Hello dear readers,
In my most recent post, I spoke about the Ins and Outs of buying a newly constructed property. Most of the time, newly built properties refer to Divided Co-Ownership (more commonly known as “Condo Projects”). But what about the other side of condo life – more specifically, what about the world of Undivided Co-Ownership. Before I start, I think it is important to advise you all that undivided co-ownership is not the simplest topic to tackle in a blog post, so I will not even try to go into the real technical and detailed aspects of it. The field of undivided co-ownership can be so vast and technical that many legal professionals devote their entire careers to it.
Therefore, I will focus on the bigger picture regarding Undivided Co-Ownership – the main differences and similarities with divided co-ownership, the advantages, disadvantages, etc. I hope you find it of interest and, as always, if you would like more information, you can feel free to comment or contact me directly.
1. Undivided vs. Divided Co-Ownership – same thing?: In a word, NO. Here are some of the main differences between divided and undivided co-ownership:
- One property, many owners: Undivided co-ownership refers to one property owned by different people. Each owner would therefore have a certain percentage in and to the entire property (based on the amount he/she put in or the square footage of the part of the property he/she is occupying, or even based on whatever all the co-owners originally agreed upon). Let’s take the classic example of a Duplex in which the top part is owned by one person and the bottom part is owned by the other. Even though these parts may have different addresses, the duplex is still considered to be one property because it has not been divided into different lots (when I refer to “lots” I am referring to the numbers attributed to specific properties at the Registry Office and on which all deeds pertaining to the property are published – i.e. Deeds of Sale, Deeds of Hypothec (mortgage), etc.). This is an important distinction because, as opposed to divided co-ownership, undivided co-owners are joint owners of the same property and neither has a full right of ownership over the entire property. That being said, each co-owner has the right to sell or rent his/her percentage in and to the property, but there may be certain conditions in the Indivision Agreement, which we will look into further down.
- Determination of each co-owner’s share in and to the property: As already mentioned, undivided co-owners have a specific percentage in and to the property because the property has not been formerly divided into different lots. This percentage needs to be decided between the co-owners at the time of the purchase or at the time the indivision is created. This is very important to keep in mind because the law states that undivided co-owners are considered to own the property 50/50, unless otherwise decided upon by the co-owners. Therefore, in the absence of a clause in the Deed of Sale or in the Indivision Agreement (like I said, more on this further down) stating each co-owner’s respective percentage in and to the property, they will be considered to own the property in equal proportions– regardless of the higher financial contribution of one co-owner vs. the other and regardless of the actual square footage of the part being occupied by one of the co-owners, etc.. For example, a couple in a common law relationship decide to purchase a home together. They are both listed as purchasers on the Deed of Sale but only one of them has actually contributed to the down payment for the purchase of the home. If there is nothing written in the Deed of Sale regarding each person’s respective shares in and to the property, it will be assumed (by law) that both are 50/50 owners of the Property. In fact, common law couples who are looking to purchase a home together should consult their notary about drafting a cohabitation agreement (more on this further down). Let’s take a more classic example now: a triplex is bought by three people and they each have the intention to occupy a unit each. One of the buyers puts half of the money down for the purchase and the other half is payed equally by the other two. They have agreed to this payment scheme because the first purchaser wishes to occupy the ground floor unit, which is approximately twice the square footage of the other two units. An indivision agreement (don’t worry, explanations are on their way) would need to be drawn up in order to establish each co-owner’s respective share in the property or it would need to be stated in the Deed of Sale that the first buyer shall own 50% of the property and the other two shall own 25% each. Otherwise, if there is no mention either in either the Indivision Agreement or in the Deed of Sale, all three will legally be considered to own 1/3 each.
- Indivision Agreement: An Indivision Agreement is usually drawn up when the indivision is created in order to establish a set of rules, regulations, in order to establish each co-owner’s respective percentage in the property and the area which they shall be occupying it, the use of the property, etc. This agreement will be published on the property and is used primarily in situations like the one stated above regarding the Triplex (three different owners wish to buy a triplex and occupy a unit each). By virtue of this agreement, each co-owner will be capable to sell their share in the property (i.e. the top floor unit) without any problems. That having been said, it is often a condition in the Indivision Agreement that the other co-owners shall have a right of first refusal meaning that the co-owner who wishes to sell his/her part of the property will need to offer it to the other co-owners before selling it to a third party (and/or when one of the co-owners receives an offer, he/she will have to offer their share to the other co-owners, at the same terms and conditions as stated in the offer). Indivision Agreements can vary somewhat, but they are necessary in these types of situations. They are also required by the Banks, if you are looking for financing and banks will require that some specific clauses be included in the Indivision Agreement, in order to ensure that their rights are protected. Needless to say, it is paramount that the Indivision Agreement be examined as part of your due diligence when looking to buy a property held in Undivided Co-Ownership.
2. Financing from the Bank: in principle, all banks will provide financing for the purchase of a property. However, in Quebec, only the National Bank and the Caisse Populaire provide financing to individuals wishing to buy in undivided co-ownership. This is also something to keep into consideration.
3. Common law couples looking to buy a home together: I touched on this subject a bit further up, but I will take some time on this issue as I believe it is a very important point of discussion (especially considering the status of common law couples in Quebec). While we can think of the classic cases of indivision such as a multi-unit home is owned by different people (the abovementioned triplex example is classic), it is important to note that indivision is created from the moment two or more people purchase a property together. As such, if you are looking to purchase a home with your common law spouse, it would be important to speak with your notary about a Cohabitation Agreement. As opposed to the Indivision Agreement, the Cohabitation Agreement is specific to couples purchasing a home together and wishing to establish :
- their respective shares in and to the property;
- each person’s contribution to the downpayment;
- how expenses shall be divided amongst the couple (i.e. groceries, mortgage payment, etc.);
- what will happen in the event both no longer wish to live together;
I have spoken about this issue in previous blog posts, but I think that it is important to reiterate that common law spouses do not have the same rights as married couples. As such, I believe it is extremely important to draw up a cohabitation agreement and if you feel it is too expensive at the time, at least speak with your notary about establishing each person’s percentage in the property (in the event you wish the shares to be different from 50/50).
I hope that this blog has been informative. As previously mentioned, there is no way that I can tackle the whole issue of undivided co-ownership in this one blog post and there are many more intricacies involved. My main goal was to give some broad information on the topic and open your eyes to some of the things you should be aware of when looking to buy a property in undivided co-ownership.
As usual, please feel free to post any comments you might have.
Have a great week everyone!