What Is A Property Co-Ownership Agreement?
Property co-ownership agreements are legal documents drawn up between two or more people who live in the same property. Their purpose is to determine what will happen to the property and to the financial assets within it, if one owner has to leave.
We understand it’s not an area many people like to think about. But draw up an agreement while the relationship is strong and it can actually make a troubled relationship run a bit more smoothly. It might seem a little morbid to discuss how you’ll divide assets in case of death or a break-up , but think about it like this – you’d make sure you have a will in place. This is just your will for the house you share.
Buying a house with someone is an enormous commitment. It’s probably the biggest financial outlay you’ll make in your life. That’s why it’s important to put the right agreements in place. It may even be the case that you’re dividing the property into separate portions or letting the other party rent a portion out in a self-contained apartment in their home.
A good property co-ownership agreement will protect all owners and their respective financial interests. It should include a statement of how the property is to be divided and how the profits will be shared as well as set out the procedures to be followed if you want to sell the property or share the costs of any major repairs or renovations.
We’ve linked a free download at the top of this post, which when downloaded will give you an overview of property co-ownership agreements that we use at HW.
We’re happy to answer any questions you have regarding property co-ownership agreements.
Crucial Contents Found In A Co-Ownership Agreement
A property co-ownership agreement is drafted to prevent disputes, which can be a costly and unpleasant experience. At the same time, it is accepted that carrying an agreement prepared in relation to specific transactions may not be the most suitable for each deal. This is because the facts and situations that can arise are endless; so an agreement will have to be adapted to suit the particular circumstances.
There are however some key elements that even for the most unusual of circumstances should be included.
Ownership and Contributions – This will usually set out the split between the co-owners with reference to any contributions made towards the purchase. If there is a monetary imbalance then this can be rectified by the parties entering into a formal loan agreement, but in the absence of this the co-ownership agreement can include if the "favoured" party is to pay interest at a particular rate; and if so, when the capital is to be repaid (perhaps on demand or perhaps on the sale of the property).
Responsibility – Who is going to deal with the day to day running of the property and any management needed: including taking decisions, appointing agents and contractors and giving instructions to managing agents? It is important that as far as possible a consensus and set process is followed to avoid arguments later.
Major Decisions – If the parties decide after negotiating the initial purchase of the property to make any further material alteration, then the agreement should provide for each party’s consent to be obtained. To what extent any expenditure needs to be agreed in advance will depend on how much the parties trust each other to spend funds sparingly: a standard provision may be for each party to consent to budgeted spending with over spending requiring agreement. A cap on spending may also be included.
The Lenders – Where a mortgage is involved, the co-owners can agree whether the property should be equally and jointly bound and what the consequences are if one of the parties is unable or unwilling to enter into the mortgage as a result of their financial position (not necessarily directly connected to the property). A situation may also arise for example where the property has been inherited by one party and he or she does not have the means to go on the mortgage. The parties can agree, if they want, that the uncommitted party can be named on the mortgage and in effect guarantees. This can also be the case with joint owners and partners who are unable to satisfy the lenders criteria.
Termination – In the absence of a fixed term, either party can make a written demand on the other to agree to a sale or buy out at a specified interval. After this intervention if the parties cannot agree then recourse to the Court will be necessary.
Insurance – Consideration should also be given as to how the different parties will be responsible for their own contents insurance.
Benefits Of Having A Co-Ownership Agreement
For all its advantages, it is just not possible to rely on handshake property deals. A more formalised property co-ownership agreement is essential to help avoid any problems that may arise in the future between co-owners. This information sheet explains the key advantages of having a property co-ownership agreement in place.
Clarity
Shows exactly what your share of the property is
There is clarity when it comes to the ownership of the property and your respective rights and obligations. This agreement can be particularly useful for buy-to-lets, where there are multiple owners. If you bought the property separately and are bringing together your interests under a new ownership structure, it is essential that this agreement is used. You also need to consider the case of the property being in a different name to how you thought it was. If you attempt to sell the property, make improvements or otherwise deal with the property, uncertainty over who actually owns what could be problematic.
Legal protection
Protects your interest in the property
If there is a legal dispute in respect of the property (either with a third party or with your fellow co-owners), the agreement will help to resolve. The agreement will be enforceable by all co-owners against each other and can be used as evidence in court.
Resolve disputes
A co-ownership agreement sets out clearly what you can and cannot do, and therefore helps to avoid conflicts arising. For example, when it comes to making changes to the property, it is crucial that all owners agree to the lease extension, mortgage or development.
Clarity regarding disputes
Details issues that need to be dealt with in the future
The agreement enables you to agree in advance how you will deal with future disputes. For example, if you want to sell the property and one owner explicitly does not, you can agree how to resolve future disputes.
Leave matters to trustees
Trustees appointed to make the decisions you cannot agree on
You can leave some matters to the decision of a small number of jointly-appointed trustees to avoid deadlock. This could be particularly useful when dealing with a deadlock where one owner wants to sell and the other does not.
Avoid future claims
Unambiguously protects ownership and your respective shares
If an owner was to die or become bankrupt, this agreement would clearly set out their interest in the property.
Disadvantages of Not Having A Co-Ownership Agreement
Property co-ownership can seem like a great idea. But without a formal written agreement, there are several risk factors and potential landmines in the sand that can turn a friendly venture into an expensive dispute.
Here are some of the potential pitfalls of going into property co-ownership with your partner without a suitable co-ownership agreement:
- You don’t know whether you will still be together in 10 or 20 years. That’s why most people entering into a cohabitation relationship have no idea whether they’ll still be together in a couple of years. And it’s much the same with property co-ownership. You can take your chances on the likelihood of still being together in future, but if you’d like to be a little more prudent than that, you should at least have a plan in place to deal with the outfall.
- You don’t know what type of relationship you’ll be in when you finally sell. What will happen if one of you wants to sell, but the other does not? Or if you both want to leave but can’t because neither of you can afford to buy the other out or meet the mortgage repayments on your own? If you’ve ever tried to subdivide a joint business venture with partners you didn’t know well, these risks will ring true to you.
- What if the business relationship breaks down? Or – worse fate – if the personal relationship breaks down, what happens to the property investment? In most situations, when an estate is settled, the property owned by the spouses goes to the surviving spouse (usually even if they were estranged). But in this case, it might not. The last thing you want is to find yourself in a co-ownership agreement with your ex-partner or divorced spouse you don’t get along with.
Co-ownership brings with it a lot of responsibility and risk. Without an agreement in place specifying how arrangements will be managed when something out of the norm occurs, you could be faced with having to sort out an expensive legal dispute.
Downloading A Property Co-Ownership Agreement PDF
Obtaining a reliable property co-ownership agreement in PDF form is essential for legally documenting property co-ownership arrangements. Luckily, there are a few key steps to help you find and download an appropriate APA agreement, completely free of charge. The first task is to commence your search for a reliable APA agreement on the internet. By typing relevant keywords into your search engine of choice and browsing through some of the results, you can easily find an appropriate PDF file for download. Keep a close eye out for files that are labelled correctly and formatted like a traditional APA template . A PDF format is essential, as this will allow for easy editing and printing once you fill out all required details. If it is not a PDF format, simply continue browsing through other results until you find a workable one. Once you think that you have found a reliable agreement, ensure that you read the entire document thoroughly to avoid selecting something that could cause legal issues down the line. It is also important to always ensure you obtain the document from a reputable source, which includes commercial websites as well as independent law firms and online publications that specialize in legal documents.
Making Changes To Your Co-Ownership Agreement
In addition to the provisions described above, many co-ownership agreements will include additional clauses which may or may not be appropriate for every co-ownership situation. For example, provisions governing the right of first refusal could be included in co-ownership agreements involving family members or perhaps friends who want some assurance that the other co-owners would first have the opportunity to purchase the interest of a selling co-owner before the interest is offered to a third party.
Particular care must be taken when drafting other clauses in the co-ownership agreement. These clauses may require closer consultation with a professional than is sometimes the case when reviewing the above clauses. Some examples are as follows:
• When one co-owner is to be the property manager, what specific powers and responsibilities does he or she have?
• How are the financial records to be kept, and what obligations do the owners have to each other concerning reporting on the state of the finances?
• What happens in the event of the death of one or more co-owners? Do some of them have the right to purchase the shares of the others, or what is their right to sell their shares when they find themselves unable to co-own with the remaining co-owners?
• How are disputes to be handled among the co-owners, whether as to financial matters or as to the use or management of the property? What happens if the co-owners are not able to resolve their dispute, or if one or more co-owners refuses to be involved in mediation or arbitration proceedings?
• Are there specific limitations on the ability of the co-owners to improve the property, or is no improvement of the property permitted? What consent is required for such improvement?
• If the property is to be rented out, what restrictions do the co-owners wish to place on the rights of tenants to participate in proceedings concerning the property?
• Should the agreement contain any "non-compete" clauses or any "non-competition" clauses so that any of the owners agree that they will not independently compete with the business being operated by the corporation or, if corporate, the joint venture?
• In the event that the co-owners are going to run a business from the property, will all of the co-owners be engaged in the business? If not, what type of provisions need to be made to ensure that the business is operated in accordance with legal requirements (such as licensing requirements) while still allowing the co-owners to enjoy the property?
• If foreign nationals are involved as co-owners, particular care should be taken to address the various immigration, tax and other legal consequences to the foreign nationals in the event of a disposition of a share in the property.
Legal Considerations And Where To Get Help
If you are considering entering into a co-ownership arrangement then a legally drafted co-ownership agreement is the best way to protect your interests. This is particularly true if you are purchasing property with a spouse or in-laws. These relationships can be complicated. Most people don’t foresee the concerns which can arise once a happy purchase is finalized. A co-ownership agreement should set out how the co-owners will share costs and responsibilities relating to property they own together. A simple co-ownership agreement can deal with such things as: It is particularly important to have a co-ownership agreement where the parties are registered on title as tenants-in-common (meaning that in the event either dies , their share goes to their estate and not the other co-owner). A co-ownership agreement can also set out how ownership interests in the property are to be disposed of if parties wish to sell, including how profits or losses are to be divided.
There are other legal aspects to be considered when you are buying and co-owning property as well: This is an area where you should get legal advice in order to plan for unexpected events. A joint ownership of property, particularly a residence, is a common cause for litigation between family members or others over succession issues, operation costs and the very title to the property.