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Buying A Home With Co-Ownership

Buying a Home with Co-Ownership

Post Series: Family Law

What is a Co-Ownership Agreement?

Two or more people often use a co-ownership agreement when they buy an asset together, like a house or land. It details the rights and responsibilities of each owner of the property, governing anything from the business relationship between the partners to the day-to-day management of the property. For those hoping to invest in real estate, accessing funds for a down payment and getting financing can be a major obstacle to breaking into the market, and a co-ownership arrangement can make home ownership more affordable. For this reason, it’s increasingly common for people to purchase real estate with a family member or business partner. If you are considering purchasing a shared asset, a co-ownership agreement can protect your, your investment partner, and your property. 

How Do Co-Ownership Agreements Work?

Co-ownership agreements will usually include details of the purchase, providing a record of who spent what on the property, preventing confusion should there be a legal dispute over the property in the future. They also describes in detail how the owners wish to manage the property. The co-ownership agreement legally binds the co-owners to perform the duties set out for them in the agreement, and if either owner breaches their responsibility, the other partner can hold them liable for the consequences of the breach.

Some common details co-owners include in their agreements are:

  • The size of share in the property each individual owner is entitled to (usually based on the initial monetary contribution of each partner);
  • How the property will be used (for example as a rental property, or for the owners to live in);
  • How the owners will hold title to the property (will they hold it in joint tenancy, or as tenants-in-common?);
  • How future decisions regarding the management of the property will be made between the partners;
  • The respective responsibilities of each owner, and what will happen if a partner does not perform their duties;

This list is not exhaustive, and it’s important to understand that each co-owner relationship is unique. Co-owners should have an agreement drafted to fit their specific needs in order to be as effective as possible.

What Are the Benefits?

Co-ownership agreements are especially essential when one of more of the co-owners are going to reside in the property.

When making a real estate purchase in partnership with a family or friend, some may feel that creating a legal agreement is unnecessary or might cause tension with their investment partner.  Of course, creating a contract with a loved one can be uncomfortable. However, it’s in everyone’s best interest to establish a co-ownership agreement.

A  co-ownership agreement serves as a guideline for owners, ensuring each person understands and is accountable for their responsibilities. This protects the owners from financial injury if one owner fails to uphold their responsibilities. The agreement can also act as a guideline if things go wrong in the management of the property. It can also help avoid confusion and disagreement between co-owners throughout their time owning the asset cooperatively. Detailed co-ownership agreements can be especially important when planning your estate, as there should be no question of what will happen to your portion of the co-owned property upon your passing in order to protect your beneficiaries and your co-owner from litigation after your death. Creating a co-ownership agreement is also an easy way to avoid confusion and frustration with your business partners.

Are There Risks to Making a Co-Ownership Agreement?

In general, the purpose of a co-ownership agreement is to mitigate risk for the partners, protecting them in the instance that their co-owner does not fulfill their responsibilities causing harm, financial or otherwise. The agreement also clarifies each partner’s rights over the investment, preventing future disputes. In this way, entering a co-ownership agreement is the best way to avoid risk when making a large purchase, though you should be certain that you will be able to fulfill your responsibilities according to the agreement, or risk being in breach of your co-ownership agreement.

When creating a co-ownership agreement, it is crucial that you are fully aware of its contents, and completely understand the responsibilities the agreement designates both to you and your co-owner(s). Your co-ownership agreement should be tailored to the unique needs of both the asset and its owners. If you’re looking to make an investment purchase with one or more other investors, or have already made said purchase without creating a co-ownership agreement, contact an experienced lawyer today to prepare you and your partners to protect your rights over the asset.

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