Establish your Co-Ownership agreement
Outline the ownership structure.
When purchasing a property, it is important that you convert the terms you and your partners previously set into a legal agreement. Among other topics, the co-ownership agreement will outline the ownership structure and detail the legal relationship between the co-buyers.
Generally, there are two types of relationships between co-owners:
1. Joint Tenants
When purchasing a property, joint tenants have an equal right to the property, regardless of how much each person contributed to buying the property. Joint tenants must obtain equal shares to the property with the same deed, at the same time.
Joint tenants also have rights of survivorship, which means that if one of the joint tenants dies, the surviving tenants(s) will inherit the deceased’s interest in the property regardless of what their will states. That is, if Tenant A dies, Tenant B and Tenant C will both obtain a one-half share of the property.
2. Tenants in Common
With tenants in common, each owners’ share in a property can vary. For example, Tenant A could own 40% of a property, Tenant B could own 30%, and Tenant C could own 30%.
There are no rights of survivorship with tenants in common; if one of the purchasers dies, their interest in the property belongs to the estate, unless otherwise specified in a will or other instrument that their property will be divided among the surviving owners.
Lesli’s co-ownership agreement
Once I decided I wanted to buy a home with a friend for stability and community, I knew I wanted independent living space with some shared outdoor space. I was open to different ownership shares but did have a preference for 50% which is how we structured it.
The agreement should also include other essential topics that are important to you, including:
A plan of how the property will be used
Expected contribution to repairs and maintenance
An agreed-upon decision-making process, including how to handle unexpected circumstances
A requirement that partners maintain appropriate levels of personal and life insurance
Exit strategies
It is also a good idea to include an indemnity clause which enables each partner to seek compensation for any losses caused by the negligence, misrepresentation or misconduct of one or more of the partners.
Learn more about the legalities of co-ownership from Ryan Martin from Aura LLP. See their blog and website for more information on Co-ownership.