What is a property co-ownership?
Property co-ownership occurs when two or more parties own a share, whether equal or unequal, in an interest in a property. It can arise from a variety of circumstances, such as:
Co-ownership can have numerous advantages. For example, it provides a way for friends or unmarried partners to secure a fairly low-cost housing solution. Two or more tenants-in-common can buy a property and reduce their mortgage costs. Groups of investors may wish to pool their funds to buy properties, taking advantage of the strong market for rental properties and increasing returns.
However, there are challenges as well. In particular, a property co-ownership arrangement can become subject to disputes and disagreements, which can be compounded by the emotions that can surround property ownership, particularly where premises are used as, or intended to be, the family home.
Disputes can arise simply because owners are not on the same page when it comes to how the property should be used or maintained; how decisions should be made or changes agreed; what happens when one of the owners wishes to sell their share; and how any profit should be split when the property is sold , among other issues. Particularly where the same property is used for both living and business purposes, it can be difficult to separate what is property-owning and what is "personal" between the owners. Privacy can also be an issue, with each owner wanting to respect the privacy of the others.
The best solution to any such problems is to have an agreement with all owners that sets out clearly in writing the terms on which they will keep and use the property, as well as setting out what should happen when a dispute arises or when one of the owners wants to leave the arrangement. This will enable all of the owners to understand more clearly their rights. This should help them to reduce the potential for disputes arising in the first place and potentially to mitigate the damage if they have.
Just as with a marriage or civil partnership, the cost of drawing up a formal property co-ownership agreement is likely to be far exceeded by the cost of not having one.
Understanding property co-ownership agreements
A property co-ownership agreement is a legal document that outlines the rights and responsibilities of each party who owns a property together. These agreements are crucial in helping to prevent disputes and protect co-owners’ interests.
Shares
The first thing a property co-ownership agreement will usually do is split the property into shares. Shares may be roughly equal, or due to the difference in each party’s financial contributions, one owner may have more properties than the other(s). It’s crucial that you specify who owns what share as this could have a substantial effect on your inheritance tax position.
Responsibilities
Each party’s obligations are defined by the property co-ownership agreement. The core responsibilities generally include:
• Paying the mortgage and other outgoings in accordance with their share
• Carrying out repairs and renovations
• Selling the property if the time is right
The agreement should also address matters such as how you and any other co-owners can bring a claim against one of the others if there’s a dispute.
Buying/Selling Property
It’s beneficial to include details about buying or selling the property, including:
• The procedure to follow for selling the property.
• How the sale proceeds will be divided.
• The process for what happens if one owner has to sell their share for any reason.
• Any restrictions on selling the property.
Default
The agreement should also set out some remedies should one of the owners default on their obligations.
The advantages of using a free property co-ownership agreement template
Using a free downloadable template has clear advantages in that it is generally efficient and cost-effective. However, there is still the need for additional care, as the following points identify: Using a template when creating a property co-ownership agreement saves time and money as this is produced from a model. The template draws together the main components needed for the type of agreement required. This helps when working with limited time, as each point has already been raised for discussion and further development. Costs are reduced, as many elements do not need repeating and new areas added for a standard agreement. However, elements should not be glossed over, as when working with shared property, relationships and sometimes large sums of money there can be no room for misunderstanding or ambiguity in the agreement.
The main components of a property co-ownership agreement template
When establishing a property co-ownership arrangement, certain key elements should be included in any template. Most importantly, the template should specify ownership shares, management responsibilities, financing, property use, and a dispute resolution mechanism.
Ownership Share – this should detail the percentage stake each party has in the property. This will likely be calculated based on the parties’ respective contributions to the total purchase price of the property. Wealthy parents, for example, might fund the entire purchase price for a property on behalf of their grown children as an investment, receive a percentage of the property’s eventual sale price in return, and leave the children free to do what they want with the property in the meantime.
Management Responsibilities – this can set out any arrangements for parties to manage the property. A party might be responsbile for certain tasks, such as coordinating maintenance and repairs, organizing cleaning services, and managing advertising the property and bookings, in exchange for a higher percentage stake in the ownership and/or a larger cut of the rental revenues.
Financing – this important section can set out how other costs related to the property will be financed, including insurance and condo fees. Alternatively, a template can be fully flexible, providing that parties agree on cost-sharing at the relevant time.
Property Use – does the template allow one party to "live" in the property for a set period or on set weekends, perhaps allowing that party to coordinate advertising and bookings around those times? Perhaps one or more of the parties are expected to stay on the property for a certain period of the year in order to validate its status with the CRA.
Dispute Resolution – is there any given mechanism for the parties to resolve disputes (an arbitrator, for example), and if so, who makes that decision? Perhaps the template reads simply that disputes will be referred to the Ontario Superior Court (which many parties, including our clients, find preferable).
How to obtain a free property co-ownership agreement template
The internet offers a treasure trove of resources for those seeking customizable and downloadable forms. While there are numerous paid options available online, many websites provide free or subscription-based agreements that can be altered and adjusted to meet specific needs and requirements. Two such websites that are both informative and provide a wide selection of professional document samples are Legal Templates and Rocket Lawyer. Legal Templates provides numerous co-ownership agreements for an array of jointly owned properties. For those seeking more legal assistance, Rocket Lawyer also provides access to professionally drafted and state-specific agreements . However, if the cost of drafting or revising an agreement no longer fits within the budget, Careful Coyote has a list of websites from which they select specific agreements to provide to their clients.
Company’s Terms of Use: The website Careful Coyote maintains a disclaimer that the information contained on the website is not a substitute for an attorney’s guidance and counsel; by using the site, the user assumes the risk of any possible outcome related to the utilization of the information contained therein.
Disclaimer: The author of this post is not a licensed attorney.
Customising a free property co-ownership template
With the structure of many co-ownership agreements being similar, particularly ones addressing the division of ownership interests, any template would need to be customized to the specific property and owners’ preferences. However, a little guidance goes a long way.
The most obvious thing to customize is the owners’ respective interests in the property. The template should allow you to adjust the percentages (be sure to use the correct decimal representation) to reflect the portion of the property each party should have based on their financial contribution to the purchase price. If the property is being purchased with cash, that is the easiest way to determine who has what percentage of the property. But if you are getting a mortgage, the co-owners may or may not all be party to and personally liable to pay the mortgage. The owner or owners who will not be a party to the mortgage will likely have a lower percentage interest in the property in the co-ownership agreement than their financial contribution to the purchase price warrants (since they will not be personally liable to the bank if any of the co-owners fail to pay their share of the payment).
The template should also allow you to adjust how the mortgage payments and other expenses will be divided among the co-owners. It is a good idea to be as specific and concise as possible on this point. It is helpful to add language saying that the individuals obligated to each pay the mortgage should be the responsible party for making sure that it is paid and should reimburse the other owners proportionately in the event he or she forgot to pay the mortgage (which occurs more frequently than you would think). It may also be a good idea to have language in your co-ownership agreement dictating how a failure to make a payment should be handled – including how that missed payment will be made up. For example, if one month (due to other expenses), an owner can’t afford his share of the mortgage and one of the other owners helps him out, how will the missed payment be made up? Will it be spread over the next few months? Will the owner who helped the owner in need be entitled to his or her missing share out of the owner who missed his obligation’s share of the property sale proceeds when the property sells? As with other issues addressed, issues can and should arise and be planned for before you need to address them.
Legal advice and other professional guidance
You may feel that you have enough flexibility in blank template or that you have mutually agreed on the broad terms of your co-ownership so that you do not need to engage a legal professional to review and agree the documentation.
We would however caution that it is essential that the documentation is legally binding and "best in class" terms are used to properly protect all parties. However simple you feel your co-ownership is, you should consider at least having it reviewed by a legal professional to ensure that you have covered off all areas of legal compliance for the co-ownership and that the parties fully understand their ongoing responsibilities.
We have set out below a few of the legal areas you will administer and agree with your legal professional, individually as co-owners of the property:
Whilst you may genuinely believe this co-ownership is pretty straightforward now, hopefully this blog has given you sufficient reasons to engage in particular for a short discussion with a legal professional to ensure you have the basics right.
Conclusion and final thoughts
In conclusion, the vast majority of people enter into a property co-ownership arrangement with the best of intentions. A well drafted and considered co-ownership agreement provides both parties with peace of mind that they have protected themselves against future relationship breakdowns and unfair claims against them .
It is important to make sure that you have done your proper due diligence on your co-owner, have considered every possible outcome and have the correct level of insurance in place before making one of the largest long-term financial decisions of your life.