Co-Owning Canadian Real Estate: Advice From A Lawyer
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Brianna Frith

Brianna Frith

Author, Founder at Endhome

Have you ever thought about going in with a friend or family member on a mortgage? Buying with someone else is a great way to split costs and build equity faster. But it also comes with a lot of risks if you’re not fully prepared. Before you sign on the dotted line with someone else, make sure you go in with your eyes wide open.

Co-owning property can be rewarding, but it requires work. The keys to success are picking the right partner, setting clear expectations upfront, and protecting yourself legally with a rock-solid cohabitation agreement. If you follow these three rules, co-owning in Canada can absolutely work and set you up for financial success. But go in blindly, and you may end up with a property you can’t stand the sight of and a relationship you can’t repair.

The Pros and Cons of Co-Owning Canadian Real Estate

Co-owning property with someone else, whether family, friends, or acquaintances, has some great benefits. Splitting costs is a big one, making home ownership more affordable. You also have someone to share responsibilities with. However, co-owning also brings challenges that could damage your relationship if you’re not prepared.

The pros:

  • Split costs: Two incomes make a mortgage and expenses more manageable.
  • Shared responsibilities: Chores like maintenance, repairs, and property taxes are split between you.
  • Increased buying power: You may be able to afford a more expensive property together than you could individually.

The cons:

  • Disagreements: Conflicts can arise over usage, responsibilities, expenses, and eventual sale of the property. Clear communication and compromise are key.
  • Uneven contributions: If one party contributes more financially or in terms of responsibilities, resentment can build. A cohabitation agreement can outline each person’s obligations.
  • Life changes: Events like job loss, relationship changes or wanting to move can complicate things. You need an exit strategy in your agreement.
  • Legal issues: Without proper documentation, issues around ownership shares, inheritance and capital gains when selling can become problematic. Seek legal advice.

If you go in with realistic expectations, clearly outline responsibilities in a legally-binding cohabitation agreement, keep open communication and are willing to compromise, co-owning property can be a rewarding experience. But don’t hesitate to speak to a lawyer to understand your options and protect your interests. With the right safeguards in place, you can enjoy the benefits of shared home ownership without the strain on your relationship.

Finding the Right Co-Owner: Qualities to Look For

Finding the right co-owner is one of the most important decisions you’ll make. This person will share in responsibility for what is likely your biggest asset, so you want someone financially responsible, trustworthy, and compatible.

Look for a co-owner with a steady income and good credit. Someone with a stable job or income source and a solid credit history shows they can handle financial obligations well. This is key to affording and properly maintaining a property.

Find a co-owner you trust. Look for someone honest, reliable and follows through on commitments. You want a co-owner who will pull their weight, pay bills and costs on time, and not take advantage. Make sure you share similar values and priorities.

Seek out a co-owner with compatible living habits. If you’re buying a property you’ll both live in, look for someone with a similar standard of cleanliness and noise tolerance, and who shares your views on things like pets, smoking, guests, etc. Little lifestyle differences can become huge issues when sharing a space.

Discuss goals and expectations upfront. Make sure you and your potential co-owner want the same things from the property. Will you live in it, rent it out, renovate it, and resell it? Get on the same page about financial contributions, division of ownership, responsibilities, and what happens if either of you wants out in the future.

Taking the time to find the right co-owner can make the difference between a dream partnership and a nightmare. Do your due diligence, trust your instincts, and make sure you’re both committed to mutual success and maintaining a good relationship. With the right partner, co-owning can be very rewarding. But with the wrong one, it may not survive the first year. Choose wisely!

Creating a Comprehensive Cohabitation Agreement with Endhome
Get it in writing.

A cohabitation agreement, also known as a co-ownership agreement, is a legal contract that outlines how you and your co-owner will share responsibilities for the property. Without one, you’re leaving too much to chance. Verbal agreements often don’t stand up if a dispute arises or life circumstances change.

To create an airtight cohabitation agreement, use a service like Endhome. Some key things to include:

  • Ownership shares and division of equity. Will you split 50/50 or differently? How will equity be distributed if one party wants to sell?
  • Responsibility for expenses. Specify who pays for the mortgage, property taxes, insurance, utilities, repairs and maintenance. Divide based on ownership shares or another method.
  • Use of the property. Determine if either party can use the home exclusively at any time. Address notice periods and compensation.
  • Dispute resolution. Outline a process to resolve disagreements to avoid lengthy court battles. Consider mediation or arbitration.
  • Exit strategy. Discuss how one party can sell their share, buy the other out, or force the sale of the entire property. Address timelines, notice periods, and valuation methods.
  • Changing circumstances. Account for possibilities like job relocation, marriage, divorce, disability or death. The agreement should have contingency plans for different scenarios.

Creating a comprehensive cohabitation agreement upfront requires effort but will give you peace of mind in the long run. Be open, honest and willing to compromise with your co-owner. Think of it like a prenuptial agreement—not very romantic but essential. With the right safeguards in place, co-owning property can be a great experience. But do it carefully and make sure to get it in writing.

Establishing Shared Expectations Upfront
Discuss Expectations Early On

When entering into any co-ownership agreement, it’s vital to get on the same page about expectations right from the start. Sit down together and have an honest conversation about how you envision co-owning together. Some key things to discuss include:

  • How long you plan to co-own the property. Do you both want to live there long-term, or sell in a few years? Make sure your timelines align.
  • How costs will be split. Will you go 50/50 on everything, or base it on income or usage? Get specific about which costs are shared and which aren’t.
  • House rules and responsibilities. Establish some ground rules around things like guests, noise, chores and maintenance to avoid issues down the road. Discuss who will be responsible for what.
  • Contingency plans. Talk through what will happen if one person can no longer afford payments, wants out of the co-ownership, or in the worst case, passes away. Have plans in place to protect both parties.
  • Communication preferences. Determine how you will make decisions together and stay in regular contact about the property. It’s best to over-communicate, especially at first.
FAQs: Co-Owning Property in Canada

 

What are the benefits of co-owning property?

Co-owning property with someone else has several advantages. Splitting costs like down payments, mortgage payments, property taxes, and maintenance fees can make home ownership more affordable and accessible. You also get to build equity with someone else and share in the potential profits when you sell.

What are the risks and responsibilities?

While co-owning seems ideal, there are risks to be aware of. You’re both legally responsible for the home, so if one person stops paying their share or needs to sell, it affects you both. You’ll need an agreement to determine how costs, usage, and sale profits will be split. Without one, disputes can arise and damage your relationship.

How do we set up a co-ownership agreement?

A cohabitation agreement, also known as a co-ownership agreement, should be created with the help of a lawyer to outline each person’s rights and responsibilities. It will specify ownership shares, how costs will be divided, usage terms, dispute resolution, and sale or transfer terms. Get everything in writing to avoid confusion and conflict later on. Review and revise the agreement periodically, especially if life circumstances change for either party.

What happens if we want to end the co-ownership?

Ending a co-ownership requires following the terms outlined in your agreement. Typically, this involves one party buying out the other’s share of the home. If you cannot agree on a buyout, you may need to sell the home and split the proceeds. In some cases, you can go to court to force the sale of the property under partition law. It’s best to end a co-ownership on good terms if at all possible.

Co-owning property can be extremely rewarding if you go in with realistic expectations, shared goals, open communication, and a legally-binding agreement. Do your homework, think it through carefully, and get advice from professionals to make the experience positive for both parties.

 

Tenants in Common vs. Joint Tenancy

 

Tenants in Common

As tenants in common, each of you owns a specified percentage of the property, typically 50/50 or whatever you agree to. If one owner dies, their share goes to their estate and can be left to whomever they choose. As tenants in common, you each have the right to sell your share whenever you want. However, the other owner has the first right of refusal to buy you out. If they don’t want to purchase your share, you can sell it to someone else, but the new owner then becomes a tenant in common with the remaining owner.

  • Pros: Flexibility to sell or pass on your share as you choose.
  • Cons: Less stability as new owners can complicate the relationship.

Joint Tenancy

As joint tenants, you each own 100% of the property, together with the right of survivorship. This means that if one owner dies, their share automatically goes to the surviving owner, not their estate. Neither party can sell their interest without the consent and participation of the other.

  • Pros: Simplicity and continuity as ownership remains with the surviving owner.
  • Cons: Less flexibility as you can’t sell or pass on your share without the other owner’s consent.

No matter which way you go, make sure you have a cohabitation agreement in place that spells out all the details about responsibilities, expenses, dispute resolution, and what happens if one party wants or needs to sell. The co-ownership relationship can work well and be financially rewarding if you go in with realistic expectations, shared goals, and your eyes wide open. But without proper planning and documentation, co-owning property could turn into a co-owning nightmare. Do your homework and get professional advice to find the right option for your situation.

So there you have it, the keys to co-owning property successfully. Take your time finding the right partner, do your due diligence to qualify them, and have honest conversations about your expectations upfront. Put everything in writing in a legally-binding cohabitation agreement, discuss how you’ll handle finances and decision making, and check in regularly to make sure you’re both still on the same page. It’s not as simple as going half-way on a downpayment and mortgage, but if you approach co-owning thoughtfully, it can be a great way to get into the housing market and build wealth over the long run with someone you trust. The rewards of homeownership and financial freedom can be that much sweeter when shared with others.

For assistance with drafting a professional co-habitation agreement, or to hire a real estate lawyer to close your transaction and advise you on how to best protect your financial interests, contact us today!