Develop a legal contract (co-ownership agreement)
This section covers what you should include in a co-ownership agreement. Buying a home with other people is a big commitment – both financially and in the ways you will live together. You will be making decisions and sharing responsibilities to care for the property.
Establishing a legal agreement between the co-owners provides clarity about the rights and obligations of co-owners and protects everyone in the case of disputes. This type of agreement is called a co-ownership agreement.
Co-ownership agreements may support your application to a financial institution for mortgage financing. To make sure that the agreement is properly prepared, you should get professional legal advice.
Ownership structure and decision-making process
Ownership can include tenants-in-common, joint tenants and ownership through a corporation. There are additional steps to set up a corporation, co-operative corporation or condominium corporation.
In the agreement, co-owners set out the decision-making process everyone will follow, which can include :
- voting based on equal shares or varying percentage shares
Use of the property
This determines how indoor and outdoor common spaces are used, including designating common areas and each co-owners’ private space.
You can also include rules that address :
- use of the property by guests
- use of property by potential new residents (for example, if a co-owner forms a new relationship)
Financial and insurance arrangements
This includes :
- mortgage and property tax payments
- sharing and paying operating expenses
- funding major repairs and renovations
- how co-owners will maintain needed insurance
Home operation and upkeep
This includes clarification of responsibilities for :
- financial contributions
- work and time commitments
Co-owner negligence or misconduct
This could include rules allowing co-owner(s) to seek compensation if there is negligence or misconduct by another co-owner, such as :
- breach of the co-ownership agreement
- misuse of money held in a common account for home operating expenses
These provisions cover alternative dispute resolution (for example, mediation or arbitration) as a way to avoid lengthy and costly court cases.
Clear procedures must be in place when a co-owner leaves the co-ownership arrangement and when new people enter. Rules for people entering the arrangement could include the role of other co-owners in approving a potential new co-owner.
These provisions can provide a process for :
- new individuals or families to enter
- how to leave the co-ownership arrangement
- what to do in the event of the death of a co-owner
- determining fair market value for a co-owner’s share and/or house
This also includes rules about what to do about an existing co-owner’s share of the house. For example, the share may be purchased by remaining co-owners or a third party, or you may want to sell the house and end the co-ownership arrangement.