Pitfalls of partnerships

Co-ownership of property, or partnerships, is a cause of concern for many Property Poser readers.

The situation before our panel this week involves two partners, one of whom lives on the property. The latter is also the one who makes the bond repayments.

Schalk van der Merwe - Rawson Properties

Schalk van der Merwe – Rawson Properties

Our reader is however concerned that the resident partner is “abusing the bond”, which places him as co-owner at risk.

The resident partner is not willing to sell and neither party is in a position to buy the other out.

It seems that no written agreement was drafted prior to applying for a mortgage bond and purchasing the property.

It is possibly too late to agree on terms, says Schalk van der Merwe from Rawson Properties Helderberg, as the relationship has soured to such an extent that dissolution of the partnership is being considered.

As is often the case, the lack of an agreement regulating aspects such as dispute resolution makes the situation problematic, says Van der Merwe. “Our reader should rightly be concerned about the co-owner’s alleged mismanagement of the bond.”

Although the extent of the abuse is not mentioned, Van der Merwe says one could infer that instalments are being made late or not at all. “Assuming that the bond is registered in both their names, each partner will be jointly and severally liable to the bank.”

Van der Merwe says this means that if the owner who is currently paying the instalments can no longer afford to, the bank as bondholder may claim any outstanding amount not covered by the sale of the property from one or both.

Lucille Geldenhuys Attorneys

Lucille Geldenhuys Attorneys

Simply put, a partnership is an association between two or more persons, up to a maximum of 20, who are contractually bound to one another to operate a joint, profit-generating business, says Lucille Geldenhuys from Lucille Geldenhuys Attorneys in Stellenbosch.

“Each partner contributes money, goods or services and accepts that any profits made and liabilities incurred will be shared between the partners on an agreed basis.”

A partnership does not have a separate and distinct juristic personality in South African law, says Geldenhuys.

“As a result, each partner is at risk in his or her personal capacity for the liabilities and any agreement regarding the apportionment of debts is not binding on third parties.”

Geldenhuys says, in the absence of a dispute resolution procedure, any of the partners may seek a court order dissolving the partnership and dividing the assets.

“This can be expensive as the partner seeking relief will have to bear the costs initially and hope to recover them from the other.”

Even if successful, the party taking action may not recover all or any of these costs and the dissolution may not have a favourable commercial result, says Geldenhuys.

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