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
    • 22 Jun 2018
      The rental market in many Johannesburg suburbs has shown encouraging signs of revival this year but it remains a competitive market and landlords who best cater to their market’s needs will reap the healthiest returns.
    • 22 Jun 2018
      Home design is constantly evolving to reflect the changing needs of society. We look at some of the ways in which our use of space is changing.
    • 22 Jun 2018
      While estate agents can help the seller with correctly pricing the property and marketing a property to the right pool of potential buyers, at the end of the day it’s the impression that the property will make on buyers that counts the most.
    • 21 Jun 2018
      Anyone who’s ever been involved in a building project that’s gone wrong will appreciate the importance of adequate insurance cover in the construction industry.
    • 21 Jun 2018
      A recent news story about a blind tenant caught in a legal battle with his body corporate over letters and notices he was unable to read and consequently comply with has raised the question: what are the legal obligations for landlords with disabled tenants?
    • 21 Jun 2018
      A trend that’s taken the world by storm in recent years is that of hygge (pronounced: hue-guh), a Danish concept that is about creating intimacy, connecting with loved ones and taking pleasure in small, ordinary things.
    • 20 Jun 2018
      Buying or selling real estate isn’t as easy as it is portrayed sometimes, especially if there is a death of a party during the transaction which can make it awkward, tricky and inconvenient.
    • 20 Jun 2018
      With interest rates remaining at historic lows and banks continuing to compete for mortgage finance business, first-time buyers with funds at their disposal are currently well-placed to gain that initial foothold on the property ladder, particularly in the light of the slightly lower growth rates currently experienced in residential property values.
    Subscribe to the MyProperty Newsletter

    Last Name  
    Email Address  
    Email Frequency
    Share this Page

    For Sale Property
    Rental Property
    More Options
    Connect with us