Co-ownership has become a reality for many looking to own property, especially cottages. It may be easier, more convenient, cost efficient or for estate planning. 

Regardless of the why, it is important to be knowledgeable about the possible implications and consequences co-ownership of property.

Before you sign on the dotted line, consider the financial implications 

Before entering co-ownership, it is crucial to be cognizant of the fact co-owners may be financially responsible for one another should default occur or debts arise. The co-owned property will be available to creditors of co-owners, and as such creditors may attempt to collect debts by encumbering the property or forcing a sale. 

When contemplating co-ownership, take time to reflect on the financial stability of those you would potentially share ownership with. If an individual is someone you know is financially unstable, either be prepared to shoulder the weight of the finances, or avoid co-ownership. 

Creating a co-ownership agreement 

An effective way to alleviate potential feuding in a co-ownership situation is to prepare a well thought out co-ownership agreement. This could help to mitigate or contain arguments and headaches down the road. When constructing an agreement, fully consider the beginning, middle, and end of the co-ownership.  

The beginning would include consideration of who are the parties involved; how much each will initially contribute; and how will title be held (more on that below). 

The middle would discuss aspects of how the co-ownership will function during its existence, such as when each co-owner will have use and access to the property; will ownership interests be transferable (and if so how); or how will the responsibilities and costs for maintenance, cleaning and upkeep be allocated. It may also be beneficial to consider how future decisions will be made: unanimously, majority or by one individual?

Finally, consider how co-ownership will end. Is there a specific end in sight, such as a specific date or upon a certain passage of time? If not, determine what will be the process if a co-owner no longer wishes to be involved or passes away. Contemplating a dispute resolution process and having a plan for disagreements (things such as a required cooling off period or mediation) may allow cooler heads to prevail at the time of conflict. 

Determining how the title will be held 

Title to co-owned property may be held as joint tenants or tenants in common. The main distinction being that joint tenancy carries a right to survivorship, so upon the passing of a co-owner, their interest in the property passes automatically and equally to all remaining co-owners. The transfer to the surviving co-owners is not required to be done through a will or estate, lessening Estate Administration Tax.

Tenant in common passes through the will or estate. So, upon passing co-owners can distribute their share as they choose. This form of ownership allows interest to be divided unequally among co-owners (we can co-own a property 30%/70%). While type of ownership has implications, so too does transferring type of ownership. Transferring to joint ownership, or transferring from tenants in common to a joint tenancy (except between spouses) may trigger income tax or land transfer tax implications.

Severance of co-ownership 

A significant – yet often unknown – element of joint tenancy is that is can be severed without the consent or even the knowledge of the other joint tenants. When this occurs, the ownership reverts to tenants in common and right of survivorship is removed. This severance may be done through unilateralactions of a co-owner. 

If a co-owner sells or transfers their interest in the property, the joint tenancy is severed. This severance occurs regardless of whether the other co-owners were aware of or consented to the sale, or transfer. The severance is automatic, irrespective of whether or not the other co-owners knew about, consented to, or wanted a severance of the joint tenancy. Severance may occur automatically if a property is owned in joint tenancy between two non-spouses and becomes the matrimonial home for one co-owner. If the co-owner passes away, the joint tenancy will change to tenants in common to protect the matrimonial home for that co-owner’s surviving spouse. 

Co-ownership is a reality when it comes to property. It is therefore essential individuals are aware of the implications and consequences.  To establish a mutually beneficial relationship, it’s best to consult a lawyer for drafting a co-ownership agreement and to gain an understanding of all co-ownership entails. 

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