A legal agreement can help avoid disputes when sharing ownership of a property

With rising property costs, pooling resources with friends to buy a home or sharing ownership of a cottage or rental property is an increasingly attractive option for many people. As co-owners, each person has a distinct interest in the piece of real estate, but no one can take unilateral action regarding the property.

However, disagreements can happen. For example, one person may say, “You’re spending more time at the cottage so you should be paying more for its upkeep.” Or one owner may want to take advantage of the increasing price of a property to make more money, but the other person doesn’t want to sell.

You will still need a lawyer to resolve the dispute so it’s important to protect yourself with a legal agreement. Whether you’re a first-time homeowner or an experienced real estate investor, documenting everything in writing is highly recommended.

Contract protects all parties

Much like a prenup for spouses entering marriage, parties who intend to purchase property together are encouraged to have a legal document that details the specifics around property ownership. These legal agreements dictate issues, including:

  • the expenses (such as maintenance and mortgage) associated with owning the property and how much you pay
  • your rights and responsibilities around the use of the property
  • if it’s a rental property, how long it will be rented and other issues around its management,
  • whether you take title as joint tenants or tenants-in-common (see below for more detail on the difference)
  • what happens when you or the other owner(s) wants to get out of the deal and sell
  • what happens if one co-owner dies or becomes bankrupt
  • a mechanism (such as mediation or arbitration) to deal with a disagreement between the owners.

The chief difference between joint tenancy and tenants in common is that joint tenancy is an undivided interest and comes with a right of survivorship. If one person dies, the other person automatically becomes the owner of the property.

With tenants in common, you keep your interest in the property. If you die, your portion of the property becomes part of your estate; the other person does not automatically become the owner. It is almost always recommended to have title on the property as tenants in common when you are buying second properties.

It’s important to take your time to set out the parameters for your real estate transaction and ongoing relationship with your co-owner. Otherwise, it could put a strain on your relationship or make disagreements difficult to manage.

Escape clause vital

You can make a co-ownership agreement when you purchase the property or at any time afterwards.

For such an agreement to be valid, it has to be in writing (as per the Statute of Frauds). It’s also highly recommended that a lawyer draft it so it’s tailored to reflect the specific needs, circumstances, and intentions of the owners. Any property co-ownership agreement should include an escape clause that will dictate how you get out of the ownership agreement and how the property will be evaluated.

Still, disputes can arise. People can get angry, and matters can end up in court.

In Gartree Investments Ltd. v Cartree Enterprises Ltd., [2002] OJ No 753, three sisters who each shared one-third interest in a property became involved in a dispute when one sister wanted the property sold. The other two offered to buy out the third for 115 per cent of an appraised value but the applicant refused. The Ontario Superior Court found that the only benefit to the applicant forcing an open-market sale was the personal satisfaction of imposing a result her two sisters didn’t want. The court held that the applicant’s position was vexatious and malicious.

In disputes where there is no co-ownership agreement, or you and the other owner(s) can’t agree to uphold the agreement, it’s best to get a lawyer as soon as possible.

Court-ordered property sales

You also need to know the proper valuation of the property. Sometimes, a property can be worth more than fair market value to you because of its sentimental value.

You want to find a lawyer who will work with you to get a negotiation going to resolve the disagreement before it goes to court. Often, you will have to issue an application under the Partition Act before people are serious about negotiating a settlement. If you can’t agree on how to deal with the property, either co-owner may make an application to the court under the Partition Act for a division of the land (known as “partition”) or a court-ordered sale of the property and division of the proceeds.

Legal disputes can be costly. Entering into a legal agreement with your co-owner(s) to put everything in writing is strongly encouraged.  It will assist with resolving disputes with the property later.  Even if you don’t have an agreement in writing, a lawyer experienced in handling property disputes can negotiate a settlement without having to litigate.