Co-Ownership Becoming Popular

As house prices and interest rates continue to rise, and millennials despair of ever being able to afford a house, the idea of sharing the cost of buying real estate is becoming more and more attractive. On the surface the idea is very appealing – pool your resources with one or more friends and you can become part owner of a house & share in the growth of equity over time. The idea is also becoming appealing to retirees whose resources are limited and who would prefer not to rent.

There is no question that co-ownership can work financially. In practice, however, there can be myriad problems with these arrangements. For example, what if one of the co-owners wants out, either for financial reasons or because he/she is moving out of the area — and the other owner(s) don’t agree? Recognizing that people and circumstances can change in unpredictable ways, it’s important to set out some sort of exit procedure right at the outset and have all the co-owners sign on to it. Also, how will the maintenance of the building and individual units be managed? Who is going to be responsible for what? Again, setting out an agreed-upon ‘property management’ strategy is critical. Similarly, dispute resolutions procedures are also needed, as differences will inevitably arise among even the closest of friends.

If the shared property has multiple units, each of which is to be used by one of the co-owners, there can be additional problems. Rarely will all of the units be identical in size, condition, etc, so how should the total purchase cost be apportioned among the partners? Some objective way of assessing the relative value of each unit will be needed. Further, the majority of small multi-unit properties in Toronto are converted single family homes that do not fully comply with zoning, building code and/or fire code requirements. What happens if the buildings department comes calling and requires that one of the units be eliminated because it cannot correct the deficiencies?

Well established co-ownership structures such as co-ops and condominiums have worked out many of these issues on a larger scale and can serve as models for setting up simple contracts among small groups of co-owners. Consider hiring a lawyer to structure these contracts to anticipate as many of the potential pitfalls as possible. A small amount of money invested at the outset can save a lot of strive and legal costs later.

Properly structured, co-ownership can offer a ‘have your cake and eat it too’ solution to the problems of decreasing home ownership affordability. Just be sure you’ve thought it through completely before you sign on the dotted line.