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The Friendship Agreement
Words by Dorothy Adu-Mfum
Yes, I know, it is the Bridal issue, and you were probably expecting to read about all thing’s marriage agreements and prenuptial agreements, right? Well, that is predictable, I thought I will put a spin on things and talk about building life-long relationships and businesses, but with friends!
We’ve all heard the horror stories of friends becoming foes and how risky it may be to go into business with friends, but the truth is a true friend is more likely to build with you, believe in you, trust your intentions and stick with you through the failures as well as the successes. My job is not to talk about whether or not you should live with a friend or go into business with a friend, but it is to discuss contracts to consider should you decide to take that leap of faith.
Living with a Friend
Millennials increasingly can’t afford to live alone, especially in big cities, and almost certainly if you want to live in a mansion with floor to ceiling windows, cute interior and lavish ambience.
Co-living
Moving out of your parent’s house and moving into a house you can call your own is a goal for many, but why do you have to do it alone? Living with friends or a friend may not only be safer than living alone, but it means that expenses are cheaper, the weekdays are not so boring, and you have someone to talk to or bounce ideas off in real-time if you need to.
However, like most things, there are pros and cons. That’s where contracts come in. Fighting about bills, ownership, space and guests can be draining and toxic, but that can be mitigated by setting out and agreeing on terms before signing a lease. These terms can be as pedantic as who takes out the bins on what day or as standard as how much rent each person has to pay. We often assume that friends will have our best interests at heart, and often they do. Nonetheless, agreed terms are your insurance, they turn assumptions and wishes into facts and obligations.
Buying a property
Sometimes, buying a property together is more effective than renting a property together. As always, speak to a lawyer and a financial adviser separately before making any agreements as a person may be vulnerable based on how much they contribute financially or the names found on various deeds and agreements.
Nonetheless, ownership is typically set up in two ways. Either as joint tenants, which means you each own equal percentages of the property, or tenants in common where the percentage of ownership depends solely on how much money each person contributes. Furthermore, the type of ownership you decide on will affect what happens to the property in the event someone dies or the relationship between parties ends. With Joint tenants, in the event of death, the property automatically goes to the surviving owners and cannot be passed on in a will. Tenants in common is more suitable for estate planning (if you want to leave your share of the property to someone else in your will) but also practical if you all contributed different amounts financially and want that to be factored in in the future if the property needs to be divided for any reason.
Business Contracts
Living with friends often lead to sharing ideas with one another, which can easily lead to putting on your entrepreneurial hat and embarking on a business venture together. That could be the best decision of your life, as long as you both have a vested interest and are not entering into business just because you like each other’s company.
But again, you need insurance. People change and so do their desires. A contract is the best way to ensure that the interest you had before starting the business remains protected. Aside from relationships turning sour, knowing when to turn the professional switch on and the friendship switch off to avoid sloppy business practices and emotional decisions can be tricky if not established beforehand. You will be doing yourselves a favour by getting a commercial lawyer to help you establish a plan and assist with the relevant contracts.
I know it’s difficult to think about the failure of a business before it has begun, however, a clear exit strategy is just as important as your business plan. A legally binding exit plan could be the determining factor in ensuring that a failed business doesn’t ruin your friendship.
For the last time, get a lawyer, make sure everything is well thought through and protects both parties. Consider each person’s job description, expectations and hold each other accountable for following what’s been agreed.
As the saying goes, “Life is partly what we make it, and partly what it is made by the friends we choose”.