A Breakdown of the Shared Ownership Agreement
A co-ownership agreement refers to a legally valid document that is created by at least two parties sharing ownership over a single piece of property. Considered a fairly complex legal subject, the co-ownership agreement has a wide range of formalities that vary from state to state. In most cases, each party splitting ownership of a particular property will need to remain in control over their respective piece of a property. Should a given property be sold or registered , both parties will have to provide their consent for the sale or registration before completion is rendered. Co-ownership agreements are vital for maintaining the accountability and responsibility concerning the rights and liabilities of all individuals who share ownership of a given property. Such agreements are also important in cases where one or more individuals involved in a co-ownership relationship want to divide and make their respective shares of a given property available for sale. Without a co-ownership agreement, the process of dividing the property into pieces offsets any chance that partial owners of a piece of property will gain a return on their original investment.
The Essential Components of a Shared Ownership Agreement
Co-ownership agreements should contain the following elements to ensure the smooth ownership, operation, and exit of the property:
1. Percentage of Ownership in the Property
This will dictate any income or expenses pertaining to the property, as each owner will be responsible for the payment of his/her percentage of taxes and utilities relating to the property. Each owner will also receive his/her share of the rents or profits from the property.
2. Term of Co-Ownership
How long will the parties own the property? Is the agreement effective until the debts relating to the property are repaid? Or does the co-ownership extend as long as the parties vacate the property? If one party is a creditor (secured or unsecured), this is especially important as such party will be made whole following the expiration of the co-ownership agreement.
3. Decision-Making
What decisions must be decided by a majority? Can a minority make certain decisions? Minor decisions should be delegated to management, or to the property owner himself. Major decisions such as refinancing or site improvements require the consent of all parties.
4. Management
Who will manage the property? Will there be an onsite manager or will a firm manage the property if required? If the owner will manage the property himself, he must determine how much time will be allotted to property management annually. If the owners hire a property manager, the frequency of contact and correspondence must be considered.
5. Sale of Property
A co-ownership agreement should detail the process by which the property can be sold, and explain whether an owner can sell his portion of the property without the consent of other owners.
6. Decision-Making in the Event of a Default
If an owner defaults, the other owners will have numerous options.
7. Defaults
An owner who defaults will have two major consequences. First, his interest in the property will become security for the debt owed to the other owners, who may foreclose on his interest in the property. Second, the defaulting owner will not have a say in the decision-making of the property, and so he will lose his proportionate share in the benefits and privileges of being an owner. For example, if the property is generating income, the defaulting owner will not receive any income until he makes his default payments.
8. Federal Disclosure Requirements
If a buyer is purchasing the property with an owner financing the purchase price, certain federal disclosures must be provided. In addition, if the property is to be rented, landlords must provide tenants with certain disclosures.
Typical Scenarios Calling for a Shared Ownership Agreement
While plenty of people enter into verbal or informal arrangements to co-own a property, business or asset, they are usually surprised at how complicated the arrangement becomes or how well that matters when it is time to dissolve that partnership. A formal co-ownership agreement can simplify many of the common situations that arise with co-ownership. Some of the most common real estate co-ownership situations where you should use a formal co-ownership agreement include:
Business Partnerships
When two or more people decide to undertake a business endeavor together, it’s helpful to have a co-ownership agreement to prevent decision-making disagreements or other issues. You may also have skills that complement each other, and it’s important to put those in writing. The agreement can specify how control will be divided between owners, whether one owner can buy out the other or gift his portion to someone else and how business affairs will be managed even after one of the partners dies.
Joint Accounts
You may want to open a joint account with someone to manage funds for a vacation property, estate planning purposes or a shared savings project. A co-ownership agreement is helpful here to clarify how the funds can be used, who can deposit or withdraw money and how the funds can be dissolved when the joint ownership is no longer needed.
Property Management Companies
As demand increases for rental properties, many homeowners assume the role of landlord for income properties while hiring property management companies to handle the day-to-day details. The property management company may expect to earn a share of the profits, but it’s important to define this in a co-ownership agreement.
How to Write Up a Shared Ownership Agreement: Sample Template
A co-ownership agreement should be documented as a separate legal document. The following is a sample/template for co-ownership agreements, which can be tailored to suit individual circumstances. It is important to note that any co-ownership agreement should also incorporate the particular rules of any applicable not-for-profit housing corporation or condominium corporation. Specific wording will be required in the co-ownership agreement to ensure that it is valid and enforceable.
AGREEMENT TO CO-OWNERSHIP
BETWEEN: A Co-Owner
-and-
B Co-Owner
(and so on, as applicable)
THIS AGREEMENT dated this ______________ day of ____________, 200_.
BETWEEN:
A CO-OWNER
AND
B CO-OWNER
I. COMPANIES
1. A Co-Owner
a) A Co-Owner, at its sole cost , will use its best commercial endeavours to obtain all approvals from authorities having jurisdiction over the property and to obtain the approval of any mortgagee of any co-owner, as may be necessary, for the granting of easements and other entitlements to A Co-Owner to permit the performance and completion of the renovations and the performance of any work on the property.
b) A Co-Owner agrees to cancel any applications for food or beverage licenses expanding beyond the limits of its co-owned premises (and to pay all costs incurred in association with such applications).
c) A Co-Owner agrees to vote the common shares of any subsidiary owned by it (or any company owned directly or indirectly by its approved joint venture partner) in favour of its approved joint venture partner upon request.
The Legal Background to Consider: Tips
There are numerous legal considerations that come into play with co-ownership agreements. Many people tend to forget that such contracts are legally binding and can be enforceable in a court of law, depending on each specific set of circumstances of a contract. The first step, of course, is to draft a strong and legally binding contract. This involves more than just writing it down on a napkin and both parties sign. Here are a few tips:
- Have an attorney review the contract to ensure that all components of the contract are there.
- Make sure all parties fully disclose assets and any other relevant information that could impact the co-ownership.
- Research the laws in your state to make sure you abide by all state laws.
No matter where you live, there are laws governing the formation and enforcement of all kinds of contracts . A co-ownership agreement is similar to other contracts, but there are some unique issues that relate to its nature as a property contract. Every state has unique laws and regulations that govern the enforcement of contracts, property ownership, and transferring of property among different types of owners.
Generally, the agreements outlined above form a contract between the co-owners. Agreements regarding real property may be subject to certain requirements that depend in part on real property law. For instance, agreements that are created to transfer property typically need to be in writing and signed by the party transferring the property and capable of being proved in court or acknowledged by the transferring party. State law and the status of the county where property sits may dictate whether some agreement needs to be recorded to be enforceable. The failure to complete the proper paperwork can impair the enforceability of an agreement.