • 19 Feb 2018
      Situated approximately halfway between Johannesburg and Pretoria, Midrand was established in 1981 and forms part of the City of Johannesburg Metropolitan Municipality. It has become one of the major business hubs in the country with major pharmaceutical, textile, telecommunication and motoring giants situated within its boundaries.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us